Sample Multiple Choice QuestionsSample Multiple Choice Questions

Chapter 9
1. The functions of money do not include
[A] a medium of exchange.
[B] a store of value.
[C] a unit of account.
[D] an exchange of purchasing power.
[E] a standard of deferred payment.
2. To economists, money
[A] means the same thing as income.
[B] means the same thing as earnings.
[C] means the same thing as wealth.

[D] all of these.

[E] functions as a medium of exchange.
3. Suppose transactions are conducted in pesos, and prices are quoted in
dollars. The primary function(s) of the peso in this case is (are)
[A] medium of exchange.
[B] unit of account and store of value.
[C] unit of account.
[D] medium of exchange and unit of account.
[E] store of value.
4. When you put your spare change into your child s piggy bank, money is serving
as a
[A] unit of account and store of value.
[B] store of value.
[C] medium of exchange.
[D] unit of account.
[E] medium of exchange and unit of account.
5. Before you buy your new car, you visit four local dealerships and collect
information on the prices and features of the cars. In this case, you are using
money as a
[A] medium of exchange.
[B] unit of account.
[C] store of value and unit of account.
[D] store of value.
[E] store of value and medium of exchange.
6. Which of the following is the most common form of money?
[A] Coins
[B] Checking deposits
[C] Currency
[D] Paper money
[E] Commodity money
7. M1 consists of
[A] currency plus checking deposits plus traveler s checks plus savings deposits
only.
[B] paper money only.
[C] currency plus checking deposits plus travelers checks only.
[D] currency plus checking deposits only.
[E] currency only.
8. Which of the following would not be counted as part of M1?
[A] Travelers checks
[B] Savings deposits
[C] Demand deposits
[D] Currency
[E] Paper money
9. As a measure of money, M1 emphasizes the use of money as
[A] a unit of account.
[B] a standard of deferred payment.
[C] an illiquid asset.
[D] a store of value.
[E] a medium of exchange.
10. M2 includes
[A] M1 minus savings accounts.
[B] M1 plus savings accounts and small time deposits.
[C] M1 plus government bonds.
[D] M1 plus U.S. government securities.
[E] M1 plus term Eurodollar deposits.
11. Banks are referred to as intermediaries because
[A] they earn a profit.
[B] they provide a way for people to save their money.
[C] they charge interest on a loan.
[D] they are part of the money-supply process.
[E] they channel funds from depositors to borrowers.
12. The Federal Reserve

[A] is another name for the U.S. Treasury.

[B] exists primarily to be the bank of the federal government.
[C] serves as a bank to other banks.
[D] controls the supply of money according to the gold standard.
[E] exists only to control the supply of currency in the economy.
13. The above table shows the balance sheet (in millions of dollars) for Bank
INF. Assuming the bank s reserves are what is required by law, the required
reserve ratio is
[A] 5 percent.
[B] 15 percent.
[C] 30 percent.
[D] 70 percent.
[E] 85 percent.
14. If the Fed sells $15 million worth of government bonds to Bank Zip, then
initially
[A] the amount of reserves held by Bank Zip will increase by $15 million.
[B] the amount of reserves held by Bank Zip will decrease by $15 million.
[C] the amount of deposits held by Bank Zip will decrease by $15 million.
[D] the amount of deposits held by Bank Zip will increase by $15 million.
[E] the amount of bonds held by Bank Zip will decrease by $15 million.
15. To increase bank reserves, the Fed will
[A] sell bonds to banks.
[B] buy bonds from the government.
[C] sell bonds to the public.
[D] sell bonds to the government.
[E] buy bonds from banks.
16. The buying and selling of bonds by the Fed to change bank reserves is
referred to as
[A] reserve accounting.
[B] speculation.
[C] financial intermediation.
[D] open-market operations.

[E] asset and liability management.

17. Suppose the required reserve ratio is 10 percent, and banks hold no excess
reserves. If the Fed purchases $10 million worth of government bonds from Bank
INF, the amount of deposits held by the entire banking system will ultimately
[A] increase by $100 million.
[B] increase by $10 million.
[C] not change.
[D] decrease by $10 million.
[E] decrease by $100 million.
18. The supply of money is defined in the text as
[A] currency minus reserves.
[B] currency plus deposits.

[C] reserves plus deposits.

[D] currency plus reserves plus deposits.
[E] currency plus reserves.
19. The monetary base is equal to
[A] currency plus reserves.
[B] currency plus deposits.
[C] the money supply.
[D] deposits plus reserves.
[E] currency plus reserves plus deposits.
20. The relationship between the monetary base and the money supply is called
[A] GDP.
[B] the required reserve ratio.
[C] the quantity equation.
[D] velocity.
[E] the money multiplier.
21. Which of the following statements best describes the money multiplier?
[A] The money multiplier shows how much loans will change as a result of a
change in reserves.
[B] The money multiplier shows how much the money supply will change as a result
of a change in the monetary base.

[C] The money multiplier shows how much the money supply will change as a result
of a given change in reserves.
[D] The money multiplier shows how much deposits will change as a result of a
change in reserves.
[E] The money multiplier shows how much the money supply will change as a result
of a change in deposits.
22. Suppose the amount of reserves in the banking system equals $100 billion,
the amount of deposits equals $800 billion, and the amount of currency equals
$200 billion. Under these circumstances the money multiplier would equal
[A] 0.30.
[B] 0.37.
[C] 2.70.

[D] 3.33.
[E] 2.95.
23. If the currency-to-deposit ratio is 0.3 and the reserve-to-deposit ratio is
0.1, the money multiplier is equal to
[A] 3.25.
[B] 0.31.
[C] 4.0.
[D] 2.8.
[E] 2.75.