Deck 10: The Money Supply and the Federal Reserve System

Question 1

When you keep your savings in a saving account,you are using money as a(n)

A)investment good.
B)store of value.
C)medium of exchange.
D)unit of account.

Answer 1

B

Question 2

When Mexico experiences a period of high inflation and Mexicans lose confidence in their peso as a store of value,which of the following would be most likely to occur?

A)The demand for pesos would increase.
B)The buying power of the peso would increase.
C)The value of foreign currencies would depreciate relative to the peso.
D)Mexicans would use a different currency as a medium of exchange.

Answer 2

D

Question 3

When money is used as a medium of exchange

A)the need for a barter system diminishes.
B)the cost of transactions increases.
C)the need for a banking system in the economy decreases.
D)it reduces the number of transactions in the economy.

Answer 3

A

Question 4

A currency that is not backed by gold,silver,or any other precious commodity equal to the face value of the money is known as

A)fake money.
B)weak money.
C)token money.
D)commodity money.

Question 5

The U.S.dollar is an example of fiat money because

A)it is the strongest currency in the world.
B)it is the most widely used currency in international trade.
C)it is backed by a large reserve of gold and silver.
D)by law,it is decreed as money.

Question 6

The liquidity property of money is the property that makes money

A)a good medium of exchange and a good unit of account.
B)a good store of value and a good unit of account.
C)a good medium of exchange and a good store of value.
D)a good store of value and a good standard of deferred payment.

Question 7

Veronica received a federal income tax refund of $600 in May 2012.Veronica put this money in a saving account so that she could spend it when she went on vacation in July 2012.This is an example of money serving as a(n)

A)store of value.
B)medium of exchange.
C)unit of account.
D)investment good.

Question 8

Jacob makes excellent tamales and Amanda is very good at mowing lawns.Amanda agrees to mow Jacob's lawn,if he makes her a dozen tamales.This is an example of

A)legal tender.
B)barter.
C)commodity money.
D)fiat money.

Question 9

Betty won $500 in a poker tournament.She deposits her $500 winnings into a money market fund so that she can use the money next year to help her pay for a trip to Las Vegas.This is an example of money serving as a(n)

A)unit of account.
B)medium of exchange.
C)store of value.
D)investment good.

Question 10

Denny's lists the price of a Grand Slam Breakfast at $4.99 a plate.Listing the price on the menu is an example of money serving as a(n)

A)store of value.
B)unit of account.
C)medium of exchange.
D)investment good.

Question 11

Josie wants to trade swimming lessons for cooking lessons.Maria wants to trade cooking lessons for swimming lessons.Josie and Maria have

A)the basis for a liquidity exchange.
B)a double incidence of demand.
C)the basis for a double fiat exchange.
D)a double coincidence of wants.

Question 12

When you pay $8 for salad you ordered for lunch,you are using money as a(n)

A)store of value.
B)investment good.
C)medium of exchange.
D)unit of account.

Question 13

The development of money as a medium of exchange has facilitated the expansion of trade because

A)holding money increases people's wealth.
B)holding money increases people's income.
C)money eliminates the "double coincidence of wants" problem.
D)no other mediums of exchange are available.

Question 14

After World War II,cigarettes were used as money in Germany.This is an example of

A)fiat money.
B)legal money.
C)token money.
D)commodity money.

Question 15

Money is

A)the same as income.
B)anything that is generally accepted as a medium of exchange.
C)the value of all coins and currency in circulation at any time.
D)backed by gold in Fort Knox.

Question 16

Any transaction that involves exchanging one good for another without using money is considered a

A)liquidity transaction.
B)barter transaction.
C)deferred payment.
D)black market exchange.

Question 17

When the manager of a department store attaches price tags to his/her products,he/she is using money as a

A)medium of exchange.
B)store of value.
C)unit of transfer.
D)unit of account.

Question 18

Electro City,a retailer of electronics,has 2,000 different products in inventory.Electro City reports its inventory is worth $12 million.This is an example of using money as a

A)medium of exchange.
B)unit of account.
C)standard of deferred payment.
D)store of value.

Question 19

The main disadvantage of using money as a store of value is that

A)money is not portable.
B)it requires a double coincidence of wants.
C)currency is intrinsically worthless.
D)the value of money actually falls when the prices of goods and services rise.

Question 20

Which of the following factors causes the barter system to be inefficient?

A)Its cost of transaction is too low.
B)The cost associated with information search is too low.
C)It requires a double coincidence of wants.
D)It requires high liquidity.

Question 21

Teddy transfers $175 from his money market fund to his checking account.This transaction will

A)decrease M2 and increase M1.
B)increase M1,but leave M2 unchanged.
C)decrease M1 and increase M2.
D)decrease both M1 and M2.

Question 22

Assume that in the country of Salmon,the government tripled the money supply overnight.As a result of this action,the price of a loaf of bread increased from 1 bill to 100 bills.This is an example of

A)a change in the legal tender.
B)a change from commodity money to fiat money.
C)currency debasement.
D)deflation.

Question 23

Which of the following is the best example of a near money?

