Deck 14: Money, Banking, and Financial Institutions

Question 1

When economists say that money serves as a unit of account, they mean that it is

A) a way to keep wealth in a readily spendable form for future use.
B) a means of payment.
C) a monetary unit for measuring and comparing the relative values of goods.
D) declared as legal tender by the government.

Answer 1

a monetary unit for measuring and comparing the relative values of goods.

Question 2

When economists say that money serves as a store of value, they mean that it is

A) a way to keep wealth in a readily spendable form for future use.
B) a means of payment.
C) a monetary unit for measuring and comparing the relative values of goods.
D) declared as legal tender by the government.

Answer 2

a way to keep wealth in a readily spendable form for future use.

Question 3

To say that coins are "token money" means that

A) their face value is less than their intrinsic value.
B) their face value is greater than their intrinsic value.
C) their face value is equal to their intrinsic value.
D) they are not legal tender.

Answer 3

their face value is greater than their intrinsic value.

Question 4

A $70 price tag on a sweater in a department store window is an example of money functioning as a

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

Question 5

Which of the following is not part of the M2 money supply?

A) money market mutual fund balances
B) money market deposit accounts
C) currency
D) large-denominated time deposits

Question 6

Checkable deposits are classified as money because

A) they can be readily used in purchasing goods and paying debts.
B) banks hold currency equal to the value of their checkable deposits.
C) they are ultimately the obligations of the Treasury.
D) they earn interest income for the depositor.

Question 7

If you are estimating your total expenses for school next semester, you are using money primarily as

A) a medium of exchange.
B) a store of value.
C) a unit of account.
D) an economic investment.

Question 8

Stock market price quotations best exemplify money serving as a

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

Question 9

If you place a part of your summer earnings in a savings account, you are using money primarily as a

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

Question 10

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

A) a medium of exchange.
B) a store of value.
C) a unit of account.
D) an economic investment.

Question 11

When economists say that money serves as a medium of exchange, they mean that it is

A) a way to keep wealth in a readily spendable form for future use.
B) a means of payment.
C) a monetary unit for measuring and comparing the relative values of goods.
D) declared as legal tender by the government.

Question 12

In defining money as M1, economists exclude time deposits because

A) the intrinsic value of time deposits is nil.
B) the purchasing power of time deposits is much less stable than that of checkable deposits and currency.
C) they are not directly or immediately a medium of exchange.
D) they are not recognized by the federal government as legal tender.

Question 13

Purchasing groceries using a debit card best exemplifies money serving as a

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

Question 14

As of March 2019, the supply of money (M1) in the United States was about

A) $2,472 billion.
B) $3,760 billion.
C) $1,359 billion.
D) $12,479 billion.

Question 15

To say "money is what money does" means that

A) money has been defined in a Constitutional amendment.
B) whatever performs the functions of money extremely well is considered to be money.
C) the money supply includes all public and private securities purchased by society.
D) society, acting through Congress, specifies what shall be included in the money supply.

Question 16

In the United States, the money supply (M1) includes

A) coins, paper currency, and checkable deposits.
B) currency, checkable deposits, and Series E bonds.
C) coins, paper currency, checkable deposits, and credit balances with brokers.
D) paper currency, coins, gold certificates, and time deposits.

Question 17

Currency (paper money plus coins) constitutes about

A) 25 percent of the U.S. M1 money supply.
B) 43 percent of the U.S. M1 money supply.
C) 57 percent of the U.S. M1 money supply.
D) 66 percent of the U.S. M1 money supply.

Question 18

Money functions as

A) a store of value.
B) a unit of account.
C) a medium of exchange.
D) a store of value, a unit of account, and a medium of exchange.

Question 19

The paper money used in the United States is

A) National Bank notes.
B) Treasury notes.
C) United States notes.
D) Federal Reserve notes.

Question 20

Currency held in the vault of First National Bank is

A) counted as part of M1.
B) counted as part of M2 but not M1.
C) only counted as part of M1 if it was deposited into a checking account.
D) not counted as part of the money supply.

