Exam Name___________________________________ 1) hichofthefollowingdoesNOTdescribeafunctionofmoney? W A) storeofvalue a B) hedgeagainstinflation a C) unitofaccount a D) mediumofexchange a 2) arteris B A) heexchangeofgoodsandservicesforanytypeofmoney. t B) nothertypeofmoney. a C) rintingtoomuchmoney. p D) heexchangeofgoodsandservicesdirectlyforothergoodsandservices. t 3) hemostdirectwayinwhichmoneyeliminatestheneedforadoublecoincidenceof T wantsisthroughitsuseasa A) nitofaccount.

nt. u B) ediumofexchange. m C) tandardofdeferredpayment. s D) toreofvalue. s 4) $25,000pricetagonanewcarisanexampleofmoneyas A A) storeofvalue. a B) ediumofexchange. m C) timedeposit. a D) unitofaccount. a 5) hichofthefollowingisanexampleofusingmoneyasastoreofvalue? W A) ayingcashforanewautomobile p B) eeping$200onhandforanemergency k C) ayingrentwithacheckonademanddeposit p D) ayingforanewdresswithacreditcard p 6) 1isameasureof M A) iquidityandinwhichthemostliquidassetismoney. l B) oneyandincludesbothsavingsdepositsandmoneymarketmutualfunds. m C) oneyandincludesbothcurrencyandcheckingdeposits. m D) oneyandincludesbothsavingsdepositsandcurrency. m 7) hichofthefollowingisNOTincludedintheM1definitionofmoney? W A) urrencyheldoutsidebanks c B) heckingdepositsatsavingsandloans c C) ravelerschecks t D) imedeposits t 8) hedefinitionofM2includes T A) 1. M B) imedeposits. t C) avingsdeposits. s D) lloftheabove a 9) fyouuse$500ofcurrencytopurchaseasavingdeposit, I A) 1isunchanged,butM2 M B) 1decreases,butM2is M increases unchanged C) 1decreasesandM2increases M D) 1andM2bothincrease M 10) iquidityisthe L A) asewithwhichanassetcanbeconvertedintoameansofpaymentwithlittle e lossofvalue.

B) egreetowhichanassetactsasmoneywithoutalossofvalue. d C) egreetowhichmoneycanbeconvertedintoanassetwithlittlelossofvalue. d D) asewithwhichcreditcardsareacceptedasameansofpayment. e 11) nindividualwantingthemostliquidassetpossiblewillhold A A) heckabledepositsatabank. c B) savingsaccount. a C) .Sgovernmentbonds. U D) urrency. c 12) iventhelistofassetsbelow,whichisthemostliquid? G A) $500travelerscheck a B) 500worthofGeneralMotorsbonds $ C) 500worthofGeneralMotorscommonstock $ D) one-ouncegoldcoin a 13) hecksareNOTmoneybecausethey C A) avevalueinexchangebutlittleintrinsicvalue. h B) reissuedbybanks,notbythegovernment. a C) remerelyinstructionstotransfermoney. a D) renotbackedbyeithergoldorsilver. a 14) reditcardsare C A) otmoneybecausetheyarenotmadeofpaper. n B) otmoney. n C) oneyandarethelargestpartofthemoneysupply. m D) oneybutarenotalargepartofthemoneysupply. m 15) singacreditcardcanbestbelikenedto U A) akingoutaloan. t B) ritingacheckonyourdemanddepositaccount. w C) singanyotherformofmoneybecauseyouimmediatelygettotakethegoods u home. D) barterexchange. a 16) .S.currency________. U A) scomposedofthebillsandcoinsthatweusetoday i B) sthesumofM1andM2 i C) ncludestobacco i D) slessefficientthanbarter i 17) newfinancialinnovationresultsinpeopleswitchingtheirfundsfromchecking A depositstosavingsaccounts.ThequantityofM1________andthequantityofM2 ________. A) ecreases;increases d B) ecreases;decreases d C) ecreases;doesnotchange d D) ncreases;decreases i 18) firmthattakesdepositsfromhouseholdsandfirmsandmakesloanstoother A householdsandfirmsisa A) reditcompany. c B) surer. u C) epositoryinstitution. d D) tockbroker. s 19) epositoryinstitutions D A) arnmoneybychargingthegovernmentfortheirservices. e

