Question 1

To increase the money supply, the Federal Reserve:&#10;A)buys government bonds.&#10;B)sells government bonds.&#10;C)buys corporate stocks.&#10;D)sells corporate stocks.

Accepted Answer

To increase the money supply, the Federal Reserve buys government bonds from commercial banks. This puts more money into the banks' reserves, which in turn allows them to lend more money to consumers and businesses, increasing the overall money supply in the economy. Selling government bonds would decrease the money supply. Buying or selling corporate stocks is not a typical tool used by the Federal Reserve to affect the money supply.

Question 2

The quantity of money in the United States is essentially controlled by the:&#10;A)President of the United States.&#10;B)Department of the Treasury.&#10;C)Federal Reserve.&#10;D)system of commercial banks.

Accepted Answer

The Federal Reserve, commonly known as the Fed, is responsible for controlling the quantity of money in the United States through its monetary policy decisions. The Fed is an independent agency created by Congress and operates independently of the President and the Department of the Treasury. While the system of commercial banks does play a role in the money supply through their lending and money creation activities, it is ultimately the Federal Reserve that controls the overall money supply in the economy.

Question 3

Demand deposits are funds held in:&#10;A)currency.&#10;B)certificates of deposit.&#10;C)checking accounts.&#10;D)money markets.

Accepted Answer

Demand deposits are funds that can be withdrawn on demand without any notice period. Checking accounts are the most common type of demand deposit accounts where customers deposit funds that can be withdrawn anytime by writing a check or using a debit card. Currency, certificates of deposit, and money markets are not demand deposits.

Question 4

The use of fei as money on the island of Yap illustrates the idea of money as a social convention because:&#10;A)only fei physically in the possession of the owner is accepted in transactions.&#10;B)legal claim to a fei never seen by current generations was accepted in transactions.&#10;C)the central bank of Yap accepts fei in exchange for paper certificates.&#10;D)the government of Yap verifies the authenticity of fei used for transactions.

Accepted Answer

The use of fei as money on the island of Yap was based on the concept of social convention because fei stones were not physically moved in every transaction. Instead, ownership of a fei stone could be transferred without physically moving the stone, as long as there was a general agreement among community members that the stone had changed ownership. This allowed for the acceptance of legal claims to fei that were never seen by current generations, and highlights the importance of trust and social agreement in determining the value and use of money.

Question 5

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:&#10;A)store of value.&#10;B)unit of account.&#10;C)medium of exchange.&#10;D)flow of value.

Accepted Answer

The pizza maker is using the price of the pizza as a unit of account, which is the function of money that allows for the measurement and comparison of the value of goods and services.

Question 6

Money's liquidity refers to the ease with which:&#10;A)coins can be melted down.&#10;B)illegally obtained money can be laundered.&#10;C)loans can be floated.&#10;D)money can be converted into goods and services.

Accepted Answer

Liquidity refers to how easily an asset can be converted into cash without affecting its market price. In the case of money, liquidity refers to how easily it can be converted into goods and services without impacting its value.

Question 7

Economists use the term money to refer to:&#10;A)income.&#10;B)profits.&#10;C)assets used for transactions.&#10;D)earnings from labor.

Accepted Answer

Economists use the term money to refer to assets that are used for transactions, such as cash, checking accounts, and credit cards. Money is a medium of exchange that facilitates trade and commerce. Income, profits, and earnings from labor are all sources of money, but they are not technically considered money itself.

Question 8

People use money as a unit of account when they:&#10;A)hold money to transfer purchasing power into the future.&#10;B)use money as a measure of economic transactions.&#10;C)use money to buy goods and services.&#10;D)hold money to gain power and esteem.

Accepted Answer

People use money as a unit of account to measure economic transactions, such as buying and selling goods and services. Holding money for future purchasing power (A) is using money as a store of value, using money to buy goods and services (C) is using it as a medium of exchange, and holding money for power and esteem (D) is not a typical function of money.

Question 9

Macroeconomists call assets used to make transactions:&#10;A)real income.&#10;B)nominal income.&#10;C)money.&#10;D)consumption.

Accepted Answer

Assets used to make transactions are called money, which is a medium of exchange accepted in transactions. Real income refers to the amount of goods and services that can be bought with a certain level of income, while nominal income refers to income measured in current market prices. Consumption refers to the use of goods and services by households.

