Question 1

All banks are required to join the Fed.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following provides the best explanation of why money is valuable?

Accepted Answer

A)  Money is valuable because it is indivisible. 
B)  Money is valuable because it is scarce. 
C)  Money is valuable because it is backed by precious metals, primarily gold and silver. 
D)  Money is valuable because it has intrinsic value, independent of its use as a means of exchange. 
A)  Money is valuable because it is indivisible. 
B)  Money is valuable because it is scarce. 
C)  Money is valuable because it is backed by precious metals, primarily gold and silver. 
D)  Money is valuable because it has intrinsic value, independent of its use as a means of exchange.

Question 3

The Monetary Control Act of 1980 extended the Fed's authority to:

Accepted Answer

A)  impose required-reserve ratios on all depository institutions. 
B)  control the discount rate. 
C)  control the federal funds rate. 
D)  all of the above. 
A)  impose required-reserve ratios on all depository institutions. 
B)  control the discount rate. 
C)  control the federal funds rate. 
D)  all of the above.

Question 4

Unused lines of credit on credit cards are part of M2.

Accepted Answer

A) True 
 B)False

Question 5

The Federal Reserve's most important function is to change the money supply in order to smooth out the business cycle.

Accepted Answer

A) True 
 B)False

Question 6

Gold is a perfect medium of exchange and measure of value because of its:

Accepted Answer

A)  divisibility, portability, and homogeneity. 
B)  divisibility and durability. 
C)  durability and relative scarcity. 
D)  durability and homogeneity. 
E)  divisibility, durability, and relative scarcity. 
A)  divisibility, portability, and homogeneity. 
B)  divisibility and durability. 
C)  durability and relative scarcity. 
D)  durability and homogeneity. 
E)  divisibility, durability, and relative scarcity.

Question 7

Which one of the following is the largest component of the money supply (M1)in the United States?

Accepted Answer

A)  Checkable deposits. 
B)  Gold certificates. 
C)  Credit cards and traveler's checks. 
D)  Federal Reserve notes. 
A)  Checkable deposits. 
B)  Gold certificates. 
C)  Credit cards and traveler's checks. 
D)  Federal Reserve notes.

Question 8

The difference between M1 and M2 is given by which of the following?

Accepted Answer

A)  M1 includes currency, coins, gold and silver, whereas M2 does not contain gold and silver. 
B)  M1 is made up of currency, traveler's checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits and time deposits. 
C)  M1 is limited to currency, whereas M2 contains M1 plus traveler's checks and money in checkable accounts. 
D)  M1 includes currency and traveler's checks, whereas M2 contains M1 plus money in checking accounts. 
A)  M1 includes currency, coins, gold and silver, whereas M2 does not contain gold and silver. 
B)  M1 is made up of currency, traveler's checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits and time deposits. 
C)  M1 is limited to currency, whereas M2 contains M1 plus traveler's checks and money in checkable accounts. 
D)  M1 includes currency and traveler's checks, whereas M2 contains M1 plus money in checking accounts.

Question 9

The Federal Reserve System is run by the President of the United States.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following assets is the most liquid?

Accepted Answer

A)  Money market mutual fund shares. 
B)  Certificates of deposit. 
C)  Dollars. 
D)  Passbook savings deposits. 
A)  Money market mutual fund shares. 
B)  Certificates of deposit. 
C)  Dollars. 
D)  Passbook savings deposits.

Question 11

M2 money includes all but which one of the following?

Accepted Answer

A)  Checkable deposits. 
B)  Savings accounts. 
C)  Large repurchase agreements. 
D)  Money market mutual accounts. 
E)  Small time deposits. 
A)  Checkable deposits. 
B)  Savings accounts. 
C)  Large repurchase agreements. 
D)  Money market mutual accounts. 
E)  Small time deposits.

Question 12

The Federal Reserve System was created by an act of Congress in 1933 in an effort to end a wave of bank failures brought on the Great Depression.

Accepted Answer

A) True 
 B)False

Question 13

The money supply known as M2:

Accepted Answer

A)  includes large denomination time deposits. 
B)  excludes interest-earning checking accounts in savings and loans. 
C)  does not include money market mutual accounts. 
D)  includes savings accounts and small denomination time deposits. 
E)  includes large denomination repurchase agreements. 
A)  includes large denomination time deposits. 
B)  excludes interest-earning checking accounts in savings and loans. 
C)  does not include money market mutual accounts. 
D)  includes savings accounts and small denomination time deposits. 
E)  includes large denomination repurchase agreements.

