Question 1

The Federal Reserve Board of Governors consists of:

Accepted Answer

A)   50 members selected by state legislatures.
B)   12 members, one from each Federal Reserve District.
C)   12 members nominated by the President and confirmed by the Senate.
D)   seven members elected by Congress.
E)   seven members nominated by the President and confirmed by the Senate.F) B) and C)
G) C) and E)

Question 2

Economists who prefer a broader definition of money prefer the:

Accepted Answer

A)   M4 measure of the money supply to the M1 measure.
B)   M2 measure of the money supply to the M1 measure.
C)   M3 measure of the money supply to the M2 measure.
D)   prefer the M1 measure of the money supply to the M2 measure.E) None of the above
F) A) and C)

Question 3

Which of the following assets is most liquid?

Accepted Answer

A)   Funds in a checking account.
B)   A car.
C)   A home.
D)   A municipal bond.E) All of the above
F) A) and B)

Question 4

When M1 is expanded to M2, the money supply:

Accepted Answer

A)   almost doubles.
B)   more than triples.
C)   goes up tenfold in size.
D)   changes very little.
E)   goes up by 50 percent.F) None of the above
G) D) and E)

Question 5

The difference between M1 and M2 is given by which of the following?

Accepted Answer

A)   M1 includes currency, coins, gold and silver, whereas M2 does not contain gold and silver.
B)   M1 is made up of currency, traveler's checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits and time deposits.
C)   M1 is limited to currency, whereas M2 contains M1 plus traveler's checks and money in checkable accounts.
D)   M1 includes currency and traveler's checks, whereas M2 contains M1 plus money in checking accounts.E) B) and C)
F) A) and B)

Question 6

M1 includes savings accounts.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following provides the best explanation of why money is valuable?

Accepted Answer

A)   Money is valuable because it is indivisible.
B)   Money is valuable because it is scarce.
C)   Money is valuable because it is backed by precious metals, primarily gold and silver.
D)   Money is valuable because it has intrinsic value, independent of its use as a means of exchange.E) None of the above
F) A) and C)

Question 8

Which definition of the money supply includes credit cards?

Accepted Answer

A)   M1.
B)   M2.
C)   M3.
D)   None of the above includes credit card balances.E) B) and C)
F) None of the above

Question 9

The Monetary Control Act of 1980:

Accepted Answer

A)   allowed savings and loan associations to offer checking accounts.
B)   allowed more institutions to offer checking account services.
C)   created greater competition among various financial institutions.
D)   all of the above.
E)   none of the above.F) A) and C)
G) A) and B)

Question 10

The money supply known as M2:

Accepted Answer

A)   includes large denomination time deposits.
B)   excludes interest-earning checking accounts in savings and loans.
C)   does not include money market mutual accounts.
D)   includes savings accounts and small denomination time deposits.
E)   includes large denomination repurchase agreements.F) A) and B)
G) A) and C)

Question 11

Gold is a perfect medium of exchange and measure of value because of its:

Accepted Answer

A)   divisibility, portability, and homogeneity.
B)   divisibility and durability.
C)   durability and relative scarcity.
D)   durability and homogeneity.
E)   divisibility, durability, and relative scarcity.F) B) and C)
G) D) and E)

Question 12

The Fed's responsibilities include controlling the money supply, clearing checks, and supervising and regulating banks.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a desirable property of money?

Accepted Answer

A)   Scarcity.
B)   Portability.
C)   Divisibility.
D)   All of the above.E) None of the above
F) A) and D)

Question 14

Which of the following is not counted as part of M1?

Accepted Answer

A)   Coins.
B)   Federal Reserve notes or " paper money."
C)   Passbook savings deposits.
D)   Checkable deposits.E) None of the above
F) C) and D)

Question 15

The Federal Deposit Insurance Corporation (FDIC) :

Accepted Answer

A)   insures all demand deposit accounts up to $10 million in banks choosing FDIC protection.
B)   was created as a government-owned corporation following the creation of the World Bank and the International Monetary Fund after World War II.
C)   rarely evaluates bank performance to detect weaknesses in operation.
D)   creates monetary policy in conjunction with the Federal Reserve Board.
E)   was created to reduce the risk of banking by compensating depositors and keeping bank failures from spreading.F) C) and D)
G) A) and D)

Question 16

Credit cards are money because they serve the three functions of money.

Accepted Answer

A) True 
 B)False

Question 17

The characteristics that money should have include:

Accepted Answer

A)   portability, durability, and flexibility.
B)   durability, flexibility and stability.
C)   durability, portability, and non-homogeneity.
D)   scarcity, portability, and divisibility.
E)   portability, homogeneity, and flexibility.F) A) and B)
G) A) and E)

Question 18

The number of presidentially appointed members who sit on the Federal Reserve Board of Governors is:

Accepted Answer

A)   none.
B)   seven.
C)   nine.
D)   twelve.E) C) and D)
F) A) and B)

Question 19

What is the "store of value" function of money?

Accepted Answer

A)   ​A common measurement of the relative value of different goods and services.
B)   ​The ability of money to hold value over time.
C)   ​The quality of money not to be hoarded because of its commodity value.
D)   ​The function of money to be widely accepted in exchange for goods and services.​E) A) and D)
F) A) and C)

Question 20

Which of the following groups oversees and administers the Federal Reserve System?

Accepted Answer

A)   The House of Representatives.
B)   The President's Council of Economic Advisors.
C)   The U.S. Treasury Department.
D)   None of the above, the Fed is an independent agency.E) A) and B)
F) All of the above

Exam 18: Money and the Federal Reserve System

Which of the following is a desirable property of money?

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Which of the following assets is most liquid?

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Credit cards are money because they serve the three functions of money.

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The Fed's responsibilities include controlling the money supply, clearing checks, and supervising and regulating banks.

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The difference between M1 and M2 is given by which of the following?

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Gold is a perfect medium of exchange and measure of value because of its:

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When M1 is expanded to M2, the money supply:

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M1 includes savings accounts.

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The Federal Reserve Board of Governors consists of:

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Which definition of the money supply includes credit cards?

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What is the "store of value" function of money?

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The Monetary Control Act of 1980:

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The characteristics that money should have include:

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Economists who prefer a broader definition of money prefer the:

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Which of the following is not counted as part of M1?

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The number of presidentially appointed members who sit on the Federal Reserve Board of Governors is:

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The money supply known as M2:

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The Federal Deposit Insurance Corporation (FDIC) :

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Which of the following groups oversees and administers the Federal Reserve System?

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Which of the following provides the best explanation of why money is valuable?

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