What is Money?
1. Which of the following is NOT a function of money?
a. Medium of exchange
b. Barter
c. Unit of account
d. Store of value
b. Barter
7. A bank’s reserves equal its
a. cash in its vaults.
b. cash in its vaults plus its deposits at the Federal Reserve banks.
c. cash in its vaults plus its liquid deposits.
d. cash in its vaults plus its liquid deposits plus its deposits at the Federal Reserve banks.
b. cash in its vaults plus its deposits at the Federal Reserve banks.
10. Which group makes decisions about the course of the nation’s monetary policy?
a. The Fed’s Board of Governors
b. The FOMC
c. The presidents of the Fed’s regional banks
d. The President and the Senate
b. The FOMC
Name 5 ball sports in 10 seconds.
19. An increase in ____ decreases the quantity of money people want to hold.
a. the price level
b. real GDP
c. the interest rate
d. the quantity of money
c. the interest rate
2. The fact that prices are quoted in terms of money reflects money’s role as a
a. cause of inflation.
b. medium of exchange.
c. unit of account.
d. store of value.
c. unit of account.
8. Depository institutions do all the following EXCEPT a. minimize the cost of obtaining funds.
b. create liquidity.
c. pool risks.
d. create required reserve ratios.
d. create required reserve ratios.
11. The discount rate is the interest rate
a. the Fed charges when it loans reserves to banks.
b. banks charge their finest loan customers.
c. banks pay on savings accounts.
d. the Fed pays on reserves held by banks.
a. the Fed charges when it loans reserves to banks.
15. A bank has desired reserves of $10 million and actual reserves of $9 million. Its excess reserves are equal to
a. $10 million.
b. $1 million.
c. –$1 million.
d. $0.
c. –$1 million.
20. Which of the following does NOT directly shift the demand for money curve?
a. A change in GDP.
b. A change in the quantity of money.
c. Financial innovation.
d. None of the above because they all directly shift the demand for money curve.
b. A change in the quantity of money.
3. Which is the largest component of M1 money?
a. Currency
b. Traveler’s checks
c. Checking deposits
d. Savings deposits
a. Currency
There are two clocks of different colors: The green clock is broken and doesn't run at all, but the yellow clock loses one second every 24 hours. Which clock is more accurate?
a.The green clock
b.The yellow clock
c.Neither
d.Both
a.The green clock
12. The purchase of $1 billion of government securities by the Fed is an example of
a. the discount rate being affected.
b. a multiple contraction of the quantity of money.
c. an open market operation.
d. a change in the required reserve ratio.
c. an open market operation.
16. When a bank helps create money, it does so by
a. selling some of its investment securities.
b. increasing its reserves.
c. lending its excess reserves.
d. printing more checks.
c. lending its excess reserves.
22. If the interest rate exceeds the equilibrium interest rate, then the quantity of money demanded is ____ than the quantity of money supplied and the interest rate ____.
a. less; rises
b. less; falls
c. greater; rises
d. greater; falls
b. less; falls
14. U.S. currency is
a. part of M1 only.
b. part of M2 only.
c. part of M1 and M2.
d. part of neither M1 nor M2.
c. part of M1 and M2.
9. Of the following, which can create an incentive for financial innovation?
a. Technological change
b. Removal of government regulation
c. Low inflation and interest rates
d. Liquidity creation.
a. Technological change
13. ____ is a liability of the Federal Reserve.
a. Government securities
b. Loans to banks
c. Banks’ deposits at the Fed
d. Foreign exchange
c. Banks’ deposits at the Fed
17. If the desired reserve ratio is 0.05 and the currency drain ratio is 0.50, then the money multiplier equals
a. 2.73.
b. 1.91.
c. 2.05.
d. 1.85.
a. 2.73.
What was the name of the pet of harry potter?
a) Hedwig
b) Tony
a) Hedwig
15. Which of the following is a component of M2 but not of M1?
a. Currency
b. Checking accounts at banks
c. Traveler’s checks
d. Savings accounts at banks
c. Traveler’s checks
6. Which of the following is money?
a. A check written for $200.
b. A $200 checking deposit at a bank.
c. A credit card with a $200 line of credit.
d. All of the above.
b. A $200 checking deposit at a bank.
14. The desired reserve ratio on deposits is 10 percent. A bank has $2 million of deposits and reserves of $300,000. The bank has excess reserves of
a. $300,000.
b. $200,000.
c. $100,000.
d. $0.
c. $100,000.
18. If the money multiplier is 2.5, a $10 billion increase in the monetary base raises the quantity of money by
a. $25 billion.
b. $10 billion.
c. $4.0 billion.
d. $2.5 billion.
a. $25 billion.
24. The equation of exchange is
a. MV = PY.
b. MP = VY.
c. MY = PV.
d. M/Y = PV.
a. MV = PY.