b.
reduce shopping time.
c.
protect against inflation.
d.
quote prices.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
73. If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of
a.
cash and checks.
b.
double-entry bookkeeping.
c.
barter.
d.
financial intermediaries.
c
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
74. ____ is an object in use as a medium of exchange, but which also has a substantial value in alternative uses.
a.
IOU
b.
A commodity money
c.
Fiat money
d.
Deposit certificate
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
75. A major problem with a commodity money is that, to be useful, money must be
a.
divisible.
b.
storable.
c.
portable.
d.
All of the above are correct.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
76. Paper money in the United States is
a.
b.
c.
d.
c
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
77. One inconvenience of commodity money is the need for
a.
money to be divisible.
b.
uniform quality.
c.
portability.
d.
All of the above are correct.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
78. One reason why gold and silver have served as money is that they
a.
are easy to produce.
b.
are easy to duplicate.
c.
are durable.
d.
All of the above are correct.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
79. Currently in the United States, money is backed by
a.
silver in the IMF vaults.
b.
Federal Reserve notes in banks.
c.
gold in Fort Knox.
d.
everyone’s willingness to accept it.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
80. The one disadvantage of paper money is that it is easier to
a.
duplicate and counterfeit.
b.
carry.
c.
divide.
d.
store and use at a later time.
a
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
81. Although a variety of commodities have been used as money, the most commonly used have been
a.
stones and cattle.
b.
shells and beads.
c.
gold and silver.
d.
cigarettes and candy bars.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
82. In comparison to commodity money, paper money
a.
is not portable.
b.
has no intrinsic value.
c.
is not divisible.
d.
cannot be stored.
e.
All of the above are correct.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
83. Fiat money is money
a.
backed by land.
b.
backed by gold or silver.
c.
that can be converted to gold or silver.
d.
because a government says it is.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
84. Fiat money has value because it
a.
is backed by gold.
b.
can be used to buy goods and services.
c.
can be exchanged for precious metals at a fixed price.
d.
can be divided into smaller units.
e.
All of the above are correct.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
85. The type of currency in circulation in the modern U.S. economy is almost entirely
a.
commodity money.
b.
metallic money.
c.
fiat money.
d.
silver certificates.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
86. Paper money has been in use since the
a.
Roman Empire.
b.
eleventh century in China.
c.
Civil War in the United States.
d.
development of money-center banking in nineteenth-century London.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
87. The new $20 bills are being introduced by the U.S. Treasury primarily to diminish
a.
inflation.
b.
poverty.
c.
counterfeiting.
d.
bank failures.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
88. On the Micronesian island of Yap, the money that is primarily used as currency is
a.
paper money.
b.
wheels made of stone.
c.
gold.
d.
shells and gems.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
89. Which of the following observations is not true?
a.
Money is divisible.
b.
The value of money never remains the same.
c.
Money has an intrinsic value.
d.
Money is the most liquid form of asset.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
90. Price levels rarely remain the same. This implies that
a.
money is an excellent medium of exchange.
b.
money is divisible.
c.
money is a good medium for measuring value.
d.
money is an imperfect medium for storing value.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Nature of Money
91. The official definition of the money supply that includes coins, paper money, travelers’ checks, conventional checking
accounts, and other checkable deposits at banks and savings institutions is called ____.
a.
M1
b.
M2
c.
M3
d.
L
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
92. As of December 2010, the largest single component of M1 consists of
a.
checkable deposits at banks.
b.
money market mutual funds.
c.
savings deposits.
d.
currency.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
93. Which of the following definitions of the money supply includes only the most liquid forms of money?
a.
M1
b.
M2
c.
savings deposits.
d.
money market mutual deposits.
a
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
94. Which of the following definitions of the money supply is the least liquid?
a.
M1
b.
M2
c.
M3
d.
L
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
95. “Near monies” are
a.
stocks, bonds, and real estate.
b.
U.S. notes and Federal Reserve notes.
c.
included in the M1 definition of the money supply.
d.
liquid assets that are close substitutes for money.
e.
All of the above are correct.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
96. Money as defined by M1 includes
a.
coins.
b.
paper money.
c.
checking deposits.
d.
travelers’ checks.
e.
All of the above are correct.
e
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
97. One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are
a.
better stores of value than those added to compute M2.
b.
more liquid than those added to compute M2.
c.
less liquid than those added to compute M2.
d.
larger than those added to compute M2.
