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Money is
A) the same as income.
B) anything that is generally accepted as a medium of exchange.
C) the
value of all coins and currency in circulation at any time.
D) backed by gold in Fort Knox.
 
Any transaction that involves exchanging one good for another without using money is considered a
A) liquidity transaction.
B) barter transaction.
C) deferred payment.
D) black market exchange.
 
Jacob makes excellent tamales and Amanda is very good at mowing lawns. Amanda agrees to mow Jacob'ʹs lawn, if he makes her a dozen tamales. This is an example of
A) legal tender.
B) barter.
C) commodity money.
D) fiat money.
 
Which of the following factors causes the barter system to be inefficient?
A) Its cost of transaction is too low.
B) The cost associated with information search is too low.
C) It requires a double coincidence of wants. D) It requires high liquidity.
 
Josie wants to trade swimming lessons for cooking lessons. Maria wants to trade cooking lessons for swimming lessons. Josie and Maria have
A) the basis for a liquidity exchange.
B) a double incidence of demand.
C) the basis for a double fiat exchange.
D) a double coincidence of wants.
 
The development of money as a medium of exchange has facilitated the expansion of trade because
A) holding money increases people'ʹs wealth.
B) holding money increases people'ʹs income.
C) money eliminates the "ʺdouble coincidence of wants"ʺ problem.
D) no other mediums of exchange are available.
 
When money is used as a medium of exchange
A) the need for a barter system diminishes.
B) the cost of transactions increases.
C) the need for a banking system in the economy decreases.
D) it reduces the number of transactions in the economy.
 
Betty won $500 in a poker tournament. She deposits her $500 winnings into a money market fund so that she can use the money next year to help her pay for a trip to Las Vegas. This is an example of money serving as a(n)
A) unit of account.
B) medium of exchange.
C) store of value.
D) investment good.
 
When you pay $8 for salad you ordered for lunch, you are using money as a(n)
A) store of value.
B) investment good.
C) medium of exchange.
D) unit of account.
 
Veronica received a federal income tax rebate check of $600 in May 2008. Veronica put this money in a saving account so that she could spend it when she went on vacation in July 2008. This is an example of money serving as a(n)
A) store of value.
B) medium of exchange.
C) unit of account.
D) investment good.
 
When you keep your savings in a saving account, you are using money as a(n)
A) investment good.
B) store of value.
C) medium of exchange.
D) unit of account.
 
The main disadvantage of using money as a store of value is that
A) money is not portable.
B) it requires a double coincidence of wants.
C) currency is intrinsically worthless.
D) the value of money actually falls when the prices of goods and services rise.
 
The liquidity property of money is the property that makes money
A) a good medium of exchange and a good unit of account.
B) a good store of value and a good unit of account.
C) a good medium of exchange and a good store of value.
D) a good store of value and a good standard of deferred payment.
 
When the manager of a department store attaches price tags to his/her products, he/she is using money as a
A) medium of exchange.
B) store of value.
C) unit of transfer.
D) unit of account.
 
Circuit City, a retailer of electronics, has 2,000 different products in inventory. Circuit City reports its inventory is worth $12 million. This is an example of using money as a
A) medium of exchange.
B) unit of account.
C) standard of deferred payment.
D) store of value.
 
Denny'ʹs lists the price of a Grand Slam Breakfast at $4.99 a plate. Listing the price on the menu is an example of money serving as a(n)
A) store of value.
B) unit of account.
C) medium of exchange.
D) investment good.
 
When Mexico experiences a period of high inflation and Mexicans lose confidence in their peso as a store of value, which of the following would be most likely to occur?
A) The demand for pesos would increase.
B) The buying power of the peso
would increase.
C) The value of foreign currencies would depreciate relative to the peso.
D) Mexicans would use a different currency as a medium of exchange.
 
A currency that is not backed by gold, silver, or any other precious commodity equal to the face value of the money is known as
A) fake money. B) weak money.
C) token money.
D) commodity money.
 
After World War II, cigarettes were used as money in Germany. This is an example of
A) fiat money.
B) legal money.
C) token money.
D) commodity money.
 
The U.S. dollar is an example of fiat money because
A) it is the strongest currency in the world.
B) it is the most widely used currency in international trade.
C) it is backed by a large reserve of gold and silver.
D) by law, it is decreed as money.
 
Which of the following is an example of fiat money?
A) cigarettes
B) an ounce of gold
C) a U.S. one-hundred dollar bill
D) a government bond
 
Money that a government has required to be accepted in settlement of debts is
A) fiat money.
B) commodity money.
C) barter money.
D) legal tender.
 
