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Chapter 15 Money, Banking, and Central Banking 675
16) Checkable and debitable accounts in commercial banks and other financial institutions are
classified as money because
A) they are not liabilities of the banks.
B) they sometimes earn an interest income for the depositor.
C) they are generally acceptable in the payment of debt.
D)
b
anks hold currency in their vaults equal to the value of demand deposits.
17) A fiduciary monetary standard exists when the value of a currency
A) is determined by law.
B) is convertible to a fixed quantity of gold.
C) depends upon the public s confidence that the currency can be exchanged for goods and
services.
D) increases with inflation.
18) Which of the following is a correct reason for stating that the United States has a fiduciary
monetary system?
I. Our money is convertible to a fixed amount of silver or gold.
II. Our money has a predictable value.
A) I only B) II only C) Both I and II D) Neither I nor II
19) A system in which the value of currency issued by the government is based entirely on public
faith that the currency will be acceptable in trade is
A) a fiduciary system. B) a private property system.
C) a Gresham system. D) a socialistic system.
20) A checkable and debitable account
A) is a very illiquid asset.
B) is one on which the holder can write checks.
C) must be traded on the stock exchange.
D) cannot serve as a store of value.
21) Which of the following is a checkable and debitable account?
A) A brokerage account with your stockbroker
B) A savings account
C) A checking account
D) All of the above are checkable and debitable accounts.
22) A fiduciary monetary system is
A) fully backed by gold.
B) dependent on barter for exchanges of goods and services.
C) one which cannot have any inflation.
D) dependent on the public s faith to accept the currency.
23) Transactions deposits include
A) credit cards. B) certificates of deposit.
C) lines of credit. D) checkable and debitable accounts.
24) Money in a fiduciary monetary system is backed by
A) gold.
B) the public s confidence that the assets will continue to serve as money.
C) the intrinsic value of the materials used to make the assets that serve as money.
D) assets owned by the government that are intrinsically valuable.
25) The purchasing power or value of money
A) is determined by law. B) varies inversely with the price level.
C) depends on the value of gold. D) varies inversely with the interest rate.
26) The purchasing power of the dollar
A) varies directly with the price of gold.
B) varies directly with the purchasing power of other major currencies such as the euro and
the Japanese yen.
C) varies directly with the price level.
D) varies inversely with the price level.
27) When the price level goes up, the purchasing power of the dollar
A) also increases.
B) falls.
C) remains constant.
D) varies directly with the value of the euro.
28) Money is still useful during times of inflation because
A) it still retains the characteristic of predictability of value.
B) more money can be made so people can still purchase the goods and services they want.
C) it is not a liquid asset.
D) its opportunity cost falls as inflation rises.
29) An asset is liquid if it
A) is of intrinsic value.
B) can be exchanged for other goods and services.
C) is a store of value.
D) can be obtained or disposed of without losing much of its nominal value.
30) Which of the following is the most liquid?
A) certificate of deposit B) cash
C) checkable and debitable account D) stocks and bonds
31) The liquidity of money refers to
A) the amount of gold it is backed by.
B) the standard of deferred payments and how quickly those payments can be made.
C) how quickly it can be disposed of without high transaction costs.
D) asymmetric information.
32) The opportunity cost of holding money
A) is measured by the alternative interest yield obtainable by holding some other asset.
B) is based on the fiduciary monetary system.
C) refers to the amount of paper currency held by the Fed.
D) refers to the Fed s role as the lender of last resort.
33) The cost of holding money is
A) transactions accounts. B) the opportunity cost.
C) the liquidity approach. D) capital controls.
34) The opportunity cost of holding a dollar is
A) a dollar.
B) the price of a government bond.
C) less than a dollar.
D) the interest yield that could have been earned by holding some other asset.
35) An increase in the interest rate would induce people to
A) sell shares of stock and buy bonds, but would have no effect on their desire to hold money.
B) get rid of all their money and buy stocks with it.
C) sell their least liquid assets and hold more money in case interest rates go up again.
D) hold a smaller fraction of their wealth in the form of money.
36) The degree to which an asset can be acquired or disposed of without much danger of any
intervening loss in nominal value is known as
A) transaction deposits. B) a time deposit.
C) liquidity. D) M2.