Question 14

The exchange of one good for another,without the use of money,is known as:

Accepted Answer

A)  acquisitive exchange. 
B)  liquidity. 
C)  volatility. 
D)  barter. 
E)  currency. 
A)  acquisitive exchange. 
B)  liquidity. 
C)  volatility. 
D)  barter. 
E)  currency.

Question 15

Which of the following groups oversees and administers the Federal Reserve System?

Accepted Answer

A)  The House of Representatives. 
B)  The President's Council of Economic Advisors. 
C)  The U.S. Treasury Department. 
D)  None of the above, the Fed is an independent agency. 
A)  The House of Representatives. 
B)  The President's Council of Economic Advisors. 
C)  The U.S. Treasury Department. 
D)  None of the above, the Fed is an independent agency.

Question 16

Barter is a system of exchange that does not depend on a coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 17

M2 is equal to M1 plus:

Accepted Answer

A)  savings deposits, money market deposit accounts, small time deposits, and eurodollars. 
B)  savings deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
C)  small time deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
D)  savings deposits and small time deposits of less than $100,000. 
E)  money market mutual funds, money market deposit accounts, savings deposits, large time deposits, and repurchase agreements. 
A)  savings deposits, money market deposit accounts, small time deposits, and eurodollars. 
B)  savings deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
C)  small time deposits, money market deposit accounts, money market mutual funds, and eurodollars. 
D)  savings deposits and small time deposits of less than $100,000. 
E)  money market mutual funds, money market deposit accounts, savings deposits, large time deposits, and repurchase agreements.

Question 18

Anything can be money if it acts as a:

Accepted Answer

A)  unit of account. 
B)  store of value. 
C)  medium of exchange. 
D)  All of the above must be correct. 
A)  unit of account. 
B)  store of value. 
C)  medium of exchange. 
D)  All of the above must be correct.

Question 19

The Monetary Control Act of 1980:

Accepted Answer

A)  allowed savings and loan associations to offer checking accounts. 
B)  allowed more institutions to offer checking account services. 
C)  created greater competition among various financial institutions. 
D)  all of the above. 
E)  none of the above. 
A)  allowed savings and loan associations to offer checking accounts. 
B)  allowed more institutions to offer checking account services. 
C)  created greater competition among various financial institutions. 
D)  all of the above. 
E)  none of the above.

Question 20

The M1 definition of the money supply includes:

Accepted Answer

A)  coins and currency in circulation. 
B)  coins and currency in circulation and checkable deposits. 
C)  Federal Reserve notes, gold certificates, and checkable deposits. 
D)  Federal Reserve notes and bank loans. 
A)  coins and currency in circulation. 
B)  coins and currency in circulation and checkable deposits. 
C)  Federal Reserve notes, gold certificates, and checkable deposits. 
D)  Federal Reserve notes and bank loans.

Exam 18: Money and the Federal Reserve System

All banks are required to join the Fed.

Which of the following provides the best explanation of why money is valuable?

The Monetary Control Act of 1980 extended the Fed's authority to:

Unused lines of credit on credit cards are part of M2.

The Federal Reserve's most important function is to change the money supply in order to smooth out the business cycle.

Gold is a perfect medium of exchange and measure of value because of its:

Which one of the following is the largest component of the money supply (M1)in the United States?

The difference between M1 and M2 is given by which of the following?

The Federal Reserve System is run by the President of the United States.

Which of the following assets is the most liquid?

M2 money includes all but which one of the following?

The Federal Reserve System was created by an act of Congress in 1933 in an effort to end a wave of bank failures brought on the Great Depression.

The money supply known as M2:

The exchange of one good for another,without the use of money,is known as:

Which of the following groups oversees and administers the Federal Reserve System?

Barter is a system of exchange that does not depend on a coincidence of wants.

M2 is equal to M1 plus:

Anything can be money if it acts as a:

The Monetary Control Act of 1980:

The M1 definition of the money supply includes:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters