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1. When money can quickly be converted to goods and services, with minimal
inconvenience or cost, it's called
(a) conversion.
(b) depreciation.
(c)
liquidity.
(d) investment.
2.
When an economy is experiencing inflation,
(a)
the purchasing power of money increases.
(b) spending decreases.
(c)
saving increases.
(d) the purchasing power of money decreases.
3.
Money that must be accepted in exchange, by government decree, is called
(a) commodity money.
(b) standard money.
(c)
fiat money.
(d) demand deposits.
(e)
gold.
4.
Today's U.S. coins and paper money are examples of
(a)
fiat money.
(b) gold certificates.
(c)
commodity money.
(d) silver certificates.
5.
Credit cards are
(a)
part of the nation's money supply.
(b) assets.
(c)
not part of the nation's money supply.
(d) the same as currency.
6.
An example of commodity money is
(a) gold.
(b) U.S. dollars.
(c)
checkable deposits.
(d) All of the above.
7.
Money in your checking account is called
(a) fiat money.
(b) a certificate of deposit.
(c)
a Federal Reserve deposit.
(d) a demand deposit.
8.
The largest component of M1 is
(a)
money market mutual funds.
(b) checkable deposits.
(c)
time deposits.
(d) None of the above.
9.
Small-denomination certificates of deposit (less than $100,000) are included in
(a) total checkable deposits.
(b) M1.
(c)
total demand deposits.
(d) M2.
(e)
None of the above.
10.
The opportunity cost of holding cash in your wallet
(a) is zero.
(b) tends to increase as interest rates decrease.
(c)
is the forgone interest that could have been earned on other assets.
(d) None of the above.
11.
The desire to hold money to complete purchases of goods and services is called
(a)
the speculative motive for holding money.
(b) the precautionary motive for holding money.
(c)
the transaction demand for money.
(d) All of the above.
12.
Which of the following financial characteristics makes money attractive when compared
to alternative assets?
(a)
Risk.
(b) Real rate of return.
(c)
Availability.
(d) Liquidity.
(e)
Nominal rate of return.
13. The speculative motive for holding money is
(a) the desire to hold money to complete purchases of goods and services.
(b) the desire to hold money, instead of other assets, in anticipation of changes in
economic conditions.
(c)
the desire to hold money to undertake unexpected transactions.
(d) the desire to hold silver instead of gold.
14. The demand for money is
(a) inversely related to national income.
(b) positively related to the interest rate.
(c)
inversely related to the interest rate.
(d) the same as aggregate demand.
15. A decrease in the available stock of money will
(a) put upward pressure on interest rates.
(b) cause no change in interest rates.
(c)
put downward pressure on interest rates.
(d) All of the above.
16.
A financial intermediary is
(a)
a firm that regulates the money supply.
(b) publicly owned and managed in the public interest.
(c)
a firm that specializes in borrowing funds from savers and lending those
funds to investors.
(d) All of the above.
17.
Which of the following statements about a bank's balance sheet is true?
(a) Net worth equals assets plus reserves.
(b) Liabilities equal net worth minus assets.
(c)
Assets equal liabilities plus net worth.
(d) Liabilities plus net worth equal reserves.
18.
The minimum amount of reserves a bank must hold with the Federal Reserve to back up
its deposits is called a(n)
(a)
demand deposit.
(b) reserve requirement.
(c)
time deposit.
(d) excess reserve.
19.
The amount of reserves remaining after reserve requirements have been satisfied is called
(a)
the required reserve ratio.
(b) federal reserves.
(c)
legal reserves.
(d) excess reserves.
20.
A bank is "loaned up" when
(a) total reserves are zero.
(b) excess reserves are negative.
(c)
excess reserves are zero.
(d) deposits are no longer coming in.
(e)
required reserves are more than the required reserve ratio.
21.
The reciprocal of the required reserve ratio is the
(a)
depository institution's capital ratio.
(b) reserve multiplier.
(c)
bank's required reserves.
(d) measure of excess reserves held for emergency needs.
22. If the required ratio is 10%, what is the maximum amount of new money stock that
can be created from $2 million in new excess reserves available to the banking system?
(a) $200,000.
(b) $2 million.
(c)
$20 million.
(d) $200 million.
(e)
$4 million.
23.
What is the reserve multiplier if the required reserve ratio is 25%?
(a)
1
(b) 5
(c)
25
(d) 4
(e)
None of the above.
24.
Collateral
(a)
includes Treasury bills and gold certificates.
(b) is an asset a borrower pledges to a bank in case of default.