Question 21

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the

A) M1 money supply will decline.
B) M1 money supply will not change.
C) M2 money supply will decline.
D) M2 money supply will increase.

Question 22

Coins held in commercial bank vaults are

A) included in M1 but not in M2.
B) included both in M1 and in M2.
C) included in M2 but not in M1.
D) not part of the nation's money supply.

Question 23

The amount of money reported as M2

A) is smaller than the amount reported as M1.
B) is larger than the amount reported as M1.
C) excludes coins and currency.
D) includes large ($100,000 or more) certificates of deposit.

Question 24

The largest component of the money supply (M1) is

A) currency in bank vaults.
B) currency in circulation.
C) checkable deposits.
D) stock certificates.

Question 25

A $20 bill is a

A) gold certificate.
B) Treasury note.
C) Treasury bill.
D) Federal Reserve note.

Question 26

"Near monies" are included in

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

Question 27

Checkable deposits are

A) included in M1.
B) not included in either Ml or M2.
C) considered to be a near money.
D) also called time deposits.

Question 28

Money market deposit accounts are included in

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

Question 29

Small-denominated time deposits, by definition

A) mature in one month or less.
B) mature in one year or less.
C) are less than $100,000.
D) are held by state and local banks only.

Question 30

Paper money (currency) in the United States is issued by the

A) U.S. Mint.
B) Federal Reserve Banks.
C) U.S. Treasury.
D) national banks.

Question 31

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the

A) M1 money supply will decline and the M2 money supply will remain unchanged.
B) M1 and M2 money supplies will not change.
C) M1 money supply will increase and the M2 money supply will remain unchanged.
D) M1 and M2 money supplies will both decline.

Question 32

Currency in circulation is part of

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

Question 33

A checking account entry is money because it

A) is ensured by the Federal Deposit Insurance Corporation.
B) has been declared as such by the federal government.
C) performs the functions of money.
D) can be sold for currency.

Question 34

The difference between M1 and M2 is that

A) the former includes time deposits.
B) the latter includes small-denominated time deposits, savings accounts, money market deposit accounts, and money market mutual fund balances.
C) the latter includes negotiable government bonds.
D) the latter includes cash held by commercial banks and the U.S. Treasury.

Question 35

Near monies

A) include all financial and real assets that can be easily converted into currency.
B) are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.
C) are excluded from M2 because they are highly liquid.
D) are defined as monetary balances that are immediately available, at zero cost, for household and business transactions.

Question 36

Coins in people's pockets and purses are

A) included in M1 but not in M2.
B) included both in M1 and in M2.
C) included in M2 but not in M1.
D) excluded from M1 and M2 because people can exchange them for Federal Reserve notes.

Question 37

The near-money components of M2 are

A) equally liquid as the M1 components of M2.
B) more liquid than the M1 components of M2.
C) less liquid than the M1 components of M2.
D) highly illiquid.

Question 38

The M2 money supply includes

A) stock certificates.
B) currency in bank vaults.
C) the cash value of life insurance policies.
D) individual shares in money market mutual funds.

Question 39

Assuming no other changes, if balances in money market deposit accounts increase by $50 billion and small- denominated time deposits decrease by $50 billion, the

A) M1 and M2 money supplies will not change.
B) M2 money supply will increase.
C) M1 money supply will decline.
D) M2 money supply will increase and the M1 money supply will decrease.

Question 40

Checkable deposits include

A) both large- and small-denominated time deposits.
B) the deposits held by banks and thrifts on which checks can be written.
C) only the checkable deposits of commercial banks.
D) only the checkable deposits of thrift institutions.

Question 41

$$\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \$ 100 \\\hline \text { Money Market Mutual Fund Balances Held by individuals } & 220 \\\hline \text { Currency in Banks } & 10 \\\hline \text { Currency in Circulation } & 60 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 50 \\\hline \text { Large-denominated (\$100,000 or more) Time Deposits } & 180 \\\hline \text { Small-denominated (\$100,000 or less) Time Deposits } & 80 \\\hline \text { Checkable Deposits } & 80\\\hline\end{array}$$ Refer to the table. Money supply M2 for this economy is

A) $490.
B) $60.
C) $80.
D) $500.