To ensure that paper money will be accepted, the U.S. government implicitly promises the public that
A) it will not print money so fast that it loses its value.
B) it will not change the rate at which the dollar is exchanged for other currencies.
C) it will always remain the strongest currency of all industrialized nations.
D) the U.S. monetary system will always be backed by a precious metal.
 
Currency debasement occurs when
A) the value of money falls as a result of a rapid increase in its supply.
B) the government requires that a certain form of money must be accepted in settlement of debts.
C) items are designated as money that are intrinsically worthless.
D) items are used as money that also have intrinsic value in some other use.
 
Assume that in the country of Salmon, the government tripled the money supply overnight. As a result of this action, the price of a loaf of bread increased from 1 bill to 100 bills. This is an example of
A) a change in the legal tender.
B) a change from commodity money to fiat money.
C) currency debasement.
D) deflation.
 
Currency held outside banks + demand deposits + travelers checks + other checkable deposits =
A) M2
B) M1 and M2
C) neither M1 or M2
D) M1
 
Transaction money is
A) M1.
B) M2.
C) M3.
D) M4.
 
Traveler'ʹs checks are
A) not money.
B) included in M1 and M2.
C) not included in M2.
D) not included in M1.
 
Which of the following is included in M2, but not included in M1?
A) currency held outside banks
B) travelers checks
C) demand deposits
D) savings accounts
 
Jaime transfers $2,500 from his checking account to his savings account. This transaction will
A) decrease both M1 and M2.
B) not change M1 and decrease M2.
C) decrease M1 and not change M2.
D) increase both M1 and M2.
 
Ruby transfers $700 from her saving account to her checking account. This transaction will
A) increase M1 and not change M2.
B) not change M1 and decrease M2.
C) increase both M1 and M2.
D) decrease both M1 and M2.
 
Teddy transfers $175 from his money market fund to his checking account. This transaction will
A) decrease M2 and increase M1.
B) increase M1, but leave M2 unchanged.
C) decrease M1 and increase M2.
D) decrease both M1 and M2.
 
Which of the following would NOT be counted as part of M1?
A) demand deposits
B) traveler'ʹs check
C) money market accounts
D) currency
 
Saving account balances are included in
A) M1.
B) M2.
C) neither M1 nor M2.
D) both M1 and M2.
 
Which of the following would NOT be included in M2?
A) demand deposits
B) money market accounts
C) checking accounts
D) Treasury bonds
 
Included in M2 are
A) bank loans.
B) credit cards.
C) bank capital.
D) demand deposits
 
Which of the following would NOT be included in M1?
A) demand deposits
B) money market accounts
C) checking accounts
D) traveler'ʹs checks
 
Currency held outside banks is included in
A) both M1 and M2.
B) M2 only.
C) M1 only.
D) neither M1 nor M2.
 
Close substitutes for transactions money are known as
A) fiat monies.
B) near monies.
C) commodity monies.
D) token monies.
 
Which of the following is the best example of a near money?
A) a valuable painting
B) a dollar bill
C) a Treasury bond
D) a money market account
 
An equation for M1 is
A) M2 + Savings Accounts - Currency Held Outside Banks + Other Near Monies.
B) M2 - Savings Accounts - Money Market Accounts - Other Near Monies.
C) Money Market Accounts + Automatic-transfer Savings Accounts.
D) M2 + Near Monies
 
The main advantage of using M2 instead of M1 as the measure for money is that
A) M2 can be measured more accurately.
B) M2 includes only instantly accessible assets.
C) M2 is sometimes more stable.
D) M2 varies as the interest rate varies.
 
Commercial banks
A) implement monetary policy.
B) are nonprofit organizations that lend and borrow funds.
C) are financial intermediaries that lend funds and accept deposits.
D) hold reserves against bank capital.
 
Among the assets of a commercial bank are
A) loans.
B) demand deposits.
C) savings deposits.
D) time deposits.
 
Among the liabilities of commercial banks are
A) loans.
B) demand deposits.
C) reserves.
D) government securities.
 
Net worth is
A) assets - liabilities.
B) assets + capital.
C) assets - capital.
D) assets + liabilities.
 
Related to the Economics in Practice on p. 183 [495]: In the Solomon Islands, dolphin teeth are used as currency. In this instance, dolphin teeth would be considered
A) fiat money.
B) token money.
C) commodity money.
D) legal tender.
 