B) arnzeroprofitbutreceivecompensationbythegovernmentbecausetheir e servicesaresovaluable. C) akeprofitfromthespreadbetweentheinterestratetheypayondepositsand m theinterestratetheyreceiveonloans. D) arnprofitaccordingtohowmuchtheFederalReservepaysthem. e 20) oracommercialbank,thetermreservesrefersto F A) bankersconcern(reservation)inmakingloanstoanindividualwithouta a job. B) hecashinitsvaultsanditsdepositsattheFederalReserve. t C) henetinterestthatitearnsonloans. t D) heprofitthatthebankretainsattheendoftheyear. t 21) fthefollowing,theriskiestassetsheldbycommercialbanksare O A) ommercialloans. c B) .S.governmentTreasurybills. U C) .S.governmentbonds. U D) eserves. r 22) xamplesofthriftinstitutionsinclude E A) ommercialbanks,savingsandloanassociations,andinsurancecompanies. c B) avingsandloanassociations,savingsbanks,andcreditunions. s C) avingsdepositsandcheckingdeposits. s D) oneymarketmutualfunds,commercialbanks,andcreditunions. m 23) creditunionis A A) ndepositoryinstitutionownedbydepositorswhoaremembersofa a particulargroup. B) commercialbankownedbyitsdepositors. a C) thriftinstitutionthatissuescreditcards. a D) combinationofcreditcardcorporations. a 24) oneymarketmutualfundsinvestin M A) esidentialmortgages. r B) ighlyliquidassets. h C) ong-termgovernmentsecurities. l D) ommercialrealestate. c 25) hichofthefollowingisNOTaneconomicbenefitofdepositoryinstitutions? W A) heypoolrisk T B) heycreateliquidity T C) heyreducethecostofmonitoringborrowers T D) heyborrowlongandlendshort T 26) henbanksusespecializedresourcestomonitorborrowers,theyare W A) endingtoonlyhigh-riskborrowers. l B) oweringthecostofcreatingliquidity. l C) oolingrisk. p D) inimizingthecostofassessingborrowerscreditworthiness. m 27) yborrowingmoneyfrommanydepositorsandlendingmoneytoavarietyof B borrowers,depositoryinstitutions A) preadriskefficiently. s B) anexposethemselvestoagreatdealofrisk. c C) ovemoneyfromM1toM2. m D) ecreasethequantityofmoney. d

 28) inancialinnovationis F A) esponsibleforcreditcardsbeingincludedaspartofmoney. r B) hedevelopmentofnewfinancialproductsandservices. t C) heprocessofturningassetsintoamoreliquidform. t D) ausingadecreaseinbankprofits. c 29) hedevelopmentofnewfinancialproductshasbeenspurredbyallofthe T followingEXCEPT A) ecreasingcompetitionfromnonbankdepositoryinstitutions. d B) ttemptstocircumventbankregulationssuchasRegulationQ. a C) ighinflationandhighinterestrates. h D) ewtechnologyinlong-distancecommunication. n 30) epositoryinstitutionsundertakeallthefollowingactivitiesexcepttheydonot D ________. A) oolrisk p B) reateliquidity c C) inimizethecostofmonitoringborrowers m D) rintmoney p 31) heFederalReserveSystem T A) egulatesthenationsfinancialinstitutions. r B) onductsthenationsmonetarypolicy. c C) othanswersAandBarecorrect. B D) eitheranswerAnorBiscorrect. N 32) ontrollingthequantityofmoneyandinterestratestoinfluenceaggregate C economicactivityiscalled A) oreignpolicy. f B) iscalpolicy. f C) onetarypolicy. m D) ankantitrustpolicy. b 33) hichofthefollowinginstitutionsisNOTpartofthestructureoftheFederal W Reservesystem? A) heBoardofGovernors T B) heFederalGovernment T C) heFederalReserveBanks T D) heFederalOpenMarketCommittee T 34) embersoftheFederalReserveSystemsBoardofGovernors M A) old14-yearstaggeredterms. h B) reelectedforlife. a C) reelectedatlargebydistrictbanks. a D) reaspecialsubcommitteeoftheSenate. a 35) heFederalOpenMarketCommittee T A) eetseveryweektoreviewthestateoftheeconomy. m B) sthemainpolicy-makingorganoftheFederalReserve. i C) onsistsoftheFedchairmanandthe12regionalbankpresidents. c D) sheadedbythepresidentoftheNewYorkFederalReserveBank. i 36) hichFederalReserveBankpresidentisalwaysontheFederalOpenMarket W