Question 42

Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits
2) Savings deposits
3) Currency (coins and paper money) in circulation
4) Small-denominated (under $100,000) time deposits
5) Stock certificates
6) Checkable deposits
7) Money market deposit accounts
8) Money market mutual fund balances held by individuals
9) Money market mutual fund balances held by businesses
10) Currency held in bank vaults
The M2 definition of money includes

A) items 2, 3, 4, 6, 7, 8, and 10.
B) items 3, 4, 5, and 6.
C) items 2, 3, 4, 6, 7, and 8.
D) all of the items listed.

Question 43

The purchasing power of money and the price level vary

A) inversely.
B) directly during recessions but inversely during inflations.
C) directly but not proportionately.
D) directly and proportionately.

Question 44

Time deposits of $100,000 or more are

A) a component of M1.
B) a component of M2 but not of M1.
C) a component of M1 but not of M2.
D) not a component of M1 or M2.

Question 45

$$\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \$ 100 \\\hline \text { Money Market Mutual Fund Balances Held by Individuals } & 220 \\\hline \text { Currency in Banks } & 10 \\\hline \text { Currency in Circulation } & 60 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 50 \\\hline \text { Large-denominated ( } \$ 100,000 \text { or more) Time Deposits } & 180 \\\hline \text { Small-denominated } ( \$ 100,000 \text { or less) Time Deposits } & 80 \\\hline \text { Checkable Deposits } & 70\\\hline\end{array}$$ Refer to the table. Money supply M1 for this economy is

A) $60.
B) $70.
C) $130.
D) $140.

Question 46

$$\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \$ 100 \\\hline \text { Money Market Mutual Fund Balances Held by Individuals } & 220 \\\hline \text { Currency in Banks } & 10 \\\hline \text { Currency in Circulation } & 60 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 50 \\\hline \text { Large-denominated ( } \$ 100,000 \text { or more) Time Deposits } & 180 \\\hline \text { Small-denominated (\$100,000 or less) Time Deposits } & 80 \\\hline \text { Checkable Deposits } & 70\\\hline\end{array}$$ Refer to the table. The value of the near monies that are part of M2 is

A) $480.
B) $630.
C) $350.
D) $530.

Question 47

Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits
2) Savings deposits
3) Currency (coins and paper money) in circulation
4) Small-denominated (under $100,000) time deposits
5) Stock certificates
6) Checkable deposits
7) Money market deposit accounts
8) Money market mutual fund balances held by individuals
9) Money market mutual fund balances held by businesses
10) Currency held in bank vaults
The assets that are not included in either M1 or M2 are

A) items 1, 5, 9, and 10.
B) items 2, 5, 8, and 9.
C) items 1, 3, 5, 7, and 9.
D) all of the 10 items listed .

Question 48

Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits
2) Savings deposits
3) Currency (coins and paper money) in circulation
4) Small-denominated (under $100,000) time deposits
5) Stock certificates
6) Checkable deposits
7) Money market deposit accounts
8) Money market mutual fund balances held by individuals
9) Money market mutual fund balances held by businesses
10) Currency held in bank vaults
Which of the following are considered to be near monies?

A) items 2, 5, 8, and 9
B) all items except for 3
C) items 2, 4, 7, and 8
D) items 1, 5, and 10

Question 49

The money supply is backed

A) by the government's ability to control the supply of money and therefore to keep its value relatively stable.
B) by government bonds.
C) dollar-for-dollar by gold and silver.
D) by gold reserves representing a fraction of the total value of dollars in circulation.

Question 50

Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits
2) Savings deposits
3) Currency (coins and paper money) in circulation
4) Small-denominated (under $100,000) time deposits
5) Stock certificates
6) Checkable deposits
7) Money market deposit accounts
8) Money market mutual fund balances held by individuals
9) Money market mutual fund balances held by businesses
10) Currency held in bank vaults
The M1 definition of money includes item(s)

A) 6 only.
B) 3, 4, and 6.
C) 3 and 6.
D) 3, 6, and 10.

