Chapter 13

1. Which one is an economic function of money?
A.a medium of communications
B.a factor of production
C.a store of bonds
D.a unit of account


2. The largest element of the currency component of M1 is
A.coins
B.United States Notes
C.silver certificates
D.Federal Reserve Notes


3. Which of the following constitutes the largest element in the M1 money supply?
A.currency
B.Federal Reserve Notes
C.time deposits
D.checkable deposits


4. Checkable deposits are money because they are
A.legal tender
B.fiat money
C.token money
D.a medium of exchange


5. The supply of money M1 consists almost entirely of the debts of
A.the Federal government
B.the Federal Reserve Banks
C.depository institutions
D.the Federal Reserve Banks and depository institutions


6.
Use the following table to answer about the money supply, given the following hypothetical data for the economy.
R-1 13a

The size of the M1 money supply is
A.$1,775
B.$1,831
C.$2,176
D.$3,019



7.
Use the following table to answer about the money supply, given the following hypothetical data for the economy.
R-1 13a

The size of the M2 money supply is
A.$2,176
B.$3,146
C.$3,964
D.$4,532



8.
Use the following table to answer about the money supply, given the following hypothetical data for the economy.
R-1 13a

The size of the M3 money supply is
A.$4,532
B.$5,194
C.$5,339
D.$6,007



9. Which of the following best describes the backing of money in the United States?
A.the gold bullion stored in Fort Knox, Kentucky
B.the belief of holders of money that it can be exchanged for desirable goods and services
C.the willingness of banks and the government to surrender something of value in exchange for money
D.the faith and confidence of the public in the ability of government to pay its debts


10. If the price level increases 20%, the value of money decreases
A.14.14%
B.16.67%
C.20%
D.25%


11. To keep the value of money fairly constant, the Federal Reserve
A.uses price and wage controls
B.employs fiscal policy
C.controls the money supply
D.buys stock


12. The total quantity of money demanded is
A.directly related to nominal GDP and the rate of interest
B.directly related to nominal GDP and inversely related to the rate of interest
C.inversely related to nominal GDP and directly related to the rate of interest
D.inversely related to nominal GDP and the rate of
interest


13. There is an asset demand for money because money is
A.a medium of exchange
B.a measure of value
C.a store of value
D.a standard of deferred payment


14. If the dollars held for transactions purposes are, on the average, spent five times a year for final goods and services, then the quantity of money people will wish to hold for transactions is equal to
A.five times the nominal GDP
B.20% of the nominal GDP
C.five divided by the nominal GDP
D.20% divided by the nominal GDP


15. An increase in the rate of interest would increase
A.the opportunity cost of holding money
B.the transactions demand for money
C.the asset demand for money
D.the prices of bonds


16.
R-2 13b

Suppose the transactions demand for money is equal to 10% of the nominal GDP, the supply of money is $450 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $3,000 billion, the equilibrium interest rate is
A.14%
B.13%
C.12%
D.11%



17.
R-2 13b

If the nominal GDP remains constant, an increase in the money supply from $450 billion to $500 billion would cause the equilibrium interest rate to
A.rise to 14%
B.fall to 11%
C.fall to 12%
D.remain unchanged



18. The stock of money is determined by the Federal Reserve System and does not change when the interest rate changes; therefore the
A.supply of money curve is downward sloping
B.demand for money curve is downward sloping
C.supply of money curve is upward sloping
D.supply of money curve is vertical


19. If the legal ceiling on the interest rate was set below equilibrium, the
A.quantity of money demanded would be greater than the quantity of money supplied
B.quantity of money demanded would be less than the quantity of money supplied
C.supply of money would increase and the demand for money would decrease
D.demand for money would increase and the supply of money would decrease


20. Which one of the following points would be true?
A.Bond prices and the interest rate are directly related.
B.A lower interest rate raises the opportunity cost of holding money.
C.The supply of money is directly related to the interest rate.
D.The total demand for money is inversely related to the interest rate.


21.
Bond price 5 $10,000; bond fixed annual interest payment 5 $1,000; bond annual rate of interest 5 10%.
R-3 13c

If the price of this bond decreases by $2,500, the interest rate in effect will
A.decrease by 1.1 percentage points
B.decrease by 1.9 percentage points
C.increase by 2.6 percentage points
D.increase by 3.3 percentage points



22.
Bond price 5 $10,000; bond fixed annual interest payment 5 $1,000; bond annual rate of interest 5 10%.
R-3 13c

If the price of this bond increases by $2,000, the interest rate in effect will
A.decrease by 1.7 percentage points
B.decrease by 2.4 percentage points
C.increase by 1.1 percentage points
D.increase by 2.9 percentage points



23. The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily responsible for
A.supervising the operation of banks to make sure they follow regulation and monitoring banks so they do not engage in fraud
B.handling the Fed's collection of checks and adjusting legal reserves among banks
C.setting the Fed's monetary policy and directing the buying and selling of government securities
D.acting as the fiscal agent for the Federal government and issuing currency


24. The most important function of the Federal Reserve System is
A.issuing currency
B.controlling the money supply
C.supervising commercial banks
D.lending money to banks and thrifts


25. According to the text, which would be a recent development in the banking industry?
A.an increase in the number of banks and thrifts
B.increased integration of world financial markets
C.increased use of coins and currency as a medium of exchange
D.a decrease in the financial services and activities of banks and thrifts



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