37) An asset that can be easily disposed of without high transactions costs and with relative
certainty as to its value is
A) solid. B) liquid. C) M1. D) M2.
38) In a fiduciary monetary system, money is backed by
A) the public s confidence that the assets will continue to be accepted as money.
B) the intrinsic value of the materials used to make the assets.
C) the assets of the institutions that issue the various assets used as money.
D) gold.
39) A system in which money is issued by the government and its value is based uniquely on the
public s faith that the currency represents command over goods and services is the
A) transactions approach. B) liquidity approach.
C) fiduciary monetary system. D) transaction deposits.
40) The U.S. fiduciary monetary system
A) is the one agency responsible for providing coins and paper currency.
B) is one where money is not convertible to a fixed quantity of gold.
C) puts capital controls in place.
D) controls the private banking system.
41) The essential difference between paper money and coins as forms of money is that
A) the metallic content of coins makes them more acceptable as money.
B) paper money issued by the Federal Reserve Board is backed by gold while coins are not.
C) paper money serves as a unit of account while coins do not.
D) paper is paper and not metal. The metal is more durable.
42) Even when a particular monetary asset is not performing one of the functions of money well,
people still use the asset because
A) it is still easier than relying on barter.
B) they have no choice.
C) once an asset is defined as money it is always money.
D) people expect money will come back at a later date.
43) A fiduciary monetary system ultimately rests on
A) the value of the metal backing up the system.
B) the public s confidence in the system.
C) the value of the assets backing up the system.
D) the difficulty of counterfeiting the currency.
44) The value of a dollar varies
A) inversely with the price of gold.
B) inversely with the price level.
C) directly with the price level.
D) directly with the purchasing power of other major currencies.
45) Even when people know the purchasing power of the currency is declining, they continue to use
the currency because
A) they have no other choice.
B) its value is holding better than any other asset.
C) its value is still predictable.
D) it still has some intrinsic value.
46) Which of the following would be considered the least liquid asset?
A) currency B) checkable deposits
C) travelers checks D) shares of stock
47) Which of the following assets is the most liquid in the United States?
A) U.S. Treasury Bonds B) U.S. currency
C) corporate bonds D) an antique car
48) Which of the following is the most liquid?
A) real estate B) currency.
C) U.S. treasury bonds. D) shares of stock.
49) An asset is liquid if
A) it earns interest.
B) it is backed by a government guarantee.
C) it can be exchanged for other items of value without high transaction costs.
D) All of the above are correct.
50) Of the items in the following lists, which go from most liquid to least liquid?
A) a checking account, a house, a six month certificate of deposit, shares of stock
B) a six month certificate of deposit, shares of stock, a house, a checking account
C) a checking account, a certificate of deposit, shares of stock, a house
D) a house, a six month certificate of deposit, shares of stock, a checking account
51) In a fiduciary monetary system,
A) coins get their value from the precious metals of which they are made.
B) money gets its value from the confidence that the public has in its acceptability.
C) paper currency does not have value, but balances in checking accounts do.
D) checking account balances do not have value, but paper currency does.
52) The term fiduciary comes from the Latin fiducia
,
which means
A) value. B) gold.
C) money. D) trust or confidence.
53) A fiduciary monetary system means
A) that the value of each currency is determined by the amount of gold held by each nation.
B) that the currency is backed by implicit faith in government.
C) that money is legal tender.
D) that money has commodity value.
54) A fiduciary monetary system has to have all of the following EXCEPT
A) trust. B) the Federal Reserve System.
C) acceptability. D) predictability of value.
55) Which one of the following statements is true?
A) Not all forms of currency are accepted equally well by the public as a medium of
exchange.
B) Checkable and debitable account balances are not money, but currency is.
C) Checkable and debitable accounts are considered money by law in only 15 states.
D) The value of the dollar rises along with the increases in the consumer price index.
56) To the extent that the value of money is less predictable, it becomes
A) more acceptable as a standard of deferred payment.
B) more acceptable as a unit of account.
C) more acceptable as a store of value.
D) less acceptable as a medium of exchange.
57) Which of the following would be considered a transaction deposit?
A) passbook savings account B) checking account
C) credit card account D) 401(k) retirement account
58) What type of intrinsic value or backing does U.S. currency have today?
