ECON 232 Chapter 13 Study Quiz
 
 
 
 
1. Plastic cards that contain computer chips that store account balances are known as:
A. credit cards.
B. smart cards.
C. debit cards.
D. E-cards.

 
2. Coins held in commercial banks are:
A. included in M1, but not in M2.
B. included both in M1 and in M2.
C. included in M2, but not in M1.
D. not part of the nation's money supply.

 
3.
Answer the next question(s) on the basis of the following information. For transactions, households and businesses want to hold an amount of money equal to one half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates.

R-1 REF13104

Refer to the above information. If nominal GDP is $200 and the interest rate is 6 percent, the total amount of money that households and businesses will want to hold is:
A. $120
B. $140
C. $160
D. $180


 
4. The United States Treasury is the basic source of money in the U.S. economy.
A. True
B. False

 
5. The asset demand for money varies inversely with the nominal GDP.
A. True
B. False

 
6. Which one of the following is true about the U. S. Federal Reserve System?
A. There are 10 regional Federal Reserve Banks.
B. The head of the U.S. Treasury also chairs the Federal Reserve Board.
C. There are seven members of the Federal Reserve Board.
D. The Open Market Committee is smaller in size than the Federal Reserve Board.

 
7. The term thrift institution or thrifts includes:
A. savings and loan associations, mutual savings banks, and credit unions.
B. savings and loan associations, mutual savings banks, credit unions, and commercial banks.
C. commercial banks and the twelve Federal Reserve Banks.
D. any institution offering savings accounts.

 
8. An important routine function of the Federal Reserve Bank is to:
A. supervise the liquidation of the assets of bankrupt state banks.
B. help large commercial banks develop correspondent relationships with smaller commercial banks.
C. advise commercial banks as to the most profitable ways of reinvesting profits.
D. provide facilities by which commercial banks and thrift institutions may collect checks.

 
9. 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 checkable 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.

 
10. In which of the following U. S. cities is one of the twelve Federal Reserve Banks located?
A. New York City
B. Seattle
C. Miami
D. Denver

 
11.
R-2 F13082

Refer to the above diagram of the money market. The equilibrium interest rate is:
A. i1.
B. i2.
C. i3.
D. not determinable without additional information.


 
12.
R-2 F13082

Refer to the above diagram of the money market. The downward slope of the money demand curve Dm is best explained in terms of the:
A. transactions demand for money.
B. direct or positive relationship between bond prices and interest rates.
C. asset demand for money.
D. wealth or real-balances effect.


 
13. Research for industrially advanced countries indicates that:
A. the more independent the central bank, the lower the average annual rate of inflation.
B. the more independent the central bank, the higher the average annual rate of inflation.
C. there is no relationship between the degree of independence of a country's central bank and its inflation rate.
D. the more independent the central bank, the higher the average annual rate of unemployment.

 
14. A basic argument for using the M1 concept of money is that:
A. it includes all of the important financial assets that have any degree of liquidity.
B. the government collects data for the components of M1, but does not do so for M2 and M3.
C. its components are superior to other financial assets as a store of value.
D. its components are directly and immediately spendable.

 
15. The share of total financial assets held by insurance companies, pension funds, mutual funds companies, and security-related firms has:
A. declined significantly since 1980.
B. increased significantly since 1980.
C. has remained quite constant since the Second World War.
D. decreased in the United States but increased abroad.

 
16. Which of the following statements best describes the twelve Federal Reserve Banks?
A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.
B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

 
17. In 2000, the supply of money (M1) in the United States was about:
A. $247 billion.
B. $1600 billion.
C. $203 billion.
D. $1100 billion.

 
18. The M2 money supply includes:
A. stock certificates.
B. corporate bond certificates.
C. the cash value of life insurance policies.
D. individual shares in money market mutual funds.

 
19. In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?
A. nominal GDP decreases and the interest rate decreases
B. nominal GDP increases and the interest rate decreases
C. nominal GDP decreases and the interest rate increases
D. nominal GDP increases and the interest rate increases

 
20. The Board of Governors of the Federal Reserve has ____ members.
A. 5
B. 7
C. 9
D. 14

 
21. In the United States, the money supply (M1) is comprised of:
A. coins, paper currency, and checkable deposits.
B. currency, checkable deposits, and Series E bonds.
C. coins, paper currency, checkable deposits, and credit balances with brokers.
D. paper currency, coins, gold certificates, and time deposits.

 
22. 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.

 
23. Suppose the demand for money and the supply of money increase simultaneously. We can:
A. expect the interest rate to rise and bond prices to fall.
B. expect the interest rate to fall and bond prices to rise.
C. the nominal GDP to expand.
D. not predict what will happen to interest rates or bond prices.

 
24. Other things equal, if there is an increase in nominal GDP:
A. the demand for money will decrease.
B. the interest rate will rise.
C. bond prices will rise.
D. consumption spending will fall.

 
25. The M2 money supply is larger than the M1 money supply.
A. True
B. False

 
26.
Answer the next question(s) on the basis of the following table:

R-3 REF13028

Refer to the above table. The value of the dollar in year 4 is:
A. $.25.
B. $.33.
C. $.50.
D. $2.00.


 
27.
Answer the next question(s) on the basis of the following list of assets:
1. Large ($100,000 and over) time deposits
2. Noncheckable savings deposits
3. Currency (coins and paper money)
4. Small (under $100,000) time deposits
5. Stock certificates
6. Checkable deposits
7. Money market deposit accounts
8. Money market mutual fund balances
R-4 REF13052

Refer to the above list. Which of the following is not included in any of the three official definitions of money?
A. item 2
B. item 5
C. item 4
D. items 1 and 4


 
28.
Answer the next question(s) on the basis of the following list of assets:
1. Large ($100,000 and over) time deposits
2. Noncheckable savings deposits
3. Currency (coins and paper money)
4. Small (under $100,000) time deposits
5. Stock certificates
6. Checkable deposits
7. Money market deposit accounts
8. Money market mutual fund balances
R-4 REF13052

Refer to the above list. The M1 definition of money comprises item(s):
A. 6 only.
B. 3, 4, and 6.
C. 3 and 6.
D. 2, 3, and 6.


 
29.
Answer the next question(s) on the basis of the following table:

R-5 REF13107

Refer to the above table. The equilibrium interest rate is:
A. 2 percent.
B. 4 percent.
C. 6 percent.
D. 8 percent.
E. 10 percent.


 
30.
Answer the next question(s) on the basis of the following table:

R-5 REF13107

All else equal, the transaction demand for money in the above table would increase if:
A. nominal GDP increased.
B. the interest rate fell.
C. the supply of money increased.
D. the economy's MPC declined.


 

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