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The functions of money are to serve as a: A) factor of production, exchange, and aggregate supply B) determinant of consumption, investment, and government spending C) resource allocator, method for accounting, and means of income distribution D) unit of account, store of value, and medium of exchange 2. Having something to utilize as an exchange standard eliminates the need for this phenomenon: A) coincidence of wants B) medium of exchange C) resource allocation D) standard of confidence 3. Coins and paper money are: A) credits of the Federal government and government agencies B) debts of commercial banks and savings institutions C) credits of commercial banks and savings institutions D) debts of the Federal Government and government agencies 4. Checkable deposits are: A) credits of commercial banks and savings institutions B) debts of commercial banks and savings institutions C) debts of the Federal Government and government agencies D) credits of the Federal government and government agencies 5. Large time deposits are included in: A) M3 B) M2 and M3 C) M2 D) M1 6. Use the following table to answer questions 6 through 8:
Item Checkable deposits Small time deposits Currency Large time deposits Savings deposits, including Money Market Deposit Accounts Money market mutual funds Billions of dollars $597 818 639 2,696 2,866 979

6. The size of the M1 money supply is: A) $1,618 billion B) $979 billion C) $1,236 billion D) $1,415 billion 7. The size of the M2 money supply is: A) $5,899 billion B) $6,792 billion C) $2,696 billion D) $2,054 billion

8. Refer to the table on the previous page. The size of the M3 money supply is: A) $8,595 billion B) $5,562 billion C) $9,211 billion D) $7,342 billion 9. One reason that near-monies are important is because: A) they do not reflect the level of consumer spending but they have a critical impact on saving and investment in the economy B) they simplify the definition of money and therefore the formulation of monetary policy C) credit cards synchronize ones expenditures and income, thereby reducing the cash and checkable deposits one must hold D) they can be easily converted into money or vice versa, and thereby can influence the stability of the economy 10. Which best describes the backing for money in the United States? A) the willingness of foreign governments to hold U.S. dollars B) the gold stored in the Federal Reserve Bank of New York C) the size of the budget surplus in the U.S. government D) the acceptability of it as a medium of exchange 11. If the value of the dollar is falling, then it follows that: A) the price index is rising B) real incomes are falling C) interest rates are rising D) the price index is falling 12. A decrease in the interest rate will cause a(n): A) decrease in the amount of money held as an asset B) increase in the transactions demand for money C) increase in the amount of money held as an asset D) decrease in the transactions demand for money 13. An increase in the nominal GDP will: A) increase the transactions demand for money but decrease the total demand for money B) increase the transactions demand and total demand for money C) decrease the transactions demand for money but increase the total demand for money D) decrease the transactions demand and total demand for money 14. In which case would the quantity of money demanded by the public tend to increase by the greatest amount? A) the interest rate decreases and nominal GDP increases B) the interest rate increases and nominal GDP increases C) the interest rate increases and nominal GDP decreases D) the interest rate decreases and nominal GDP decreases 15. If the interest rate is above equilibrium, the: A) supply of money would increase and the demand for money would decrease B) demand for money would increase and the supply of money would decrease C) quantity of money demanded would be less than the quantity of money supplied D) quantity of money demanded would be greater than the quantity of money supplied

16. If bond prices decrease, then the: A) interest rate will increase B) transactions demand for money will increase C) interest rate will decrease D) transactions demand for money will decrease 17. The Federal Reserve Banks are owned by the: A) United States Treasury B) Federal government C) member banks D) Board of Governors 18. The Open Market Committee of the Federal Reserve System (Fed) is the committee which: A) follows the actions and operations of financial markets to keep them open and competitive B) provides advice on banking policy to the Fed C) monitors regulatory banking laws for member banks D) sets policy on the sale and purchase of government bonds by the Fed 19. The main function of the Fed is to: A) clear checks from member banks B) control the money supply C) supervise the operation of member banks D) serve as the fiscal agent for the Federal government 20. Holding the money deposits of businesses and households and making loans to the public are the basic functions of: A) the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation B) the Open Market Committee and the Board of Governors C) district banks of the Federal Reserve System D) commercial banks and thrift institutions 21.Which would be a recent development in the banking industry? A) an increase in the amount of savings held by banks relative to other financial institutions B) an expansion in the number of banks and thrifts C) a convergence of services offered by financial institutions D) a decrease in the integration of global financial markets 22. The use of E-cash and smart cards: A) serves effectively as a measure of value, but not as a medium of exchange B) will increase consumer choice, but will reduce productivity in the financial services industry C) accounts for most of the financial transactions in the United States D) will make it more difficult for the Federal Reserve to control the money supply 23. The use of a credit card is most similar to : A) reducing the value of the U.S. dollar B) obtaining a short-term loan from a financial institution C) creating legal tender D) purchasing a certificate of deposit at a commercial bank