Question 10

In a country on a gold standard, the quantity of money is determined by the:&#10;A)government.&#10;B)central bank.&#10;C)amount of gold.&#10;D)buying and selling of government securities.

Accepted Answer

In a country on a gold standard, the quantity of money is determined by the amount of gold. The central bank or government sets the value of the currency in terms of a fixed weight of gold, and they can only increase the money supply by acquiring more gold. The buying and selling of government securities may affect interest rates, but not the quantity of money.

Question 11

Currency equals:&#10;A)M&#8321;.&#10;B)the sum of funds in checking accounts.&#10;C)the sum of checking accounts and paper money.D.the sum of coins and paper money.

Accepted Answer

The answer of Currency equals:&#10;A)M&#8321;.&#10;B)the sum of funds in checking...

Question 12

In prisoner of war camps during World War II, the &#34;currency&#34; used was:&#10;A)chocolates.&#10;B)cigarettes.&#10;C)gold.&#10;D)IOUs.

Accepted Answer

The answer of In prisoner of war camps during World...

Question 13

The central bank in the United States is the:&#10;A)Bank of America.&#10;B)U.S. Treasury.&#10;C)U.S. National Bank.&#10;D)Federal Reserve.

Accepted Answer

The answer of The central bank in the United States...

Question 14

All of the following assets are included in M&#8321; except:&#10;A)currency.&#10;B)demand deposits.&#10;C)traveler's checks.&#10;D)money market deposit accounts.

Accepted Answer

The answer of All of the following assets are included...

Question 15

People use money as a medium of exchange when they:&#10;A)hold money to transfer purchasing power into the future.&#10;B)use money as a measure of economic transactions.

Accepted Answer

The answer of People use money as a medium of...

Question 16

In the United States, monetary policy is controlled by:&#10;A)the President.&#10;B)the Congress.&#10;C)the Federal Reserve.&#10;D)the Treasury Department.

Accepted Answer

The answer of In the United States, monetary policy is...

Question 17

Money that has no value other than as money is called money.&#10;A)fiat&#10;B)intrinsic&#10;C)commodity&#10;D)government

Accepted Answer

The answer of Money that has no value other than...

Question 18

To reduce the money supply, the Federal Reserve:&#10;A)buys government bonds.&#10;B)sells government bonds.&#10;C)creates demand deposits.&#10;D)destroys demand deposits.

Accepted Answer

The answer of To reduce the money supply, the Federal...

Question 19

An important factor in the evolution of commodity money to fiat money is:&#10;A)a desire to reduce transaction costs.&#10;B)a desire to increase transaction costs.&#10;C)the fact that gold is no longer highly&#10;D)valued. a desire to use gold for jewelry.

Accepted Answer

The answer of An important factor in the evolution of...

Question 20

Money market mutual fund shares are included in:&#10;A)M&#8321; only.&#10;B)M&#8322; only.&#10;C)both M&#8321; and M&#8322;.&#10;D)neither M&#8321; nor M&#8322;.

Accepted Answer

The answer of Money market mutual fund shares are included...

Question 21

Credit card balances are included in:&#10;A)M&#8321; only.&#10;B)M&#8322; only.&#10;C)both M&#8321; and M&#8322;.&#10;D)neither M&#8321; nor M&#8322;.

Accepted Answer

The answer of Credit card balances are included in:&#10;A)M&#8321; only.&#10;B)M&#8322;...

Question 22

In a 100-percent-reserve banking system, banks:&#10;A)can increase the money supply.&#10;B)can decrease the money supply.&#10;C)can either increase or decrease the money supply.&#10;D)cannot affect the money supply.

Accepted Answer

The answer of In a 100-percent-reserve banking system, banks:&#10;A)can increase...

Question 23

Credit cards:&#10;A)are part of the M&#8321; money supply.&#10;B)are part of the M&#8322; money supply.&#10;C)are part of both the M&#8321; and M&#8322; money&#10;D)supply. may affect the demand for money.

Accepted Answer

The answer of Credit cards:&#10;A)are part of the M&#8321; money...

Deck 4: Money and Inflation