A) gold B) government bonds
C) none D) silver
59) The money supply in the United States is backed by
A) faith. B) gold. C) silver. D) platinum.
60) United States coins and currency are backed by
A) silver.
B) gold.
C) reserves of foreign currencies.
D) confidence that they will retain their value.
61) Stock market price quotations are an example of money serving as a
A) store of value. B) medium of exchange.
C) unit of accounting. D) economic value.
62) A fiduciary monetary system is dependent on
A) acceptability and predictability of value. B) precious metals backing fiat money.
C) Congressional monetary support. D) a negative inflation rate.
63) What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?
64) What is a fiduciary monetary system?
65) Savings accounts, certificates of deposit, and bonds pay interest and stocks pay dividends. Why
does anyone hold on to currency or other forms of money and lose this extra income?
66) Why might people in a country refuse to accept the fiduciary money in the country?
15.3 Defining Money
1) The two basic ways to define money are
A) the transactions approach and the fiduciary approach.
B) the transactions approach and the M1 approach.
C) the transactions approach and the liquidity approach.
D) the liquidity approach and the store of value approach.
2) Which of the following institutions has responsibility for distributing currency and coins to the
U.S. banking system?
A) The Office of the Comptroller of the Currency
B) The Federal Reserve System
C) The U.S Bureau of Engraving and Printing
D) The U.S. Mint
3) Which of the following institutions has responsibility for producing the coins that are
distributed in the United States?
A) The Office of the Comptroller of the Currency
B) The Federal Reserve System
C) The U.S Bureau of Engraving and Printing
D) The U.S. Mint
4) Which approach to measuring money focuses on the value of currency, transaction deposits,
and travelers checks?
A) The transactions approach B) The liquidity approach
C) Near moneys D) M2
5) The transactions approach to measuring money stresses the role of money as a
A) medium of exchange. B) unit of accounting.
C) store of value. D) standard of deferred payment.
6) Which of the following is NOT included using the transactions approach to measuring the
money supply (M1)?
A) Currency B) Certificates of deposit
C) Transaction deposits D) Traveler s checks
7) The designate M1 measure of money consists of
A) the most liquid types of money in the U.S. system.
B) small time deposits only.
C) credit cards and ATM cards.
D) gold and gold coins.
8) Checkable deposit account balances are
A) counted in the calculation of the money supply.
B) part of M2 but not part of M1.
C) considered credit, but not money.
D) only a small component of the money supply.
9) Which of the following is NOT part of M1?
A) Credit cards B) Checking accounts
C) Currency D) Traveler s checks
10) Which one of the following is NOT a part of the M1 definition of money?
A) Paper currency (i.e., Federal Reserve notes)
B) Coins
C) Savings accounts
D) Checkable and debitable accounts
11) When we examine the U.S. money supply, the smallest component of M1 is
A) currency and coins. B) transaction deposits.
C) certificates of deposit. D) traveler s checks.
12) The transactions approach to measuring money includes
A) government bonds.
B) the value of shares of stock in commercial banks.
C) traveler s checks.
D) all of these.
13) The transactions approach to measuring money (M1) includes all of the following EXCEPT
A) traveler s checks. B) certificates of deposit.
C) checking accounts. D) currency.
14) All of the following are included in M1 EXCEPT
A) coin and currency. B) money market mutual fund shares.
C) traveler s checks. D) checking account balances.
15) Which of the following is NOT part of M1?
A) Money market deposit accounts B) Coin and currency
C) Checking deposits D) Traveler s checks
16) Thrift institutions
A) receive most of their funds from the public s savings deposits.
B) include commercial banks and investment firms.
C) include credit unions but not savings and loan associations.
D) do not offer transaction deposits.
17) A time deposit with a fixed maturity date offered by banks is called a
A) checking account.
B) savings deposit.
C) small denomination certificate of deposit.
D) corporate bond.
18) Which of the following is NOT part of M1 but is included in M2?
A) Currency
B) Small denomination certificates of deposits
C) Traveler s checks
D) Cash
19) Assets that can be easily converted into money without significant loss of value are
A) transactions balances. B) near monies.
C) currencies. D) liabilities.
20) Small denomination time deposits are
A) considered part of near money.
B) included in the definition of both M1 and M2.