Committ ee? A) ewYork N B) oston B C) t.Louis S D) hicago C 37) helargestinfluenceontheFedsmonetarypolicyactionsis T A) istributedequallyamongthedistrictbanks. d B) eldbytheBoardofGovernors. h C) eldbytheNewYorkFederalReserveBankbecauseitimplementspolicy. h D) eldbythechairmanoftheBoardofGovernors,whosetsthepolicyagenda. h 38) hichofthefollowingisNOTamonetarypolicytool? W A) iscountrate d B) penmarketoperations o C) ederalfundsrate f D) equiredreserveratio r 39) heminimumpercentageofdepositsthatadepositoryinstitutionmustholdand T cannotuseforlendingisknownasthe A) oneymultiplier. m B) inimumrate. m C) equiredreserveratio. r D) iscountrate. d 40) hediscountrateistheinterestrate T A) hatbankschargetheirbestcustomers. t B) ninterbanklending. o C) hattheFedchargesonloansofreservestodepositoryinstitutions t D) hatbankinsurerspayoninsureddeposits. t 41) nopenmarketoperationinvolves A A) hangingfederalincometaxrates. c B) heFederalReservespurchaseorsaleofgovernmentsecurities. t C) aisingthedebtlimitoftheUnitedStates. r D) heissuanceofnewcorporatestock. t 42) henbanknoteswerefirstinvented,theywere W A) liabilitytothebearer. a B) nassettotheissuer. a C) onvertibletogoldondemand. c D) otconvertibletoanycommodity. n 43) hemonetarybaseisthesumof T A) ederalReservenotes,coins,andbanksdepositsattheFed. F B) oldholdingsandU.S.TreasurydepositsattheFed. g C) oreignanddomesticdepositsattheFed. f D) .S.Treasurynotesandothergovernmentsecurities. U 44) heChairmanoftheFedisappointedby________. T A) heU.S.Senate t B) hePresidentoftheUnitedStates t C) ongress C D) heBoardofGovernorsoftheFederalReserveSystem t 45) xcessreservesare E A) ctualreservesminusdesiredreserves. a B) esiredreservesminusactualreserves. d C) iquidityfundsminusactualreserves. l D) equiredreservesminusactualreserves. r

46) hemajorityofmoneyiscreatedwhen T A) anksmakeloans b C) ewcoinsareminted n

B) heFedsellsbonds t D) ewbillsareprinted n

Assets Liabilities Reserves Deposits $100 $400 Loans NetWorth $600 $300 Total Total $700 $700 47) heabovetablegivestheinitialbalancesheetforMiniBank.Ifthebanks T desiredreserveratiois10percent,howmuchdoesthisbankhaveinexcess reserves? A) 10 $ B) 100 $ C) 40 $ D) 60 $ 48) heabovetablegivestheinitialbalancesheetforMiniBank.MiniBanks T balancesheetissuchthatitwillmake A) ochangeinitslending. n B) oucannotpredictwhatthebankwilldofromthisbalancesheet. y C) oreloans. m D) ewerloans. f 49) hichofthefollowingbestdescribesthechainofeventsinthemoneycreation W process? A) owinterestratesdiscouragepeoplefromholdingcurrency.Whenthey L depositthecurrency,interestratesrise,increasingthequantityofmoney. B) esiredreservesincrease,encouragingbankstoseeknewdeposits.Whenthe D newdepositorscomein,desiredreservesdecreaseandthequantityofmoney increases. C) urrencyisdrainedfromthequantityofmoneyintothebankingsystem, C whereitislentout.Theloansarespent,increasingthecurrencydrainandalso thequantityofmoney. D) hemonetarybaseincreases.Banksacquireexcessreserveswhichtheyloan T out,increasingdepositsandalsothequantityofmoney.Thenewdeposits thencreateadditionalexcessreserves. 50) hemoneymultiplierdetermineshowmuch T A) oneydemandwillexpandgivenachangeinthequantityofmoney. m B) hemonetarybasewillbeexpandedgivenachangeinthequantityofmoney. t C) hequantityofmoneywillbeexpandedgivenachangeinthemonetarybase. t D) ealGDPwillbeexpandedgivenanincreaseinautonomousinvestment. r 51) upposethatthemoneymultiplieris6.Ifthemonetarybaseincreasesby$1million, S thequantityofmoneywill A) ncreaseby$6million. i B) ecreaseby$166,667. d C) ncreaseby$166,667. i D) ecreaseby$6million. d 52) nincreaseincurrencyheldoutsidethebanksis________. A A) currencysurplus a B) ealth w C) currencydrain a D) ncome i

