Chapter 14—Money and the Federal Reserve System
MULTIPLE CHOICE
1. A barter economy is one in which:
a.
money serves as a medium of exchange.
b.
only precious metals are accepted as money.
c.
goods are traded directly for other goods.
d.
paper money is backed by gold.
2. Compared to a barter economy, using money increases efficiency by reducing:
a.
transaction costs.
c.
the need to specialize.
b.
the need to exchange goods.
d.
inflation.
3. Barter is the:
a.
direct exchange of goods and services.
b.
exchange of goods, but not services.
c.
system that does not depend on a coincidence of wants.
d.
system used in advanced economies.
4. A direct exchange of fish for corn is an example of:
a.
storing value.
c.
barter.
b.
a modern exchange method.
d.
a non-coincidence of wants.
5. The exchange of one good for another, without the use of money, is known as:
a.
acquisitive exchange.
b.
liquidity.
c.
volatility.
d.
barter.
e.
currency.
6. Barter requires:
a.
that the exchanged goods be portable.
b.
that the exchanged goods be durable.
c.
a coincidence of wants.
d.
that the exchange medium be divisible.
e.
an effective middleman.
7. In order for barter to occur, traders must have a:
a.
unit of account.
c.
medium of exchange.
b.
coincidence of wants.
d.
central banking facility.
8. For barter exchange to take place,
a.
there has to be a coincidence of wants.
b.
the products in question have to be divisible.
c.
money has to be used to put a value on the transaction.
d.
there has to be a single coincidence of wants.
e.
gold has to be one of the goods traded.
9. In the United States, the purchasing power of money is determined by:
a.
the underlying precious metals that back each unit of currency.
b.
the value of U.S. treasury bonds that back each unit of currency.
c.
its acceptability.
d.
Congress, which controls the money supply.
10. Money is:
a.
valuable because it is backed by gold.
c.
an illiquid asset.
b.
any items used in barter.
d.
none of these.
11. Which of the following provides the best explanation of why money is valuable?
a.
Money is valuable because it is indivisible.
b.
Money is valuable because it is scarce.
c.
Money is valuable because it is backed by precious metals, primarily gold and silver.
d.
Money is valuable because it has intrinsic value, independent of its use as a means of
exchange.
12. Fiat money is money:
a.
accepted by law regardless of its intrinsic value.
b.
that is not included as part of the M1 money supply.
c.
that is backed by gold or silver held on reserve by the government.
d.
such as coins that are made from metal.
13. Are outstanding credit card balances counted as part of the money supply?
a.
Yes; they are used to purchase things, and therefore, they are included in the money
supply figures.
b.
No; money is an asset, while the credit card balances are a liability. Thus, they are not
included in the money supply figures.
c.
Partly; credit card balances of $100 or less are included in the M1 money supply, but the
money supply figures do not include balances in excess of $100.
d.
Partly; credit card balances are included in the M1 money supply, but not the M2 money
supply.
14. Buying a cup of coffee with a dollar bill represents the use of money as a:
a.
medium of exchange.
c.
store of value.
b.
unit of account.
d.
all of these.
15. The use of a dollar bill to buy a concert ticket represents the function of money as a:
a.
medium of exchange.
c.
store of value.
b.
unit of account.
d.
all of these.
16. Comparing how many dollars it takes you to run your car each year to annual earnings on a job instead
of keeping track of costs in terms of gallons of gasoline and quarts of oil represents the use of money
as a:
a.
means of payment.
c.
store of purchasing power.
b.
unit of account.
d.
form of plastic money.
17. Comparing how many dollars it takes to attend college each year to annual earnings on a job represents
the use of money as a:
a.
medium of exchange.
c.
store of value.
b.
unit of account.
d.
store of coincidence.
18. The statement that Computech’s profits totaled $500 million last year represents the use of money as a:
a.
medium of exchange.
c.
unit of account.
b.
store of value.
d.
means of coincidence.
19. Which of the following is not a store of value?
a.
Dollar bills.
c.
Coins.
b.
Credit card.
d.