C) included in the definition of M1, but not in M2.
D) the same as transaction deposits.
21) Which of the following is included in M2?
I. money market mutual funds
II. small denomination certificates of deposit
A) I only B) II only C) Both I and II D) Neither I nor II
22) Which of the following could least reasonably be included in the liquidity approach to defining
the money supply?
A) Savings deposits B) Money market mutual fund accounts
C) Corporate bonds D) Traveler s checks
23) Which of the following is true of M2?
A) It is larger than M1.
B) It excludes savings deposits.
C) It does not include highly liquid components of the money supply.
D) It is less than M1.
24) The liquidity approach to measuring money stresses the role of money as a
A) medium of exchange. B) unit of accounting.
C) temporary store of value. D) standard of deferred payment.
25) Since 1982, banks and thrift institutions have offered a type of savings account that yields a
market rate of interest with a minimum balance and a limit on transactions. These accounts,
which have no minimum maturity, are known as
A) certificates of deposit. B) money market mutual funds.
C) mutual funds. D) repurchase agreements.
26) What differentiates a savings deposit from a small denomination certificate of deposit (CD)?
A) A CD has a fixed maturity date; a savings deposit can be withdrawn at any time.
B) A savings deposit cannot be withdrawn before its maturity date without incurring a
penalty; funds in a CD are available at any time with no interest penalty.
C) Only a savings deposit is a time deposit.
D) All depository institutions accept savings deposits, whereas only a thrift institution can
issue a CD.
27) All transaction deposits are included in
A) M1 only. B) M2 only.
C)
b
oth M1 and M2. D) savings balances only.
28) Which of the following is NOT included in the MZM definition of money?
A) currency. B) money market funds.
C) travelers checks. D) small denomination time deposits.
692 Miller Economics Today, 16th Edition
Amount
Component (Billions of dollars)
Currency $600
Coins 35
Transaction Deposits 570
Saving Deposits 416
Travelers Checks 8
Small Denomination Time Deposits 2,144
Money Market Mutual Fund Shares 1,430
Overnight Eurodollars 16
Overnight Repurchase
Agreements at Commercial Banks 63
Money Market Deposit Accounts 500
Available Credit on Credit Cards 675
29) According to the above table, the value of M1 is
A) $1,888 billion. B) $1,629 billion. C) $1,213 billion. D) $1,205 billion.
30) According to the above table, the value of M2 is
A) $5,303 billion. B) $5,782 billion. C) $5,325 billion. D) $9,000 billion.
31) The money supply is
A) the rate at which the Federal Reserve Board prints currency.
B) limited to currency and coins.
C) the amount of money in circulation.
D) the rate at which the Federal Reserve Board creates money.
32) The largest component of M1 is
A) currency and coins. B) traveler s checks.
C) transaction deposits. D) time deposit.
33) The best measure of money is
A) coins and currency.
B) the one based on the transactions approach.
C) the one based on the liquidity approach.
D) something economists have never agreed on.
34) The transactions approach to measuring money relies on the role of money primarily as a
A) medium of exchange. B) unit of account.
C) temporary store of value. D) standard of deferred payment.
35) A method of measuring the money supply by looking at money as a medium of exchange is the
A) fiduciary monetary system. B) capital control.
C) transactions approach. D) liquidity approach.
36) A method of measuring the money supply by looking at money as a temporary store of value is
the
A) fiduciary monetary system. B) capital control.
C) transactions approach. D) liquidity approach.
37) The liquidity approach to measuring money stresses the role of money as a
A) medium of exchange. B) unit of account.
C) temporary store of value. D) standard of deferred payment.
38) The key official definition of the money supply is
A) only coins and paper currency in circulation.
B) only transactions deposits at banks.
C) MZM.
D) M2.
39) The money supply that consists of currency, transaction deposits, and traveler s checks is
A) M1. B) M2.
C) the fiduciary monetary system. D) the liquidity approach.
40) Transaction deposits
A) are deposits in a thrift institution or a commercial bank on which a check may be written.
B) are only deposits that you can check on through the Internet.
C) include savings accounts.
D) are accounts that pay interest to the depositor.
41) Traveler s check are
A) part of M1 only. B) part of M2 only.
C) part of M1 and M2. D) not part of M1 or M2.