Difficult
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
98. The narrowest definition of the money supply (M1) includes
a.
cash and travelers’ checks.
b.
cash, travelers’ checks, and savings account balances.
c.
cash, checking account balances, and travelers’ checks.
d.
cash, bank deposits, and money market accounts.
c
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
99. In the modern U.S. economy, most transactions are made with
a.
cash.
b.
gold and silver.
c.
credit cards.
d.
checking deposits.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
100. One conceptual problem in assigning assets to M1, M2, etc. is
a.
distinguishing money from “near monies.”
b.
the problem of measuring asset size.
c.
the need to agree on a unit of account.
d.
the different size of financial assets.
a
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
101. One principle that nearly all economists agree on when defining money is that it should be
a.
spendable.
b.
liquid.
c.
accepted as payment.
d.
easily transferable.
e.
All of the above are correct.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
102. Which of the following is included in M1?
a.
savings accounts
b.
money market deposit accounts
c.
money market mutual funds
d.
certificates of deposit
e.
None of the above are included.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
103. Which of the following is included in M1?
a.
savings accounts
b.
money market deposit accounts
c.
money market mutual funds
d.
travelers’ checks
e.
None of the above are included.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
104. Why are checking account balances included in the M1 definition of the money supply?
a.
They are a traditional form of money that pre-dates paper money.
b.
They are used to make so many payments.
c.
They are backed by gold and silver.
d.
They pay interest.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
105. Although checking deposits are considered money, they are actually
a.
fictitious numbers in persons’ checkbooks.
b.
backed by commodities like gold.
c.
not very useful for making payments.
d.
bookkeeping entries in bank balance sheets.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
106. The narrowest definition of the money supply, including cash and checking deposits, is known as
a.
M0.
b.
M1.
c.
M payments.
d.
currency.
e.
real-value money.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
107. The largest portion of the M1 money supply consists of
a.
coins in circulation.
b.
paper currency in circulation.
c.
savings deposits at credit unions.
d.
checkable deposits.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
108. The M2 definition of the money supply is based on the concept that
a.
M1 is a small number, and should be increased in size.
b.
many types of deposits can be used as both payments and stores of value.
c.
checking deposits are used for payments, and therefore, not part of M1.
d.
cash is not used for the majority of payments.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
109. As of December 2010+, the largest single component of M2 consists of
a.
checkable deposits at banks.
b.
cash, coins, and other currency.
c.
savings deposits.
d.
gold and silver in commodity accounts.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
110. A “near money” is an asset that can be
a.
indistinguishable from commodity money.
b.
spent easily.
c.
a close substitute for money.
d.
only issued by a bank.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
111. Liquidity can be defined as the
a.
cash value of money.
b.
value of money adjusted for inflation.
c.
value of fiat money when used for spending.
d.
ease with which an asset can be converted to a spendable asset.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
112. Identify the basis on which you measure the liquidity of an asset.
a.
Its value.
b.
Its future earning potential.
c.
Its convertibility into cash.
d.
Its ability to act as a perfect store of value.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
113. The distinction between M1 and M2 is based on
a.
portability-the ease with which an asset can be moved.
b.
divisibility-the ease with which an asset can be used to make smaller payments.
c.
liquidity-the ease with which an asset can be converted into cash.
d.
storability-how long an asset will retain its value.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
114. Are funds available on a credit card included in a definition of the money supply?
a.
Yes, because these funds can be used to pay for goods and services.
b.
Yes, because these funds are included in M2.
c.
No, because these funds are hard to measure total credit card spending.
d.
No, because these funds are not a store of value.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
115. In which of the following monetary aggregates are Treasury Bills included?
a.
M1 only
b.
M2 only
c.
both M1 and M2
d.
neither M1 nor M2
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
116. Which of the following are included in the M2 definition of the money supply?
a.
cash and currency
b.
checkable deposits
c.
money market deposit accounts
d.
money market mutual funds
e.
All of the above are included.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
117. Which of the following are not included in the M1 definition of the money supply?
a.
cash and currency
b.
checkable deposits
c.
money market deposit accounts
d.
All of the above are included.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
118. On which of the following assets are you most likely to earn interest income?
a.
cash and currency
b.
checkable deposits
c.
money market deposit accounts
d.
gold and other precious metals
e.