A)a valuable painting
B)a dollar bill
C)a Treasury bond
D)a money market account

Question 24

To ensure that paper money will be accepted,the U.S.government implicitly promises the public that

A)it will not print money so fast that it loses its value.
B)it will not change the rate at which the dollar is exchanged for other currencies.
C)it will always remain the strongest currency of all industrialized nations.
D)the U.S.monetary system will always be backed by a precious metal.

Question 25

Traveler's checks are

A)not money.
B)included in M1 and M2.
C)not included in M2.
D)not included in M1.

Question 26

Which of the following is an example of fiat money?

A)cigarettes
B)an ounce of gold
C)a U.S.one-hundred dollar bill
D)a government bond

Question 27

Which of the following is included in M2,but not included in M1?

A)currency held outside banks
B)travelers checks
C)demand deposits
D)savings accounts

Question 28

Currency held outside banks is included in

A)both M1 and M2.
B)M2 only.
C)M1 only.
D)neither M1 nor M2.

Question 29

Included in M2 are

A)bank loans.
B)credit cards.
C)bank capital.
D)demand deposits.

Question 30

Money that a government has required to be accepted in settlement of debts is

A)fiat money.
B)commodity money.
C)barter money.
D)legal tender.

Question 31

Ruby transfers $700 from her saving account to her checking account.This transaction will

A)increase M1 and not change M2.
B)not change M1 and decrease M2.
C)increase both M1 and M2.
D)decrease both M1 and M2.

Question 32

Which of the following would NOT be included in M1?

A)demand deposits
B)money market accounts
C)checking accounts
D)traveler's checks

Question 33

Saving account balances are included in

A)M1.
B)M2.
C)neither M1 nor M2.
D)both M1 and M2.

Question 34

Transaction money is

A)M1.
B)M2.
C)M3.
D)M4.

Question 35

Which of the following would NOT be included in M2?

A)demand deposits
B)money market accounts
C)checking accounts
D)Treasury bonds

Question 36

Currency debasement occurs when

A)the value of money falls as a result of a rapid increase in its supply.
B)the government requires that a certain form of money must be accepted in settlement of debts.
C)items are designated as money that are intrinsically worthless.
D)items are used as money that also have intrinsic value in some other use.

Question 37

Which of the following would NOT be counted as part of M1?

A)demand deposits
B)traveler's check
C)money market accounts
D)currency

Question 38

Close substitutes for transactions money are known as

A)fiat monies.
B)near monies.
C)commodity monies.
D)token monies.

Question 39

Currency held outside banks + demand deposits + travelers checks + other checkable deposits =

A)M3.
B)M2 - M1.
C)M3 - M1.
D)M1.

Question 40

Jaime transfers $2,500 from his checking account to his savings account.This transaction will

A)decrease both M1 and M2.
B)not change M1 and decrease M2.
C)decrease M1 and not change M2.
D)increase both M1 and M2.

Question 41

Among the liabilities of commercial banks are

A)loans.
B)demand deposits.
C)reserves.
D)government securities.

Question 42

The M1 definition of money includes money market accounts.

Question 43

The main advantage of using M2 instead of M1 as the measure for money is that

A)M2 can be measured more accurately.
B)M2 includes only instantly accessible assets.
C)M2 is sometimes more stable.
D)M2 varies as the interest rate varies.

Question 44

Related to the Economics in Practice on p.503: In Santa Cruz,the red feathers of the Scarlet Honeyeater bird were used as currency.In this instance,the feathers would be considered

A)fiat money.
B)token money.
C)commodity money.
D)legal tender.

Question 45

The M2 definition of money includes demand deposits.

Question 46

If all banks are loaned up and so will not make further loans,a $1,000 deposit creates $1,000 in new money.

Question 47

Napoli National Bank has liabilities of $3 million and net worth of $200,000.Napoli National Bank's assets are

A)$200,000.
B)$2.8 million
C)$3.0 million.
D)$3.2 million.

Question 48

An equation for M1 is

A)M2 + Savings Accounts - Currency Held Outside Banks + Other Near Monies.
B)M2 - Savings Accounts - Money Market Accounts - Other Near Monies.
C)Money Market Accounts + Automatic-transfer Savings Accounts.
D)M2 + Near Monies.

Question 49

Money is anything that generally is accepted as a medium of exchange.

Question 50

Fiat money is money the government says is money.

Question 51

Saturn County Savings and Loan has liabilities of $400,000 and net worth of $125,000.Saturn County Savings and Loan's assets are

A)$525,000.
B)$400,000.
C)$275,000.
D)$125,000.

Question 52

Commercial banks

A)implement monetary policy.
B)are nonprofit organizations that lend and borrow funds.
C)are financial intermediaries that lend funds and accept deposits.
D)hold reserves against bank capital.

Question 53

When you take $100 from your saving account and deposit it in your checking account,M2 decreases.

Question 54

Thompson National Trust has assets of $500,000 and liabilities of $400,000.Thompson National Trust's net worth is

A)$100,000.
B)$400,000.
C)$500,000.
D)$900,000.

Question 55

In an economy that uses fiat money,there is no need for double coincidence of wants.