24. What is the best explanation for the billions in American currency being held abroad? A) U.S. multinational corporations are holding the money but not reporting it B) there has been a proliferation of automatic teller machines throughout the world that allow people access to U.S. currency C) drug dealers and others in the underground economy are holding the money D) residents in some foreign nations are using U.S. currency as stable domestic currency to make transactions 25. American dollars circulating abroad are a: A) cost to the American economy because the United States loses about $0.96 on every dollar held abroad B) benefit to the United States because the nation makes about $0.96 on every dollar held abroad C) benefit to the United States because the nation can get rid of its used paper currency D) cost to the United States because banks and financial corporations lose money issuing travelers checks 26. Bank net worth is the: A) claims of the nonowners of the bank against bank assets B) Claims of the owners of the bank against bank assets C) measure of the profitability of the bank D) value of the banks vault cash and loan portfolio 27. A bank has $2 million in checkable deposits. In the banks balance sheet, this would be an example of: A) net worth B) capital stock C) a liability D) an asset 28. What is one significant characteristic of fractional reserve banking? A) banks use deposit insurance for loans to customers B) Banks can create money through lending their reserves C) banks are not subject to panics or runs D) bank loans will be equal to the amount of gold on deposit 29. Legal reserve requirements: A) provide the FDIC with the power to protect deposits at commercial banks and thrifts B) give commercial banks more legal control over the money supply C) limit windfall profits in the commercial banking system D) permit the Federal Reserve System to control the lending capacity of banks 30. A bank is in the position to make loans when required reserves: A) are less than actual reserves B) are greater than actual reserves C) equal excess reserves D) equal actual reserves 31. When a check is cleared against a bank, it will lose: A) loans and demand deposits B) cash and securities C) checkable deposits and reserves D) reserves and capital stock 32. If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves

equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multip0lier for the banking system will be: A) 4 B) 5 C) 6 D) 3 33. Unless controlled by the Federal Reserve, money creation by banks will: A) not change over the business cycle B) increase during prosperous times and increase during recession C) increase during prosperous times and decrease during recession D) decrease during prosperous times and decrease during recession 34. Profit-motivated bankers and the banking system would be expected to vary the money supply in a way that: A) has no effect on cyclical fluctuations in the economy B) gives emphasis to currency over checkable deposits C) reinforces cyclical fluctuations in the economy D) offsets cyclical fluctuations in the economy 35. The establishment of a Federally insured deposit program resulted from the: A) speculation during World War I B) stock market crash of 1929 C) bank panics of 1930-1933 D) establishment of the Federal Reserve System in 1913. BONUS QUESTIONS These optional questions are worth one point each; getting them all could increase your score one letter grade. NOTE: Answer these on the LAST TEN LINES of the bubble sheet side you are using. --------------------------------1. If average income increases, ceteris paribus, then there will be: A) a shift of the demand curve B) a movement along the demand curve C) a movement along and a shift in the demand curve D) no effect on the demand curve, because income is not a ceteris paribus condition 2. Specialization and trade are beneficial to society because: A) the output of economic goods may be increased with no increase in resources B) scarce resources are utilized more efficiently C) a division of labor lowers prices for products D) all of the above are correct 3. The term double taxation refers to the fact that: A) taxes are paid on corporate profits and stockholders pay taxes on dividends received B) if a husband and wife have jobs, they both have to pay social security taxes C) American citizens must pay both income taxes and sales taxes D) American citizens have to pay Federal taxes and state taxes 4. Assume that Nation As production possibility is either 30 unite of bricks or 50 units of wheat. Nation Bs production possibility is 20 units of bricks or 40 units of wheat. Which of the following is true?

A) Nation A is the least-cost producer of wheat B) the high cost producer of bricks is Nation A C) The opportunity cost of wheat production is lower in Nation B D) according to comparative advantage, Nations B should specialize in the production of bricks 5. The largest component of GDP is: A) government purchases B) personal consumption expenditures C) gross private domestic investment D) net foreign factor income earned in the United States 6. The value added by firms A-E from the production of the product descried below is:
Stage of production Firm A Firm B Firm C Firm D Firm E Sales value of materials or products $800 1,250 1,850 2,600 3,800

A) $3,000 B) $3,800 C) $6,500 D) $10,300 7. The unemployment rate in an economy is 12%. The civilian labor force is 50 million. The number of employed workers in the economy is: A) 38 million B) 40 million C) 42 million D) 44 million

Use the following to answer question 8:

C o n s u m p t i o n 45o 0

G A D

Consu mption

C 1

E 2 3

Disposable Income

8. Disposable income equals consumption at point: A) A B) C C) D D) G

Use the following table to answer question 9: The table is for a no-government economy. All figures are in billions of dollars.
GDP $440 490 540 590 640 Consumption $450 490 530 570 610

9. If gross investment is $20 billion at all levels of GDP and net exports are zero, the equilibrium GDP after these injections will be: A) $490 billion B) $540 billion C) $590 billion D) $640 billion 10. Which would be one of the factors that increase aggregate demand? A) an increase in personal income tax rates B) an increase in the productivity of labor C) an increase in consumer wealth D) an increase in real interest rates