Gold.
20. Which of the following is the most liquid store of purchasing power?
a.
A dollar bill.
c.
Gold.
b.
Common stock.
d.
Real estate.
21. If every person is willing to accept money in payment, rather than goods and services, money serves as
a:
a.
medium of exchange.
c.
store of value.
b.
unit of account.
d.
coincident exchange.
22. Which of the following items does not provide a store of value?
a.
Currency.
c.
Credit cards.
b.
Checkable deposits.
d.
All of these are correct.
23. Which of the following is not a store of value?
a.
Federal Reserve notes.
c.
Debit card.
b.
Credit card.
d.
Passbook savings deposit.
24. Which of the following is not an example of money used as a unit of account?
a.
A British pound is worth $3.00.
b.
Auto repairs were $3,000 last year.
c.
Business travel totaled 12,000 miles.
d.
Gasoline sells for $1.20 per gallon and oil is $5.00 per quart.
25. Anything can be money if it acts as a:
a.
unit of account.
c.
medium of exchange.
b.
store of value.
d.
All of these must be correct.
26. The primary functions of money are:
a.
velocity, liquidity, and transactions.
b.
speculative demand, measure of value, and precautionary demand.
c.
a medium of exchange, a unit of account, and a store of value.
d.
a store of value, heterogeneity, and a medium of exchange.
e.
currency value, fiat value, and accepted value.
27. Coins and dollar bills are money in the form of:
a.
barter.
c.
capital stock.
b.
currency.
d.
investment.
28. If something is a medium of exchange, then it:
a.
serves as a yardstick for measuring the value of other goods.
b.
is a means of holding wealth for the future.
c.
has an absolute value in gold.
d.
is widely accepted as payment for purchases.
29. If something is a unit of account, then it:
a.
serves as a yardstick for measuring the relative value of other goods
b.
is a means of holding wealth for the future
c.
is fairly stable
d.
is durable and portable
e.
is accepted as payment for any purchase
30. Credit cards are:
a.
M1 money.
c.
near money.
b.
M2 money.
d.
not money.
31. Currency consists of:
a.
coins and Eurodollars.
b.
paper money and checks.
c.
coins and paper money.
d.
paper money and Eurodollars.
e.
coins and checks.
32. The three functions of money are medium of exchange,
a.
measure of value, and standard of value.
b.
measure of value, and store of value.
c.
standard of value, and store of value
d.
medium of value, and store of value.
e.
measure of value, and deferred value.
33. Though many assets can be used as a store of value, money is a particularly attractive method to store
value because:
a.
it increases in value as prices rise.
b.
its purchasing power does not decline when prices rise.
c.
it is the most liquid of all assets.
d.
it is backed by gold.
34. Which of the following assets is most liquid?
a.
Funds in a checking account.
c.
A home.
b.
A car.
d.
A municipal bond.
35. Which of the following assets is the most liquid?
a.
Money market mutual fund shares.
c.
Dollars.
b.
Certificates of deposit.
d.
Passbook savings deposits.
36. Which of the following forms of money is the least liquid?
a.
Dollars.
c.
Passbook savings.
b.
Checking account deposits.
d.
Certificates of deposit.
37. Which of the following assets is the most liquid?
a.
Money.
c.
Land.
b.
Gold.
d.
Stocks.
38. The ease with which an asset can be converted into a medium of exchange is known as:
a.
volatility.
b.
liquidity.
c.
currency.
d.
Gresham’s Law.
e.
speculative exchange.
39. Which one of the following items would be the most liquid?
a.
Pizza.
b.
Ticket to next week’s basketball game.
c.
Stereo.
d.
Dollar bill.
e.
U.S. savings bond.
40. The ease with which an asset can be converted into a medium of exchange is:
a.
currency convertibility.
b.
asset convertibility.
c.
convertibility.
d.
money convertibility.
e.
liquidity.
41. The characteristics that money should have include:
a.
portability, durability, and flexibility.
b.
durability, flexibility and stability.
c.
durability, portability, and non-homogeneity.
d.
scarcity, portability, and divisibility.
e.
portability, homogeneity, and flexibility.