Question 56

A commercial bank lists

A)loans as liabilities.
B)deposits as liabilities.
C)required reserves as liabilities.
D)excess reserves as liabilities.

Question 57

Net worth is

A)assets - liabilities.
B)assets + capital.
C)assets - capital.
D)assets + liabilities.

Question 58

Among the assets of a commercial bank are

A)loans.
B)demand deposits.
C)savings deposits.
D)time deposits.

Question 59

Related to the Economics in Practice on p.503: In Santa Cruz,the red feathers of the Scarlet Honeyeater bird were used as currency.Using feathers to make a purchase would be using the feathers as a(n)

A)medium of exchange.
B)store of value.
C)unit of account.
D)legal tender.

Question 60

When you use money to fill your car with gas every week,you are using money as a unit of account.

Question 61

Refer to the information provided in Table 10.3 below to answer the questions that follow.
Table 10.3
Refer to Table 10.3.The required reserve ratio is

A)50%.
B)25%.
C)20%.
D)10%.

Question 62

Which of the following is considered a liability to a bank?

A)time deposits
B)reserves
C)the bank's loans
D)the bank's buildings and equipment

Question 63

Refer to the information provided in Table 10.2 below to answer the questions that follow.
Table 10.2
Refer to Table 10.2.First Commercial Bank's total loans equal

A)$1,000,000.
B)$1,700,000.
C)$2,500,000.
D)$5,000,000.

Question 64

The Bank of Arugula has $9 million in deposits and $900,000 in reserves.If the required reserve ratio is 10%,excess reserves are equal to

A)$180,000.
B)$90,000.
C)$81,000.
D)zero.

Question 65

Refer to the information provided in Table 10.1 below to answer the questions that follow.
Table 10.1
Refer to Table 10.1.The required reserve ratio is 25%.If the First Charter Bank is meeting its reserve requirement and has no excess reserves,its loans equal

A)$1,800.
B)$1,000.
C)$900.
D)$600.

Question 66

Refer to the information provided in Table 10.2 below to answer the questions that follow.
Table 10.2
Refer to Table 10.2.First Commercial Bank's excess reserves equal

A)$200,000.
B)$600,000.
C)$1,000,000.
D)$1,500,000.

Question 67

Refer to the information provided in Table 10.1 below to answer the questions that follow.
Table 10.1
Refer to Table 10.1.The required reserve ratio is 25%.If the First Charter Bank is meeting its reserve requirement and has no excess reserves,its reserves equal

A)$100.
B)$200.
C)$300.
D)$600.

Question 68

Refer to the information provided in Table 10.2 below to answer the questions that follow.
Table 10.2
Refer to Table 10.2.The required reserve ratio

A)is 5%.
B)is 10%.
C)is 20%.
D)cannot be determined from the given information.

Question 69

Neon Bank has $300 million in deposits.The required reserve ratio is 25%.Neon Bank must keep ________ in reserves.

A)$275 million
B)$145 million
C)$120 million
D)$75 million

Question 70

The Intracoastal Bank has $5 million in deposits and $500,000 in reserves.If the required reserve ratio is 5%,excess reserves are equal to

A)zero.
B)$125,000.
C)$250,000.
D)$500,000.

Question 71

Refer to the information provided in Table 10.3 below to answer the questions that follow.
Table 10.3
Refer to Table 10.3.The net worth of People's Bank is

A)$1,000,000.
B)$800,000.
C)$300,000.
D)$200,000.

Question 72

The central bank of the United States is known as the

A)Federal Reserve System.
B)Federal Deposit Insurance Corporation.
C)Department of the Treasury.
D)Federal Savings and Loan Insurance Corporation.

Question 73

Things that a firm owns that are worth something are classified as

A)liabilities.
B)assets.
C)deposits.
D)net worth.

Question 74

Refer to the information provided in Table 10.3 below to answer the questions that follow.
Table 10.3
Refer to Table 10.3.Total loans of People's Bank equal

A)$100,000.
B)$400,000.
C)$500,000.
D)$800,000.

Question 75

A checking deposit in a bank is considered ________ of that bank.

A)an asset
B)a liability
C)net worth
D)capital

Question 76

Crescent City Bank has $200 million in deposits.Crescent City Bank is meeting its reserve requirement and has no excess reserves.It has $40 million in reserves.Crescent City Bank faces a required reserve ratio of

A)4%.
B)5%.
C)20%.
D)25%.

Question 77

Refer to the information provided in Table 10.3 below to answer the questions that follow.
Table 10.3
Refer to Table 10.3.People's Bank excess reserves are

A)$100,000.
B)$200,000.
C)$300,000.
D)$400,000.

Question 78

A loan made by a bank is considered ________ of that bank.

A)a liability
B)capital
C)net worth
D)an asset

Question 79

Narnia National Bank has $750 million in deposits.The required reserve ratio is 30%.Narnia National Bank must keep ________ in reserves.

A)$125 million
B)$150 million
C)$225 million
D)$250 million

Question 80

Refer to the information provided in Table 10.1 below to answer the questions that follow.
Table 10.1
Refer to Table 10.1.First Charter Bank's total assets are

A)$400.
B)$800.
C)$1,200.
D)$2,400.