(c)
is government securities held by banks.
(d) is the same as interest-bearing debt.
25. Government securities are
(a) the same as foreign exchange.
(b) assets a borrower pledges to a bank in case of default.
(c)
interest-bearing debts of the federal government in the form of Treasury bills,
Treasury notes, and Treasury bonds.
(d) None of the above.
26.
Which of the following is a government security?
(a) A share of common stock issued by IBM.
(b) A 15-year Treasury bond.
(c)
An FHA-guaranteed mortgage purchased by a commercial bank.
(d) None of the above.
27.
The Federal Reserve System
(a) is composed of members of Congress.
(b) is composed of members of the Treasury.
(c)
was created in the 1970s.
(d) exercises control over the U.S. money supply.
28.
The central administrative body of the Federal Reserve System is the
(a)
U.S. Congress.
(b) Vice President of the United States.
(c)
Board of Governors.
(d) Open Market Committee.
(e)
All of the above.
29. The Board of Governors
(a) is comprised of seven members who are appointed by the President of the
United States.
(b) are members of the Executive Council.
(c)
are members of the President's Council of Economic Advisers.
(d) are members of Congress.
30.
Members of the Board of Governors are appointed to
(a)
4-year terms.
(b) 12-year terms.
(c)
6-year terms.
(d) 14-year terms.
(e)
8-year terms.
31.
The Chairman of the Board of Governors of the Federal Reserve System
(a)
is elected by the other members.
(b) is appointed by the President of the United States.
(c)
is elected by the presidents of the 12 regional Federal Reserve banks.
(d) is appointed by the Secretary of the Treasury.
(e)
None of the above.
32.
Supervising the Fed's purchases and sales of government securities is the responsibility of
(a)
the Comptroller of the Currency.
(b) the Federal Advisory Council.
(c)
the Federal Open Market Committee.
(d) the 12 regional Federal Reserve banks.
33. Which of the following is a tool of monetary policy?
(a) Reserve requirements.
(b) The sales tax on gasoline.
(c)
The corporate income tax.
(d) The tax on unearned income.
34.
Which of the following is NOT a monetary policy tool of the Fed?
(a)
Open market operations.
(b) Control of income tax rates to influence total consumer spending.
(c)
Control of required reserve ratios.
(d) Control of the discount rate.
35.
The discount rate is
(a) the interest rate the World Bank charges developing countries.
(b) the interest rate commercial banks charge investors.
(c)
the interest rate the Federal Reserve banks charge banks for loans.
(d) the interest rate the Federal Reserve banks charge individuals.
36.
Which of the following actions by the Fed would cause the money supply to increase?
(a) Reducing the required reserve ratio.
(b) Selling gold certificates.
(c)
Selling bonds in the open market.
(d) Increasing the discount rate.
37.
The least used tool of monetary control
(a)
is the required reserve ratio.
(b) are open market operations.
(c)
is the interest rate.
(d) is the discount rate.
(e)
are price controls.
38.
Which of the following policies might be used by the Fed to decrease the money stock?
(a)
Decrease the required reserve ratio on checkable deposits.
(b) Decrease the discount rate.
(c)
Decrease the required reserve ratio on time deposits.
(d) Increase the discount rate.
39.
What is the most commonly used method of controlling the money supply in the United
States?
(a)
Changing the required reserve ratio.
(b) Changing the discount rate.
(c)
Changes in government spending.
(d) Open market operations.
40.
An open market purchase of securities by the Fed will decrease the supply of securities.
This causes the price of securities to increase and interest rates on those securities to
(a)
decrease.
(b) increase, then decrease.
(c)
increase.
(d) decrease, then increase.
41.
The money demand curve illustrates
(a)
the positive relationship between the quantity of money demanded and the
interest rate.
(b) the positive relationship between the demand for money and the discount
rate.
(c)
the inverse relationship between the quantity of money demanded and the
interest rate.
(d) the inverse relationship between investment and the interest rate.
42.
Which of the following policies by the Fed would help the economy out of a recession?
(a)
An increase in the discount rate.
(b) Open market purchases of government securities.
(c)
An increase in reserve requirements.
(d) Open market sales of government securities.
43. If the price of Treasury bills goes up,
(a) their yield will go down.
(b) their yield will also go up.
(c)
their yield will be unaffected.
(d) no one will buy any.
44.
If the Fed sells Treasury bills,
(a)
the price of Treasury bills will fall.
(b) the yield on Treasury bills will rise.
(c)
Both (a) and (b).
(d) neither the price of nor the yield on Treasury bills will be affected.