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AP Economics
Chapter 31
Practice test
1. The functions of money are to serve as a:
A. Resource allocator, method for accounting, and means of income distribution
B. Unit of account, store of value, and medium of exchange
C. Determinant of consumption, investment, and government spending
D. Factor of production, exchange, and aggregate supply
2. When a consumer wants to compare the price of one product with another, money is
primarily functioning as a:
A. Store of value
B. Unit of account
C. Checkable deposit
D. Medium of exchange
4. What function is money serving when you deposit money in a savings account?
A. A store of value
B. A unit of account
C. A checkable deposit
D. A medium of exchange
5. What function is money serving when you use it when you go shopping?
A. A store of value
B. A unit of account
C. A medium of deferred payment
D. A medium of exchange
8. Money functions as a store of value if it allows you to:
A. Measure the value of goods in a reliable way
B. Make exchanges in a more efficient manner
C. Delay purchases until you want the goods
D. Increase your confidence in money
9. One major advantage of money serving as a medium of exchange is that it allows
society to:
A. Transfer purchasing power from the present to the future
B. Measure the relative worth of products
C. Escape the complications of barter
D. Use credit cards instead of currency
13. The currency or money of the United States, like those of other countries, is:
A. Commodity money
B. Intrinsic money
C. Token money
D. Deposit money
14. Paper money or currency in the U.S. is essentially:
A. A debt of commercial banks and savings institutions
B. A debt of a government agency
C. An asset of the Federal government
D. An asset of commercial banks and savings institutions
16. Currency and checkable deposits are:
A. Assets of the Federal Reserve Banks or of financial institutions
B. Redeemable for gold and silver from the Federal Reserve System
C. Of intrinsic value which determines the relative worth of money
D. The major components of money supply M1
17. The paper currencies of the U.S. are also called:
A. Federal Reserve notes
B. Treasury Bills
C. U.S. Government notes
D. Treasury bonds
19. Which of the following institutions does not provide checkable-deposit services to the
general public?
A. Commercial banks
B. Savings and loan associations
C. U.S. Treasury
D. Credit unions
21. Which definition(s) of the money supply include(s) only items which are directly and
immediately usable as a medium of exchange?
A. M1
B. M2
C. Neither M1 nor M2
D. M1 and M2
22. Money supply M1 does not include the currency held by:
A. Households in their wallets or purses
B. Business firms
C. Commercial banks
D. State and local governments
23. Joe Rogers deposits $200 in currency in his checking account at a bank. This deposit
is treated as:
A. A subtraction of $200 from the money supply because the $200 in currency is no
longer in circulation
B. An addition of $200 to the money supply because of the creation of a checkable
deposit of $200
C. An addition of $200 to the money supply because the bank holds $200 in currency and
the checking account has been increased by $200
D. No change in the money supply because the $200 in currency has been converted to a
$200 increase in checkable deposits
25. Which of the following items are included in money supply M2 but not M1?
A. Federal Reserve notes
B. Coins
C. Savings deposits
D. Checkable deposits
26. Checkable deposits are included in:
A. M1 but not in M2
B. M2 but not in M1
C. both M1 and M2
D. neither M1 nor M2
27. Refer to the above table. The size of the M1 money supply is:
A. $979 billion
B. $1,236 billion
C. $1,415 billion
D. $,1618 billion
35. The so-called near-monies have the following characteristics, except:
A. Highly liquid assets
B. Not a means of payment
C. Part of money supply M1
D. Readily converted into cash
39. One reason that "near-monies" are important is because:
A. They simplify the definition of money and therefore the formulation of monetary
policy
B. They can be easily converted into money or vice versa, and thereby can influence the
stability of the economy
C. They do not reflect the level of consumer spending but they have a critical impact on
saving and investment in the economy
D. Credit cards synchronize one's expenditures and income, thereby reducing the cash
and checkable deposits one must hold
40. Which of the following "backs" the value of money in the United States?
A. The gold stored in the Federal Reserve Bank of New York
B. The acceptability of it as a medium of exchange
C. The willingness of foreign government to hold U.S. dollars
D. The size of the budget surplus in the U.S. government
41. United States currency has value primarily because it:
A. Is legal tender, is generally acceptable in exchange for goods or services, and is
backed by the gold and silver of the Federal government
B. Is generally acceptable in exchange for goods or services, is backed by the gold and
silver of the Federal government, and facilitates trade
C. Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods
and services
D. Facilitates trade, is legal tender, and permits the use of credit cards and near-monies
50. A 15 percent increase in the price level:
A. Increases the value of a dollar by 15 percent
B. Decreases the value of a dollar by 15 percent
C. Decreases the value of a dollar by 13 percent
D. Decreases the value of a dollar by 8 percent
55. To keep high inflation from eroding the value of money, monetary authorities in the
United States:
A. Create token money that is less than its intrinsic value
B. Make paper money legal tender for the payment of debt
C. Establish insurance on checkable deposit accounts
D. Control the supply of money in the economy
58. How many members can serve on the Board of Governors of the Federal Reserve
System?
A. 7
B. 9
C. 12
D. 14
60. When was the Federal Reserve System established?
A. 1913
B. 1933
C. 1945
D. 1955
61. The Federal Reserve System of the U.S. is the country's:
A. Financial adviser
B. Comptroller or Accountant
C. Central bank
D. Deposit insurance provider
63. Which group assists the Board of Governors of the Federal Reserve System in
determining monetary policy?
A. U.S. Treasury
B. U.S. Congress
C. Federal Advisory Council
D. Federal Open Market Committee
64. The Federal Open Market Committee (FOMC):
A. Provides advice on banking stability to the Fed
B. Monitors regulatory banking laws for member banks
C. Sets policy on the sale and purchase of government bonds by the Fed
D. Follows the actions and operations of financial markets to keep them open and
competitive
66. The twelve Federal Reserve Banks can best be characterized as:
A. Central banks, banker's banks, and quasi-public banks
B. Regional banks, public banks, and member banks
C. Investment banks, banker's banks, and public banks
D. National banks, quasi-public banks, and investment banks
67. The most important of the Federal Reserve district banks is the:
A. Boston bank
B. Chicago bank
C. New York bank
D. San Francisco bank
68. How many Federal Reserve Banks are there?
A. 1
B. 6
C. 12
D. 24
71. Which of the following is the most important function of the Federal Reserve
System?
A. Setting reserve requirements
B. Controlling the money supply
C. Lending money to banks and thrifts
D. Acting as the fiscal agent for the U.S. government
72. When the Fed acts as a "lender of last resort", like it did in the financial crisis of
2007-2008, it is performing its role of:
A. Controlling the money supply
B. Setting the reserve requirements
C. Being the bankers' bank
D. Providing for check clearing and collection
76. The Federal Reserve System performs the following functions, except:
A. Issuing the paper currency in the economy
B. Providing banking services to the general public
C. Providing financial services to the Federal government
D. Lending money to banks and thrifts
77. The Federal Reserve System is an:
A. Agency that is controlled by Congress
B. Agency that is under the direction of the President
C. Independent agency of government
D. Agency ran by popularly-elected officials
97. "Thrifts" refer to the following institutions, except:
A. Commercial banks
B. Credit unions
C. Mutual savings banks
D. Savings and loan associations