All of the above are correct.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
119. A principal disadvantage of conventional checking accounts compared to money market mutual funds is that
checking accounts
a.
are less liquid.
b.
often do not pay interest.
c.
cannot be used as a store of value.
d.
are not insured by deposit insurance.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
120. Money market mutual funds are accounts that are
a.
usually offered by banks.
b.
do not pay interest income.
c.
insured by the federal government.
d.
usually offered by brokerage and insurance firms.
United States – Analytic – BB-Legal
The role of money
How the Quantity of Money is Measured
121. Many economists believe that savings accounts should be added to M1 because they
a.
are larger in size than conventional checking accounts.
b.
pay larger interest than checking accounts.
c.
can be transferred quickly into checkable accounts.
d.
are also insured by the federal government.
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
122. Due to new methods of electronically transferring assets from savings accounts to checking accounts, many
economists favor moving savings accounts from
a.
M1 into M2.
b.
M2 into M3.
c.
M3 into M2.
d.
M2 into M1.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
123. According to the convention followed in the text, “money” consists all of the following except
a.
coins.
b.
credit cards.
c.
checkable deposits.
d.
paper money.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
How the Quantity of Money is Measured
124. The major contribution of goldsmiths to the development of modern banking was
a.
local banking.
b.
market banking.
c.
fractional reserve banking.
d.
gold standard banking.
c
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
125. When banking first began, it could be said that paper money was in reality
a.
worthless.
b.
receipts.
c.
government money.
d.
fiat money.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
126. Fractional reserve banking began as a search for
a.
a different metallic monetary system.
b.
additional sources of gold.
c.
different types of borrowers.
d.
additional profits.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
127. With the invention of banking, one important aspect of money was that
a.
banks have some discretion over the money supply.
b.
banks have complete control over the money supply.
c.
governments lost all control over the money supply.
d.
individuals have no discretion over the money supply.
a
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
128. The early goldsmiths issued money in the form of
a.
coins made from gold in their safes.
b.
receipts for the acceptance of gold deposits.
c.
gold fragments left over from the production of jewelry.
d.
fully backed gold certificates.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
129. The fractional reserve system of banking evolved because
a.
goldsmiths did not have safes large enough to hold all their gold deposits.
b.
there was always a dire need for additional money.
c.
goldsmiths knew that on any given day, only a few depositors would come to claim their deposits.
d.
goldsmiths knew that they would not be prosecuted for lending out money they did not have.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
130. The initial development of paper money began when people used ____ as payment for goods and services.
a.
credit cards
b.
commodity money
c.
goldsmith receipts
d.
gold bullion
e.
gold coins
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
131. Fractional reserve banking takes its name from the fact that banks
a.
hold only a fraction of their reserves at the bank itself.
b.
keep only a fraction of their total deposits on reserve.
c.
lend only a fraction of their total reserves to customers.
d.
reserve only a fraction of their activity for lending.
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
132. An important effect of fractional reserve banking is that bankers have
a.
little control over total reserves.
b.
total control over the amount of lending in the economy.
c.
no control over the amount of reserves in the banking system.
d.
some discretion over the money supply.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
133. Under fractional banking, when a bank lends to a customer
a.
the money supply increases.
b.
bank profitability is decreased.
c.
the bank is protected from a run.
d.
bank credit decreases.
a
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
134. If bankers decide to keep a lower fraction of deposits on reserve, the money supply will
a.
decrease.
b.
increase.
c.
remain unchanged.
d.
move more quickly through the economy.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
135. Recently, the financial crisis led to a bank run in
a.
Brazil.
b.
Germany and France.
c.
Japan.
d.
England.
Easy
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
136. Bank regulators are concerned about the safety of depositors because
a.
bank failures were common throughout most of U.S. history and have even occurred in recent decades.
b.
in the absence of federal insurance, depositors would lose their money if a bank failed.
c.
nervous depositors may rush to withdraw their accounts and produce a “run” that could threaten even a sound
bank.
d.
All of the above are correct.
Moderate
DISC: The role of money
United States – BPROG: Analytic
The role of money
The Banking System
137. The moral hazard problem refers to
a.
difficulty banks have in satisfying the government’s reserve requirement.
b.
depositors making a run on the bank, even though the bank is insured.
c.
banks taking on more risk in their lending because they know their depositors are insured.
d.
banks issuing bank notes that compete with the government’s currency.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Banking System
138. The objective of bank management is to
a.
maximize stockholders’ profits by making risky investments and giving loans to borrowers who will pay the