Reference no: EM132246808

[1] For something to be considered money it must:

A) have a high intrinsic value.

B) have the backing of government.

C) be generally accepted as a medium of exchange.

D) all of these answers are correct.

[2] The most important function of money is to serve as a:

A) measure of value.

B) medium of exchange.

C) standard for deferred payment.

D) method for holding wealth for future use.

[3] Which of the following was NOT identified in the text as a medium of exchange?

A) Feathers.

B) Boar tusks.

C) Cows' milk.

D) Porpoise teeth.

[4] The value of money is measured by:

A) the goods, services, and resources it can purchase.

B) the amount of time over which it can be held as savings.

C) the amount of gold, silver, or other metal that backs the money.

D) people's willingness to accept it in payment for goods, services, and resources.

[5] If the general level of prices in the U.S. fell, the value of money would:

A) increase.

B) decrease.

C) remain unchanged.

D) decrease, and then increase due to demand-pull inflation.

[6] The value of an economy's money:

A) increases when the general level of prices in the economy increases.

B) decreases when the general level of prices in the economy increases.

C) is not affected by either increases or decreases in the economy's general level of prices.

D) is the main force causing increases or decreases in the economy's general level of prices.

[7] The value of money:

A) increases over time.

B) is constant over time.

C) increases with inflation.

D) decreases with inflation.

[8] A problem associated with barter is:

A) goods can be exchanged, but services cannot.

B) what individuals want to trade must coincide for exchange to occur.

C) inflation occurs whenever goods and services are directly exchanged for one another.

D) individuals are not interested in possessing goods and services, they only want to possess money.

[9] Which of the following statements is FALSE?

A) Money eases the process of saving and facilitates lending and borrowing.

B) Money serves as a measure of value only when it is backed by gold or silver.

C) Money is a measure by which the value of goods and services in an economy can be expressed.

D) Severe inflation could impair the ability of money to act as a method for delaying payment and storing wealth.

[10] The narrowest definition of the U.S. money supply is:

A) M1.

B) M2.

C) M3.

D)  currency in circulation.

[11] Which of the following is NOT a component of M1?

A) Currency.

B) Traveler's checks.

C) Savings accounts.

D) Checking accounts.

[12] Which of the following constitutes currency?

A) Coins and demand deposits.

B) Paper money and demand deposits.

C) Coins and paper money.

D) Nonbank-issued traveler's checks, demand deposits, coins, and paper money.

[13] Demand deposits are:

A) checking account balances.

B) certificates of deposit payable in less than 30 days.

C) savings accounts plus credit union share drafts.

D) any type of account or deposit that can be kept at a commercial bank.

[14] Interest-bearing accounts at commercial banks, credit unions and other financial depository institutions are examples of:

A) currency.

B) demand deposits.

C) commercial paper.

D) other checkable deposits.

[15] The velocity of money is:

A) how fast money comes off the printing presses.

B) the number of times the money supply is turned over in a year relative to GDP.

C) the number of times the money supply is turned over in a year relative to taxes.

D) the number of times the money supply is used in a year for household purchases.

[16] Spending by households and businesses is influenced by:

A) the availability of loans.

B) the size of the money supply.

C) the interest rates charged on loans.

D) all of these answers are correct.

[17] An increase in loans by financial depository institutions increases:

A) total spending, but takes dollars out of circulation.

B) the money supply, but has no effect on total spending.

C) the money supply, and leads to an increase in total spending.

D) consumer indebtedness, which leads to a decrease in total spending.

[18] The equation of exchange shows that the supply of money in the economy can influence:

A) the level of output.

B) the level of prices.

C) both the levels of output and prices.

D) neither the levels of output or prices.

[19] Given the equation of exchange, MV = PQ, increasing the money supply when the economy is operating at less than full employment should primarily increase:

A) total output.

B) the price level.

C) unemployment.

D) all of these answers are correct.

[20] An increase in the money supply when the economy is experiencing significant unemployment would lead primarily to an increase in:

A) prices.

B) total output.

C) total output and the level of prices.

D) the level of prices, and a decrease in total output.

[21] A decrease in the supply of money generally leads to a decrease in:

A) the level of prices.

B) output and employment.

C) output, employment, and the level of prices.

D) the level of prices, followed by an increase in output and employment.

[22] Given the equation of exchange, MV=PQ, if the money supply is increased when the economy is operating at less than full employment, the expected result will be an increase in:

A) output (Q).

B) velocity (V).

C) the price level (P).

D) unemployment (Q-V).

[23] The correct policy to expand the level of economic activity would be to:

A) increase the money supply.

B) decrease the money supply.

C) leave the money supply unchanged.

D) do anything, because there is no relationship between the money supply and economic activity.

[24] A financial depository institution's actual reserves are equal to the:

A) amount of deposits in the institution.

B) reserve requirement times the institution's deposits.

C) reserve requirement times the institution's reserve account.

D) amount the institution has in its reserve account plus its vault cash.

[25] A financial depository institution's reserve account balance plus vault cash equal its:

A) actual reserves.

B) excess reserves.

C) required reserves.

D) in-house reserves.

[26] Excess reserves are equal to:

A) actual reserves minus vault cash.

B) required reserves minus vault cash.

C) actual reserves minus required reserves.

D) required reserves divided by the reserve requirement.

[27] The excess reserves of a bank determine the:

A) amount in loans the bank can make.

B) interest rate the bank pays on savings accounts.

C) funds that must be maintained in the bank's vault cash to back its loans.

D) all of these answers are correct.

[28] When a loan is repaid to a bank, the money is:

A) destroyed.

B) stored by the bank for another use.

C) returned by the bank to the Federal Reserve bank from which it got the money.

D) returned to the bank depositors' accounts from which it was taken to make the loan.

[29] Because of the money multiplier, an initial change in excess reserves in the depository institutions system can lead to a multiple change in the:

A) number of institutions in the system.

B) amount of money required to secure a loan.

C) amount of required reserves needed to back a single deposit.

D) amount that can be loaned by all institutions, taken together, in the system.

[30] With a reserve requirement of 20 percent, the money multiplier would be:

A) 0.2

B) 0.8

C) 5.

D) 20.