42. Gold is a perfect medium of exchange and measure of value because of its:
a.
divisibility, portability, and homogeneity.
b.
divisibility and durability.
c.
durability and relative scarcity.
d.
durability and homogeneity.
e.
divisibility, durability, and relative scarcity.
43. The currency of the United States is:
a.
backed dollar for dollar by gold.
b.
backed by a gold cover of 50 percent.
c.
not backed by any precious metal.
d.
backed by the government’s silver reserves.
e.
backed by the government’s gold and silver reserves.
44. Which of the following is a desirable property of money?
a.
Scarcity.
c.
Divisibility.
b.
Portability.
d.
All of these.
45. Which of the following statements is false?
a.
Round stones with holes in the center can serve as money.
b.
Money eases the process of exchanging goods and services in a modern economy.
c.
Money serves as a measure of value only when it is backed by gold or silver.
d.
Money is used as a measure of the relative value of goods and services in an economy.
46. Which of the following is not a component of the M1 money supply?
a.
Demand deposits.
b.
Large-denomination (more than $100) bills.
c.
Interest-earning checking deposits.
d.
Outstanding balances on credit cards.
47. In the United States, the money supply (M1) consists of:
a.
paper currency and coins.
b.
coins, paper currency, checkable deposits, and traveler’s checks.
c.
paper currency, coins, checkable deposits, and savings deposits.
d.
government bonds, currency, checkable deposits, and traveler’s checks.
48. Which one of the following is the largest component of the money supply (M1) in the United States?
a.
Checkable deposits.
c.
Credit cards and traveler’s checks.
b.
Gold certificates.
d.
Federal Reserve notes.
49. Which one of the following is part of the official money supply in the United States?
a.
Federal Reserve Notes.
c.
Common stock.
b.
Gold bars.
d.
Silver coins.
50. Which of the following is not counted as part of M1?
a.
Coins.
c.
Passbook savings deposits.
b.
Federal Reserve notes or ” paper money.”
d.
Checkable deposits.
51. M1 refers to:
a.
Federal Reserve Notes and gold certificates.
b.
Currency held by the public plus checking account balances.
c.
The largest of the money-supply definitions.
d.
None of these.
52. The M1 definition of the money supply includes:
a.
currency in circulation and checkable deposits.
b.
Federal Reserve Notes, gold certificates, and checkable deposits.
c.
Federal Reserve Notes and bank loans.
d.
None of these.
53. M1 refers to:
a.
the most narrowly defined money supply definition.
b.
currency held by the public plus checking account balances.
c.
the smallest of the money-supply definitions.
d.
all of these.
54. Which of the following items is included when computing M1?
a.
Coins in circulation.
b.
Currency in circulation.
c.
Checking accounting entries.
d.
All of the above.
e.
None of the above
55. Which of the following items is included when computing M1?
a.
Checking accounting entries.
c.
All of the above.
b.
Currency in circulation.
d.
None of the above.
56. The M1 money supply is defined to be the sum of currency, traveler’s checks, and:
a.
checkable deposits.
c.
savings accounts.
b.
Treasury bonds.
d.
large time deposits.
57. Which of the following statements is true?
a.
Money must be relatively “scarce” if it is to have value.
b.
Money must be divisible and portable.
c.
M1 is the narrowest definition of money.
d.
All of these.
58. Which of the following is not part of M1?
a.
Checking accounts.
c.
Credit cards.
b.
Coins.
d.
Paper currency.
59. By definition, M1 includes:
a.
savings accounts.
c.
small denomination time deposits.
b.
money market mutual accounts.
d.
checkable deposits.
60. M1 money includes all but which one of the following?
a.
Checkable deposits.
c.
Paper money.
b.
Savings accounts.
d.
Coins.
61. The M1 definition of the money supply includes currency,
a.
checkable deposits, and savings accounts.
c.
checkable deposits, and debit cards.
b.
checkable deposits, and credit cards.
d.
and checkable deposits.