Question 51

If the price index rises from 100 to 120, the purchasing power value of the dollar

A) may either rise or fall.
B) will rise by one-sixth.
C) will fall by one-sixth.
D) will rise by 20 percent.

Question 52

$$\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \$ 100 \\\hline \text { Money Market Mutual Fund Balances Held by Individuals } & 230 \\\hline \text { Currency in Banks } & 10 \\\hline \text { Currency in Circulation } & 60 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 60 \\\hline \text { Large-denominated (\$100,000 or more) Time Deposits } & 180 \\\hline \text { Small-denominated ( } \$ 100,000 \text { or less) Time Deposits } & 90 \\\hline \text { Checkable Deposits } & 70\\\hline\end{array}$$ Refer to the table. The value of the near monies that are part of M2 is

A) $380.
B) $230.
C) $60.
D) $390.

Question 53

The purchasing power of the dollar

A) has been increasing in recent years because of economic growth.
B) varies directly with the cost-of-living index.
C) is inversely related to the level of aggregate demand.
D) is the reciprocal of the price level.

Question 54

If the price index rises from 200 to 250, the purchasing power value of the dollar

A) may either rise or fall.
B) will rise by 25 percent.
C) will fall by 25 percent.
D) will fall by 20 percent.

Question 55

$$\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \$ 100 \\\hline \text { Money Market Mutual Fund Balances Held by Individuals } & 220 \\\hline \text { Currency in Banks } & 10 \\\hline \text { Currency in Circulation } & 60 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 50 \\\hline \text { Large-denominated (\$100,000 or more) Time Deposits } & 180 \\\hline \text { Small-denominated ( } \$ 100,000 \text { or less) Time Deposits } & 80 \\\hline \text { Checkable Deposits } & 70\\\hline\end{array}$$ Refer to the table. Money supply M2 for this economy is

A) $480.
B) $130.
C) $490.
D) $630.

Question 56

Currency held by banks is part of

A) both the M1 and M2 definitions of the money supply.
B) the M2 definition of the money supply only.
C) the M1 definition of the money supply only.
D) neither the M1 nor the M2 definition of the money supply.

Question 57

Suppose that the federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?

A) The value of the "wheat dollar" would be unstable depending on crop yields from year to year.
B) Farmers would replace corn and soybean crops with wheat.
C) Wheat would function as money so long as people accept it in exchange for goods and services.
D) All of these are possible outcomes.

Question 58

$$\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \\\hline \text { Money Market Mutual Fund Balances Held by individuals } & \$ 100 \\\hline \text { Currency in Banks } & 220 \\\hline \text { Currency in Circulation } & 10 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 40 \\\hline \text { Large-denominated ( } \$ 100,000 \text { or more) Time Deposits } & 50 \\\hline \text { Small-denominated (\$100,000 or less) Time Deposits } & 180 \\\hline \text { Checkable Deposits } & 70 \\\hline\end{array}$$ Refer to the table. Money supply M1 for this economy is

A) $110.
B) $40.
C) $70.
D) $120.

Question 59

The value of money varies

A) inversely with the price level.
B) directly with the volume of employment.
C) directly with the price level.
D) directly with the interest rate.

Question 60

Which of the following does not explain what backs the money supply in the United States?

A) It is backed by gold.
B) It is widely accepted in transactions.
C) It is designated "legal tender" by the federal government.
D) It is relatively scarce.

Question 61

The Board of Governors of the Federal Reserve has ____ members.

A) 5
B) 7
C) 9
D) 14

Question 62

The seven members of the Board of Governors of the Federal Reserve System are

A) appointed by the president with the confirmation of the Senate.
B) elected by Congress from a slate of nominees provided by the president.
C) appointed by the Senate Finance Committee.
D) appointed by the presidents of the 12 Federal Reserve Banks.

Question 63

Approximately how many commercial banks are now operating in the United States?

A) about 7,300
B) about 4,600
C) about 8,500
D) about 6,800

Question 64

Which one of the following is true about the U.S. Federal Reserve System?

