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Practice Problems 22-23-24 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Banks are financial intermediaries that: A. have customer deposits as its primary asset and loans to borrowers as their primary liability. B. provide liquid assets to lenders and long-term financing to borrowers. C. are types of mutual funds. D. have customer deposits as its primary asset and that provide liquid assets to lenders. E. increase transaction costs to both borrowers and depositors. ____ 2. The budget balance is equal to: A. taxes minus government spending. B. taxes plus government spending. C. GDP minus consumption and government spending. D. GDP plus taxes. E. national savings. ____ 3. In an open economy: A. a country with a positive capital inflow will also have a situation where X are greater than IM. B. savings of foreigners may be supporting investment spending. C. capital inflows are always negative. D. investment spending equals national savings. E. the budget balance is negative. ____ 4. Providing a linkage between savers and investors is an important aspect of: A. the foreign exchange market. B. government. C. the public sector. D. consumers. E. a well functioning financial system. ____ 5. When you are using money to purchase a new MP3 player, money is serving as a: A. store of value. B. unit of barter. C. unit of account. D. double coincidence of wants. E. medium of exchange. ____ 6. The double coincidence of wants problem can be solved by: A. more resources. B. more production. C. money. D. economic growth. E. lower unemployment rates. ____ 7. The narrowest definition of money excludes: A. currency in the vault at the bank. B. traveler's checks. C. currency in circulation. D. checkable bank deposits. E. coins in circulation. Monetary Aggregates (in billions) Currency in circulation Money market funds Time deposits Savings deposits Checkable bank deposits Traveler’s checks American Express gift cards Table 23-1: Monetary Aggregates ____ $500 550 800 1110 380 15 25 8. Use Table 23-1. Consider the information in the table. M2 should be: A. $2805 billion. B. $3340 billion. C. $3355 billion. D. $2005 billion. E. $2830 billion. Components of the Money System (billions of dollars) Currency $100 Checkable deposits 300 Travelers checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Large-denomination time deposits 200 Table 23-2: Components of the Money System ____ 9. Use Table 23-2. The money supply measured by M2 is: A. $450 billion. B. $1,425 billion. C. $1,725 billion. D. $2,075 billion. E. $1,200 billion. ____ 10. Fiat money is: A. the same as commodity money. B. money backed by a government's decree that it be accepted as a means of payment. C. money which is backed by gold or silver. D. used in barter exchanges. E. a near money. Practice Problems 22-23-24 Answer Section MULTIPLE CHOICE 1. ANS: SKL: 2. ANS: SKL: 3. ANS: SKL: 4. ANS: SKL: 5. ANS: SKL: 6. ANS: SKL: 7. ANS: SKL: 8. ANS: SKL: 9. ANS: SKL: 10. ANS: SKL: B PTS: Fact-Based A PTS: Definitional B PTS: Critical Thinking E PTS: Fact-Based E PTS: Critical Thinking C PTS: Concept-Based A PTS: Fact-Based C PTS: Critical Thinking C PTS: Critical Thinking B PTS: Definitional 1 DIF: M REF: Module 22 1 DIF: E REF: Module 22 1 DIF: M REF: Module 22 1 DIF: E REF: Module 22 1 DIF: M REF: Module 23 1 DIF: M REF: Module 23 1 DIF: M REF: Module 23 1 DIF: M REF: Module 23 1 DIF: M REF: Module 23 1 DIF: E REF: Module 23