62. The largest component of the M1 definition of the money supply is:
a.
traveler’s checks.
c.
money market accounts.
b.
savings accounts.
d.
checkable deposits
63. The M1 definition of the money supply includes:
a.
coins and currency in circulation.
b.
coins and currency in circulation and checkable deposits.
c.
Federal Reserve notes, gold certificates, and checkable deposits.
d.
Federal Reserve notes and bank loans.
64. Which of the following compose the M2 money supply?
a.
Currency only.
b.
Currency, checkable deposits, and traveler’s checks.
c.
M1 plus large denomination time deposits and Eurodollar deposits.
d.
M1 plus savings deposits and small-denomination time deposits.
65. Economists who prefer a broader definition of money prefer the:
a.
M4 measure of the money supply to the M1 measure.
b.
M2 measure of the money supply to the M1 measure.
c.
M3 measure of the money supply to the M2 measure.
d.
prefer the M1 measure of the money supply to the M2 measure.
66. Which one of the following is part of the M2 definition of the money supply, but not part of M1?
a.
Checkable deposits.
c.
Currency in circulation.
b.
Currency held in banks.
d.
Small time deposits of less than $100,000.
67. Which definition of the money supply includes credit cards?
a.
M1.
b.
M2.
c.
M3.
d.
None of these includes credit card balances.
68. Which of the following is counted as part of M2?
a.
Currency.
c.
Money-market mutual funds.
b.
Checkable deposits.
d.
All of these.
69. Which of the following is not considered part of M2?
a.
Small time deposits of less than $100,000.
b.
Money market mutual fund shares.
c.
Savings deposits.
d.
Large time deposits of more than $100,000.
70. Which of the following is considered part of M2?
a.
Savings deposits.
c.
Small time deposits of less than $100,000.
b.
Money market mutual fund shares.
d.
All of these.
71. The money supply known as M2:
a.
includes large denomination time deposits.
b.
excludes interest-earning checking accounts in savings and loans.
c.
does not include money market mutual accounts.
d.
includes savings accounts and small denomination time deposits.
e.
includes large denomination repurchase agreements.
72. M2 money includes all but which one of the following?
a.
Checkable deposits.
b.
Savings accounts.
c.
Large denomination time deposits.
d.
Money market deposit accounts.
e.
Money market mutual accounts.
73. M2 money includes all but which one of the following?
a.
Checkable deposits.
b.
Savings accounts.
c.
Large repurchase agreements.
d.
Money market mutual accounts.
e.
Small time deposits.
74. M2 is equal to M1 plus:
a.
savings deposits, money market deposit accounts, small time deposits, and eurodollars.
b.
savings deposits, money market deposit accounts, money market mutual funds, and
eurodollars.
c.
small time deposits, money market deposit accounts, money market mutual funds, and
eurodollars.
d.
savings deposits and small time deposits of less than $100,000.
e.
money market mutual funds, money market deposit accounts, savings deposits, large time
deposits, and repurchase agreements.
75. When M1 is expanded to M2, the money supply:
a.
almost doubles.
b.
more than triples.
c.
goes up tenfold in size.
d.
changes very little.
e.
goes up by 50 percent.
76. Suppose you transfer $1,000 from your checking account to your savings account. How does this
action affect the M1 and M2 money supplies?
a.
M1 and M2 are both unchanged.
b.
M1 falls by $1,000, and M2 rises by $1,000.
c.
M1 is unchanged, and M2 rises by $1,000.
d.
M1 falls by $1,000, and M2 is unchanged.
77. Which of the following is responsible for controlling the money supply in the United States?
a.
The U.S. Congress.
b.
The Board of Governors of the Federal Reserve System.
c.
The U.S. Treasury.
d.
The Council of Economic Advisors.
78. The conduct of monetary policy is the responsibility of:
a.
commercial banks.
c.
the Federal Reserve System.
b.
the U.S. Treasury.
d.
the Congress and the president.
79. What is the length of the term of the members of the Board of Governors of the Federal Reserve
System?