A) There are 12 regional Federal Reserve Banks.
B) The head of the U.S. Treasury also chairs the Federal Reserve Board.
C) There are 14 members of the Federal Reserve Board.
D) The Open Market Committee is smaller in size than the Federal Reserve Board.

Question 65

The members of the Federal Reserve Board

A) serve seven-year terms.
B) are appointed by the American Economic Association.
C) are elected by votes of the 12 presidents of the Federal Reserve Banks.
D) are appointed for 14-year terms.

Question 66

The central authority of the U.S. banking system is the

A) Federal Open Market Committee (FOMC).
B) Board of Governors of the Federal Reserve.
C) Federal Monetary Authority.
D) Council of Economic Advisers.

Question 67

Other things equal, an excessive increase in the money supply will

A) increase the purchasing power of each dollar.
B) decrease the purchasing power of each dollar.
C) have no impact on the purchasing power of the dollar.
D) reduce the price level.

Question 68

The Federal Reserve System was created in

A) 1926.
B) 1946.
C) 1895.
D) 1913.

Question 69

During periods of rapid inflation, money may cease to work as a medium of exchange

A) unless it has been designated legal tender.
B) unless it is backed by gold.
C) because it is too scarce for everyone to have enough for transactions.
D) because people and businesses will not want to accept it in transactions.

Question 70

Stabilizing a nation's price level and the purchasing power of its money can be achieved

A) only with fiscal policy.
B) only with monetary policy.
C) with both fiscal and monetary policy.
D) with neither fiscal nor monetary policy.

Question 71

As it relates to Federal Reserve activities, the acronym FOMC describes the

A) Federal Open Market Committee.
B) Federal Options Market Committee.
C) Federal Organization for Monetary Control.
D) Federal Organization for Money Creation.

Question 72

Which of the following statements best describes the 12 Federal Reserve Banks?

A) They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.
B) They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
C) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
D) They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

Question 73

The Federal Open Market Committee (FOMC) is made up of

A) the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks.
B) the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank.
C) the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers.
D) the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

Question 74

In the U.S. economy, the money supply is controlled by the

A) U.S. Treasury.
B) Federal Reserve System.
C) Senate Committee on Banking and Finance.
D) Congress.

Question 75

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

A) Federal Deposit Insurance Corporation (FDIC).
B) Federal Bond Sale Authority.
C) Council of Economic Advisers.
D) Federal Open Market Committee (FOMC).

Question 76

$$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Price Level } & \text { Value of Dollar } \\\hline 1 & 1.00 & \$ 1.00 \\\hline 2 & 1.25 & \\\hline 3 & 0.80 & \\\hline 4 & 0.50 & \\\hline\end{array}$$ Refer to the given table. The value of the dollar in year 2 is

A) $1.25.
B) $1.33.
C) $0.80.
D) $0.75.

Question 77

An important routine function of the Federal Reserve Bank is to

A) supervise the liquidation of the assets of bankrupt state banks.
B) help large commercial banks develop correspondent relationships with smaller commercial banks.
C) advise commercial banks as to the most profitable ways of reinvesting profits.
D) provide facilities by which commercial banks and thrift institutions may collect checks.

Question 78

$$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Price Level } & \text { Value of Dollar } \\\hline 1 & 1.00 & \$ 1.00 \\\hline 2 & 1.25 & \\\hline 3 & 0.80 & \\\hline 4 & 0.50 & \\\hline\end{array}$$ Refer to the given table. The value of the dollar in year 4 is

A) $1.50.
B) $0.33.
C) $0.50.
D) $2.00.

Question 79

If P equals the price level expressed as an index number and $\$ V$ equals the value of the dollar, then

A) $P = \$ V - 1$
B) $\$ V = 1 / P$
C) $1 = \$ V / P$
D) $\$ V = P - 1 .$

Question 80

$$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Price Level } & \text { Value of Dollar } \\\hline 1 & 1.00 & \$ 1.00 \\\hline 2 & 1.25 & \\\hline 3 & 0.80 & \\\hline 4 & 0.50 & \\\hline\end{array}$$ Refer to the given table. The value of the dollar in year 3 is

A) $1.20.
B) $1.25.
C) $0.80.
D) $1.10.