Question 1

When commercial banks make loans, they

Accepted Answer

A)   increase bank capital.
B)   increase bank reserves.
C)   create checking account money.
D)   create new currency.E) C) and D)
F) B) and C)

Question 2

Changes in the money supply do not always cause predictable changes in the level of spending because

Accepted Answer

A)   the velocity of money is not always constant.
B)   the inflation rate varies.
C)   the economy's proximity to full employment varies.
D)   the saving rate varies.E) A) and B)
F) A) and C)

Question 3

Which of the following is not included in M3?

Accepted Answer

A)   Institutional money market mutual fund shares
B)   Large-denomination time deposits
C)   Small-denomination time deposits
D)   All of the above are included in M3.E) All of the above
F) C) and D)

Question 4

Money functions as a standard of value when people

Accepted Answer

A)   compare prices.
B)   buy financial assets.
C)   purchase goods and services.
D)   save.E) All of the above
F) None of the above

Question 5

When hyperinflation occurs, money becomes a less efficient medium of exchange because money ceases to be a reliable

Accepted Answer

A)   store of value.
B)   unit of account.
C)   investment.
D)   source of income.E) B) and C)
F) A) and D)

Question 6

The M1 definition of the money supply includes

Accepted Answer

A)   Eurodollars.
B)   travelers' checks.
C)   large-denomination certificates of deposit.
D)   small-denomination certificates of deposit.E) C) and D)
F) None of the above

Question 7

Which of the following is the least liquid?

Accepted Answer

A)   A checking account
B)   A government bond
C)   A traveler's check
D)   A money market deposit accountE) A) and C)
F) B) and C)

Question 8

The proportion of the money supply that is held in the form of currency is ultimately determined by

Accepted Answer

A)   the Federal Reserve.
B)   the public.
C)   the U.S. Congress.
D)   commercial banks.E) B) and D)
F) B) and C)

Question 9

Increases in the money supply will not necessarily cause inflation if the increase in the money supply is offset by

Accepted Answer

A)   a falling velocity of money.
B)   a constant velocity of money.
C)   falling GDP levels.
D)   full employment.E) A) and B)
F) None of the above

Question 10

Which of the following is the most liquid?

Accepted Answer

A)   A Eurodollar deposit
B)   Currency
C)   A checking account
D)   A small-denomination time depositE) None of the above
F) B) and C) B

Question 11

The difference between M1 and M2 definitions of the money supply is that M2 includes

Accepted Answer

A)   demand deposits at banks.
B)   large denomination time deposits.
C)   retail money market mutual funds shares.
D)   NOW accounts.E) B) and D)
F) None of the above C

Question 12

Money increases economic growth by facilitating transfers from

Accepted Answer

A)   savers to borrowers.
B)   the government to investors.
C)   investors to savers.
D)   investors to borrowers.E) A) and C)
F) None of the above

Question 13

The M1 definition of money includes

Accepted Answer

A)   currency outside banks plus checkable deposits and Eurodollars.
B)   currency outside banks plus checkable deposits plus retail money market deposit accounts.
C)   currency outside banks plus checkable deposits plus traveler's checks.
D)   currency outside banks plus checkable deposits plus small-denomination time deposits.E) A) and B)
F) A) and C)

Question 14

Changes in the money supply have an immediate effect on an economy's

Accepted Answer

A)   liquidity.
B)   GDP.
C)   price level.
D)   employment.E) C) and D)
F) A) and D)

Question 15

__________ is the narrowest and most traditional definition of money.

Accepted Answer

A)   M1
B)   M2
C)   M3
D)   M4E) B) and C)
F) B) and D) A

Question 16

Deflation is another word for

Accepted Answer

A)   falling prices.
B)   hyperinflation.
C)   recession.
D)   depression.E) All of the above
F) A) and C)

Question 17

In the United States, the money supply is determined by the

Accepted Answer

A)   Federal Reserve.
B)   U.S. Congress.
C)   U.S. Treasury.
D)   Federal Deposit Insurance Corporation.E) A) and D)
F) C) and D)

Question 18

In the United States, money is backed by

Accepted Answer

A)   gold.
B)   gold and silver.
C)   gold, silver, and Federal Reserve notes.
D)   social convention and the legal system.E) None of the above
F) B) and D)

Question 19

An increase in the money supply is most likely to lead to rising prices when

Accepted Answer

A)   velocity is declining.
B)   money demand is rising.
C)   supply and demand are equal.
D)   the economy is producing under conditions of high employment.E) None of the above
F) A) and C)

Question 20

In a recession, an increase in the money supply is likely to cause

Accepted Answer

A)   some increase in interest rates.
B)   some increase in output.
C)   some increase in velocity.
D)   an equal increase in inflation.E) B) and C)
F) All of the above

Exam 2: The Role of Money in the Macroeconomy

When commercial banks make loans, they

Correct AnswerverifiedShow Answer

Changes in the money supply do not always cause predictable changes in the level of spending because

Correct AnswerverifiedShow Answer

Which of the following is not included in M3?

Correct AnswerverifiedShow Answer

Money functions as a standard of value when people

Correct AnswerverifiedShow Answer

When hyperinflation occurs, money becomes a less efficient medium of exchange because money ceases to be a reliable

Correct AnswerverifiedShow Answer

The M1 definition of the money supply includes

Correct AnswerverifiedShow Answer

Which of the following is the least liquid?

Correct AnswerverifiedShow Answer

The proportion of the money supply that is held in the form of currency is ultimately determined by

Correct AnswerverifiedShow Answer

Increases in the money supply will not necessarily cause inflation if the increase in the money supply is offset by

Correct AnswerverifiedShow Answer

Which of the following is the most liquid?

Correct AnswerverifiedB

The difference between M1 and M2 definitions of the money supply is that M2 includes

Correct AnswerverifiedC

Money increases economic growth by facilitating transfers from

Correct AnswerverifiedShow Answer

The M1 definition of money includes

Correct AnswerverifiedShow Answer

Changes in the money supply have an immediate effect on an economy's

Correct AnswerverifiedShow Answer

__________ is the narrowest and most traditional definition of money.

Correct AnswerverifiedA

Deflation is another word for

Correct AnswerverifiedShow Answer

In the United States, the money supply is determined by the

Correct AnswerverifiedShow Answer

In the United States, money is backed by

Correct AnswerverifiedShow Answer

An increase in the money supply is most likely to lead to rising prices when

Correct AnswerverifiedShow Answer

In a recession, an increase in the money supply is likely to cause

Correct AnswerverifiedShow Answer

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B

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C

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A

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