Deck 2: Money and the Monetary System

Question 1

A major objective of the Fed is to regulate and control the supply of money and the availability of credit.

Answer 1

True

Question 2

The Great Recession happened in 2008-2010.

Answer 2

False

Question 3

The federal government helped out financial institutions during the Great Recession so that none were allowed to fail.

Answer 3

False

Question 4

A surplus economic unit generates more money than it spends, and thus it has excess money to save or invest.

Question 5

Only depository institutions as a group can create money.

Question 6

The two basic components of the U.S. money supply are physical money and deposit money.

Question 7

The monetary system is responsible for carrying out the financial functions of creating and transferring money.

Question 8

The role of financial markets in a country's financial system is to accumulate and invest savings.

Question 9

The banking system creates money.

Question 10

Mortgage-backed securities have mortgage loan pools as their backing.

Question 11

Money is perfectly liquid.

Question 12

The savings-investment process involves the direct or indirect transfer of individual savings to business firms in exchange for goods and services.

Question 13

Primitive economies have little occasion to exchange goods or services.

Question 14

Money is anything generally accepted as a means of paying for goods and services and for paying off debts.

Question 15

Monetary policy makers can stimulate economic activity through increased monetary liquidity by making more money available (but at higher borrowing costs) to businesses, investors, and others.

Question 16

A deficit economic unit spends more money than it brings in and must balance its money receipts with money expenditures by selling gold and/or silver.

Question 17

A central bank defines and regulates the amount of the money supply in the financial system.

Question 18

An individual bank can create money.

Question 19

The use of direct transfers is the more common way by which money is transferred from savers to investors.

Question 20

The role of financial institutions in a country's financial system is to accumulate and invest savings.

Question 21

"Continentals" were denominated in dollars and were backed by gold.

Question 22

Fiat money is legal tender proclaimed to be money by law.

Question 23

Representative full-bodied money is paper money fully backed by a precious metal such as gold.

Question 24

Financial assets are money, debt instruments, equity securities, and other financial contracts that are backed by real assets and the earning abilities of issuers.

Question 25

Fiat money is a form of credit money.

Question 26

The use of "continentals" led to a long period of distrust of paper money.

Question 27

Real assets include the direct ownership of land, buildings or homes, equipment, inventories, durable goods, and even precious metals.

Question 28

Fiat money must be backed by a specific amount of gold or silver.

Question 29

Our monetary standard today is the paper dollar, issued by the Federal Reserve, and can be exchanged for gold or silver.

Question 30

Full-bodied money is a monetary standard based on two metals, usually silver and gold.

Question 31

Purchasing power is increased by inflation.

Question 32

Physical money includes coin and currency.

Question 33

How easily and with little loss of value an asset can be exchanged for money or other assets is called exchangeability.

Question 34

Representative full-bodied money consists of paper money fully backed by a precious metal.

Question 35

The U.S. dollar was defined in terms of gold until the 1980s.

Question 36

Purchasing power is the amount of gold and silver that can be purchased with a unit of money.

Question 37

Starting in 1934, U.S. citizens were prohibited from holding monetary gold in the United States.

Question 38

Fiat money is paper money fully backed by a precious metal such as gold.

Question 39

No other asset is as liquid as money, because money is itself, a medium of exchange.

Question 40

No full-bodied or representative full-bodied money is in use in the United States today.

Question 41

All restrictions on U.S. citizens holding gold in money form were removed by President Obama in 2010.

Question 42

M1 money supply consists of currency, travelers' checks, demand deposits, and other checkable deposits.

Question 43

M1 includes currency and demand deposits but excludes travelers' checks.

Question 44

Money market securities are debt securities with maturities of one year or more.

Question 45

Fiat money generally becomes worthless if the issuing government - such as the Confederate government of the Civil War - fails.

Question 46

Credit money is money backed by the creditworthiness of the United States Government.

Question 47

A monetary standard based on two metals, usually silver and gold, is called a dual-metal standard.

Question 48

Beginning in 1961, U.S. citizens were prohibited from holding monetary gold in the United States or abroad.

Question 49

Commercial paper is short-term promissory notes issued by a high credit-quality corporation using assets of that corporation as security.

Question 50

Treasury bills are money market securities.

Question 51

Representative full-bodied money is paper money that is backed by an amount of precious metal equal in value to the face amount of the paper money.

Question 52

Federal funds are money market securities.

Question 53

Paper money is always fully backed by a precious metal; although, it does not have to be gold or silver.

Question 54

Deposit money is backed by the creditworthiness of the depository institution that issued the deposit.

Question 55

Banker's acceptances are used to finance international trade.

Question 56

About 30 cities and towns in the United States print their own versions of money.

Question 57

Federal funds are very short-term loans made between depository institutions.

Question 58

Currency held in vaults of depository institutions is excluded from M1.

Question 59

A store of purchasing power is the most important function of money.

Question 60

Demand deposits are issued by commercial banks and savings banks, and do not earn interest.

Question 61

Gold is part of the M1 money supply.

Question 62

Silver is part of the M1 money supply.

Question 63

Even though credit card balances and limits are not included in any definition of money supply, these balances and limits can affect the rate of turnover of money supply and contribute to money supply expansion.

Question 64

A bimetallic standard is a monetary standard based only on gold.

Question 65

The velocity of money measures the rate of circulation of online currencies in the modern economy.

Question 66

Currently, the international monetary system can best be described as a managed floating exchange rate system.

Question 67

Currency is part of the M1 money supply.

Question 68

The faster the rate of circulation of the money supply, the greater the output of goods and services in an economy.

Question 69

Keynesians believe that when the supply of money exceeds the quantity demanded, the public will spend more rapidly causing inflation.

Question 70

Most of the financial assets added to the M2 definition of money supply provide their owners with a higher rate of return than do M1 financial assets.

Question 71

Keynesians believe that a change in the money supply first causes a change in interest rate levels, which, in turn, alters the demand for goods and services.

Question 72

The velocity of money measures the rate of circulation of checks in the modern economy.

Question 73

Traveler's checks are part of the M1 money supply.

Question 74

Because credit card balances and limits can affect the rate of turnover of money supply and contribute to money supply expansion, these balances and limits are included in the M3 definition of money supply.

Question 75

Demand deposits are part of the M1 money supply.

Question 76

Currently, the international monetary system can best be described as a managed pegged exchange rate system.

Question 77

Monetarists also believe that when the money supply exceeds the amount of money demanded, the public will spend more rapidly, causing real economic activity or prices to rise.

Question 78

The faster velocity of money, the greater an economy's GDP.

Question 79

According to the Bretton Woods agreement, one ounce of gold is set equal to US $35, and each participating country pegs its currency to gold or the U.S. dollar.

Question 80

Gross domestic output (GDO) is a measure of the output of goods and services in an economy.