 53) heopportunitycostofholdingmoneyisthe T A) riceofgoodsandservices. p B) nterestrate. i C) asewithwhichanassetcanbecomemoney. e D) evelofwageandrentalincome. l

54) hefigureaboveillustratestheeffectof T A) decreaseinrealGDP. a B) nincreaseinrealGDP. a C) decreaseinthemonetarybase. a D) nincreaseinthemonetarybase. a 55) nthemoneymarket,iftheinterestrateexceedstheequilibriuminterest,thereis I asurplusofmoney.Howisthesurpluseliminated? A) hehighinterestrateincreasesthedemandformoney,eliminatingthe T surplus. B) eoplebuybondstoridthemselvesofthesurplusmoney,biddinguptheir P priceandpushinginterestratesdown. C) heFederalReservewilldestroycurrency,reducingthequantityofmoney. T D) ankswilllendoutthesurplus,loweringinterestrates. B

 56) nthefigureabove,iftheinterestrateis8percent,peopledemand$0.1trillion I A) oremoneythanthequantitysuppliedandtheinterestratewillrise. m B) essmoneythanthequantitysuppliedandtheinterestratewillfall. l C) oremoneythanthequantitysuppliedandtheinterestratewillfall. m D) essmoneythanthequantitysuppliedandtheinterestratewillrise. l 57) nthefigureabove,iftheinterestrateis6percent, I A) hereisa$0.1trillionexcessquantityofmoneyandtheinterestratewillrise. t B) hereisa$0.1trillionexcessdemandformoneyandtheinterestratewillrise. t C) hereisa$0.1trillionexcessquantityofmoneyandtheinterestratewillfall. t D) hemoneymarketisinequilibriumandtheinterestratewillremainconstant. t 58) ntheshortrun,whichofthefollowingactionsraisetheinterestrate? I A) decreaseinthedemandformoney a B) nincreaseinthedemandformoney a C) nincreaseinthequantityofmoney a D) nincreaseinbondprices a 59) hedemandformoneycurveistherelationshipbetween________and________, T otherthingsremainingthesame. A) hequantityofmoneydemanded;therealinterestrate t B) hemoneydemanded;themoneysupplied t C) hequantityofrealmoneydemanded;thequantityofrealmoneysupplied t D) hequantityofrealmoneydemanded;theinterestrate t 60) frealGDPdecreases,thedemandformoneycurvewillshift I A) ightwardandtheinterestratewillrise. r B) eftwardandtheinterestratewillfall. l C) ightwardandtheinterestratewillfall. r D) eftwardandtheinterestratewillrise. l

 1) B 2) D 3) B 4) D 5) B 6) C 7) D 8) D 9) B 10) A 11) D 12) A 13) C 14) B 15) A 16) A 17) C 18) C 19) C 20) B 21) A 22) B 23) A 24) B 25) D 26) D 27) A 28) B 29) A 30) D 31) C 32) C 33) B 34) A 35) B 36) A 37) D 38) C 39) C 40) C 41) B 42) C 43) A 44) B 45) A 46) A 47) D 48) C 49) D 50) C 51) A

52) C 53) B 54) A 55) B 56) B 57) D 58) B 59) D 60) B