ECON 303 Chapter 3 Study Questions

1) Money is

(a) anything that is generally accepted in payment for goods and services or in the repayment of debt.

(b) frequently—but incorrectly—used synonymously with wealth.

(c) a flow of earnings per unit of time.

(d) all of the above.

(e) only (a) and (b) of the above.

Answer: E

2) Which of the following are true statements?

(a) Wealth is the total collection of pieces of property that are a store of value.

(b) Money is a stock; it is a certain amount at a given point in time.

(c) Income is a flow of earnings per unit of time.

(d) All of the above are true.

(e) Only (a) and (b) of the above are true.

Answer: D

3) The conversion of a barter economy to one that uses money increases efficiency by reducing

(a) the need to exchange goods.

(b) the need to specialize.

(c) the need to employ team production methods.

(d) transactions costs.

Answer: D

4) Of the following assets, the most liquid is

(a) savings bonds.

(b) corporate Bonds.

(c) stocks.

(d) traveler’s checks.

(e) certificates of deposit.

Answer: D

5) Ranking assets from most liquid to least liquid, the correct order is

(a) savings bonds; house; currency.

(b) currency; savings bonds; house.

(c) currency; house; savings bonds.

(d) house; savings bonds; currency.

(e) house; currency; savings bonds.

Answer: B

6) Today, most money in the United States is in the form of

(a) currency.

(b) currency and coins.

(c) checkable deposits.

(d) savings bonds.

Answer: C

7) Which of the following is not included in the monetary aggregate M2?

(a) Currency

(b) Money market deposit accounts

(c) Traveler’s checks

(d) Checking deposits

(e) Savings bonds

Answer: E

8) Which of the following is included in M2 but not in M1?

(a) NOW accounts

(b) Money market deposit accounts

(c) Demand deposits

(d) Traveler’s checks

Answer: B

9) Which of the following is not included in the M2 measure of money but is included in the M1 measure of money?

(a) Small denomination time deposits

(b) Savings deposits

(c) Checkable deposits

(d) All of the above

(e) None of the above

Answer: E

10) Which of the following is included in both M1 and M2?

(a) Currency

(b) Savings deposits

(c) Small time deposits

(d) Money market deposit accounts

(e) Savings bonds

Answer: A

11) Of the following, the largest is

(a) currency.

(b) checking deposits.

(c) M1.

(d) M2.

(e) M3.

Answer: E

12) If an individual redeems a U.S. savings bond for currency

(a) M1 stays the same and M2 decreases.

(b) M1 increases and M2 decreases.

(c) M1 increases and M2 stays the same.

(d) M1 stays the same and M2 stays the same.

(e) M1 increases and M2 increases.

Answer: E

13) If an individual moves money from a demand deposit account to a small-denomination time deposit account,

(a) M1 decreases and M2 stays the same.

(b) M1 stays the same and M2 increases.

(c) M1 stays the same and M2 stays the same.

(d) M1 increases and M2 decreases.

Answer: A

14) MZM stands for

(a) Monetary Zone Management

(b) Miscellaneous Zoom Money

(c) Money Zero Maturity

(d) Mostly Zinc Money

(e) Merely Zeta Money

Answer: C

15) If an individual moves money from a (noninstitutional) money market mutual fund to a savings deposit account,

(a) M1 increases and M2 stays the same.

(b) M1 stays the same and M2 increases.

(c) M1 stays the same and M2 stays the same.

(d) M1 increases and M2 decreases.

Answer: C