1. If you are estimating your total expenses for school next semester, you are using money primarily as:
A) a medium of exchange.
B) a store of value.
C) a unit of account.
D) an economic investment.
Ans: C
2. A $200 price tag on a cashmere sweater in a department store window is an example of money functioning as a:
A) unit of account.
B) standard of deferred payments.
C) store of value.
D) medium of exchange.
Ans: A
3. When we say that money serves as a unit of account, we mean that it is:
A) away to keep some of our wealth in a readily spendable form for future use.
B) a means of payment.
C) a monetary unit for measuring and comparing the relative values of goods.
D) declared as legal tender by the government.
Ans: C
4. Fiat money is:
A) composed only of demand deposits.
B) money because the government asserts that it is.
C) money which is “resting” in a commercial bank vault.
D) money which can be redeemed for an intrinsically valuable commodity such as gold.
Ans: B
5. The value of money varies:
A) inversely with the price level.
B) directly with the volume of employment. C) directly with the price level.
D) directly with the interest rate.
Ans: A
6. In defining money as M1 economists exclude time deposits because:
A) the intrinsic value of time deposits is nil.
B) the purchasing power of time deposits is much less stable than that of demand deposits and currency.
C) they are not directly or immediately a medium of exchange.
D) they are not recognized by the Federal government as legal tender.
Ans: C
7. Which of the following is not part of the M2 money supply?
A) money market mutual fund balances
B) money market deposit accounts
C) currency
D) large ($100,000 or more) time deposits
Ans: D
8.Checkable deposits are:
A) included in M1.
B) not included in either Ml or M2.
C) considered to be a near money.
D) also called time deposits.
Ans: A
9. The asset demand for money:
A) is unrelated to both the interest rate and the level of GDP.
B) varies inversely with the rate of interest.
C) varies inversely with the level of real GDP.
D) varies directly with the level of nominal GDP.
E) varies directly with the rate of interest.
Ans: B
10. The opportunity cost of holding money:
A) is zero because money is not an economic resource.
B) varies inversely with the interest rate.
C) varies directly with the interest rate.
D) varies inversely with the level of economic activity.
Ans: C
11. (Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 – 4 i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 (percent), what amount of money will society want to hold?
A) $200
B) $120
C) $320
D) $160
Ans: B
12. Which of the following statements is correct?
A) Interest rates and bond prices vary directly.
B) Interest rates and bond prices vary inversely.
C) Interest rates and bond prices are unrelated.
D) Interest rates and bond prices vary directly during inflations and inversely during recessions.
Ans: B
13. When the money market is in equilibrium:
A) the quantity of money demanded equals the quantity of money supplied.
B) the interest rate is neither increasing nor decreasing.
C) bond prices are stable.
D) all of the above hold true.
Ans: D
17. The twelve Federal Reserve Banks:
A) act as fiscal agents for the Federal government.
B) provide for the collection of checks.
C) hold the deposits of commercial banks.
D) do all of the above.
Ans: D