Question 1

M2 includes M1 plus

Accepted Answer

M2 includes M1 (currency in circulation, checking account deposits in banks, and holdings of traveler's checks) plus savings account balances, money market deposit accounts in banks, small-denomination time deposits, and noninstitutional money market fund shares. Therefore, option B is the correct choice as it includes all the components mentioned in the question.

Question 2

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will ________ and M2 will ________.

Accepted Answer

M1 includes both currency in circulation and checking account balances, so moving money from one to the other does not change the total amount of M1. M2 includes M1 and other relatively liquid assets, so the total amount of M2 also remains unchanged.

Question 3

If households in the economy decide to take money out of checking account deposits and hold it as currency,this will initially

Accepted Answer

Moving money from checking accounts to holding it as currency does not change the total amount of money in the economy. Both currency and checking account deposits are components of M1 (and M2), so shifting money between these forms does not alter the total amounts of M1 or M2.

Question 4

Scenario 16-1
Currency $1,000
Checking Account Balances 2,000
Savings Account Balances 5,000
Small-Denomination Time Deposits 6,000
Noninstitutional Money Market Fund Shares 7,000
Consider the information above for a simple economy. Assume there are no traveler's checks.
-Refer to Scenario 16-1.M2 in this simple economy equals

Accepted Answer

M2 equals currency + checking account balances + savings account balances + small-denomination time deposits + noninstitutional money market fund shares, which is $1,000 + $2,000 + $5,000 + $6,000 + $7,000 = $21,000.

Question 5

If credit card balances rise in the economy,then M1 will ________ and M2 will ________.

Accepted Answer

The answer of If credit card balances rise in the...

Question 6

If you transfer all of your currency to your checking account,then initially,M1 will ________ and M2 will ________.

Accepted Answer

Transferring currency to a checking account shifts money within M1 (which includes both currency and checking account balances) without changing the total amount of M1. Since M2 includes M1 plus savings accounts, time deposits, and non-institutional money market funds, this internal shift within M1 components does not affect the total amount of M2 either.

Question 7

You earn $500 a month,currently have $200 in currency,$100 in your checking account,$2,000 in your savings accounts,$3,000 worth of illiquid assets and $1,000 of debt.Using the M1 measure of money,you have

Accepted Answer

M1 measure of money includes currency, demand deposits (checking accounts), and traveler's checks. In this case, the total M1 money is $300 ($200 currency + $100 checking account). Annual income is $6,000 ($500 x 12 months). Wealth is the total value of assets minus liabilities, which equals $4,300 ($200 currency + $100 checking account + $2,000 savings account + $3,000 illiquid assets - $1,000 debt). Therefore, option B is the correct answer.

Question 8

The narrowest official definition of the money supply is

Accepted Answer

The narrowest official definition of the money supply is M1, which includes currency in circulation, demand deposits, and traveler’s checks. M2 and M3 include additional types of deposits and financial assets. L is not a recognized measure of the money supply.

Question 9

M1 includes

Accepted Answer

M1 includes currency in circulation (i.e., physical cash), checking account deposits in banks, and holdings of traveler's checks. It does not include savings account balances or coins, which are classified as M2.

Question 10

Scenario 16-1
Currency $1,000
Checking Account Balances 2,000
Savings Account Balances 5,000
Small-Denomination Time Deposits 6,000
Noninstitutional Money Market Fund Shares 7,000
Consider the information above for a simple economy. Assume there are no traveler's checks.
-Refer to Scenario 16-1.M1 in this simple economy equals

Accepted Answer

M1 includes currency and checking account balances. In this scenario, M1 equals $1,000 (currency) + $2,000 (checking account balances) = $3,000.

Question 11

If you liquidate $3,000 of your money market mutual fund and transfer the funds to your checking account,then initially,M1 will ________ and M2 will ________.

Accepted Answer

BTransferring funds from a money market mutual fund to a checking account increases M1 because checking accounts are part of M1. M2 includes M1 and other assets like money market mutual funds, so the total amount of M2 does not change; it's just redistributed within its components.

Question 12

If households in the economy decide to take money out of checking account deposits and put this money into savings accounts,this will initially

Accepted Answer

Moving money from a checking account to a savings account will decrease M1 (because checking account deposits are included in M1) but will not change M2 (because savings account deposits are already included in M2).

Question 13

A person's wealth

Accepted Answer

Wealth is not just the money a person has, but also the value of their assets (such as property, investments, and other possessions) minus any liabilities (such as debt). Option A is not fully accurate as wealth is not just measured by the amount of money a person has at any given time, but also the value of their possessions. Option C is also not fully accurate as it only accounts for income, not assets or liabilities.

Question 14

The M2 measure of the money supply equals

Accepted Answer

The M2 measure of the money supply includes all components of M1 (currency in circulation, checking account balances, and traveler's checks) and adds savings account balances, small-denomination time deposits (CDs), and noninstitutional money market fund shares. Therefore, D is the correct answer because it includes all the components of M2.

Question 15

Credit card balances are

Accepted Answer

Credit card balances are not part of the money supply because they represent a future obligation to repay a debt rather than a current means of purchasing goods and services. While credit cards allow individuals to access credit and temporarily increase their spending power, the balances themselves do not represent money that is readily available for use in the economy.

Question 16

In the United States,currency includes

Accepted Answer

Currency in the United States refers to paper money and coins in circulation. Gold and silver are not considered currency as they are no longer used as a standard form of exchange. Checking and savings account deposits are not considered currency as they are simply a representation of funds held in a financial institution. Traveler's checks are often used as a form of currency, but they are not as commonly used as paper money and coins.

Question 17

If households and firms decide to hold less of their money in checking account deposits and more in currency,then initially,the money supply

Accepted Answer

The money supply consists of both currency in circulation and checking account deposits. If households and firms simply shift their holdings from one form to the other, the total money supply remains unchanged.

Question 18

If a person withdraws $500 from his/her savings account and puts it in his/her checking account,then M1 will ________ and M2 will ________.

Accepted Answer

The answer of If a person withdraws $500 from his/her...

Question 19

If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account,then M1 will ________ and M2 will ________.

Accepted Answer

The answer of If a person takes $100 from his/her...

Question 20

Most payments in the United States for goods and services are made using

Accepted Answer

Most payments in the United States are made using checking account deposits, whether via physical checks or electronic transactions such as direct deposit or online bill pay. While currency (A) is still commonly used for smaller transactions, it is becoming less common as digital payment options become more widespread. Traveler's checks (C) are becoming obsolete and are rarely used for domestic transactions. Gold (D) is not widely used as a payment method in the United States.

Quiz 16: Money,Banks,and the Federal Reserve System

M2 includes M1 plus

If a person withdraws $500 from his/her checking account and holds it as currency,then M1 will and M2 will .

If households in the economy decide to take money out of checking account deposits and hold it as currency,this will initially

If credit card balances rise in the economy,then M1 will and M2 will .

If you transfer all of your currency to your checking account,then initially,M1 will and M2 will .