Related to the Economics in Practice on p. 183 [495]: In the Solomon Islands, dolphin teeth are used as currency. Using dolphin teeth to make a purchase would be using the teeth as a(n)
A) medium of exchange.
B) store of value.
C) unit of account.
D) legal tender.
 
When you use money to fill your car with gas every week, you are using money as a unit of account.
False
 
Money is anything that generally is accepted as a medium of exchange.
True
 
In an economy that uses fiat money, there is no need for double coincidence of wants.
true
 
When you take $100 from your saving account and deposit it in your checking account, M2 decreases.
False
 
If all banks are loaned up and so will not make further loans, a $1,000
deposit creates $1,000 in new money.
False
 
Fiat money is money the government says is money.
True
 
The M1 definition of money includes money market accounts.
False
 
The M2 definition of money includes demand deposits.
true
 
Napoli National Bank has liabilities of $3 million and net worth of $200,000. Napoli National Bank'ʹs assets are
A) $200,000.
B) $3 million
C) $3.2 million.
D) $2.8 million.
 
Saturn County Savings and Loan has liabilities of $400,000 and net worth of $125,000. Saturn County Savings and Loan'ʹs assets are
A) $525,000.
B) $275,000.
C) $400,000.
D) $125,000.
 
Thompson National Trust has assets of $500,000 and liabilities of $400,000. Thompson National Trust'ʹs net worth is
A) $900,000.
B) $400,000.
C) $100,000.
D) $500,000.
 
A commercial bank lists
A) loans as liabilities.
B) deposits as liabilities.
C) required reserves as liabilities.
D) excess reserves as liabilities.
 
Things that a firm owns that are worth something are classified as A) liabilities.
B) assets.
C) deposits.
D) net worth.
 
Which of the following is considered a liability to a bank?
A) time deposits
B) reserves
C) the bankʹs loans
D) the bankʹs buildings and equipment
 
The central bank of the United States is known as the
A) Federal Reserve System.
B) Federal Deposit Insurance Corporation.
C) Department of the Treasury.
D) Federal Savings and Loan Insurance Corporation
 
A loan made by a bank is considered ________ of that bank.
A) a liability
B) capital
C) net worth
D) an asset
 
A checking deposit in a bank is considered ________ of that bank.
A) an asset
B) a liability
C) net worth
D) capital
 
In T chart under liabilities -- Deposits of $800, Net worth of $400, total of $1,200 The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its reserves equal
A) $100.
B) $200.
C) $600.
D) $300.
 
In T chart under liabilities -- Deposits of $800, Net worth of $400, total of $1,200 The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its loans equal
A) $900.
B) $1,000.
C) $600.
D) $1,800.
 
In T chart under liabilities -- Deposits of $800, Net worth of $400, total of $1,200 First Charter Bank'ʹs total assets are
A) $1,200.
B) $400.
C) $800.
D) $2,400
 
Assets: Reserves $800,000 (required $200,000, Excess unknown), Loans unknown, total $2.5 million Liabilities: $2 million deposits, $500,000 net worth, total $2.5 mill: First Commercial Bank'ʹs excess reserves equal $________.
A) 600,000
B) 1,000,000
C) 200,000
D) 1,500,000
 
Assets: Reserves $800,000 (required $200,000, Excess unknown), Loans unknown, total $2.5 million Liabilities: $2 million deposits, $500,000 net worth, total $2.5 mill: The required reserve ratio
A) is 5%.
B) is 10%.
C) is 20%.
D) cannot be determined from the given information.
 
Assets: Reserves $800,000 (required $200,000, Excess unknown), Loans unknown, total $2.5 million Liabilities: $2 million deposits, $500,000 net worth, total $2.5 mill: First Commercial Bank'ʹs total loans equal $________.
A) 1,000,000
B) 5,000,000
C) 2,500,000
D) 1,700,000.
 
Assets: Reserves $300,000 (required $100,000, Excess unknown), Loans unknown, total $800,000 Liabilities: $500,000 deposits, unknown net worth, total $800,000: The net worth of People'ʹs Bank is $________.
A) 1,000,000
B) 200,000
C) 800,000
D) 300,000
 
Assets: Reserves $300,000 (required $100,000, Excess unknown), Loans unknown, total $800,000 Liabilities: $500,000 deposits, unknown net worth, total $800,000: The required reserve ratio is
A) 25%.
B) 20%.
C) 50%.
D) 10%.
 
Assets: Reserves $300,000 (required $100,000, Excess unknown), Loans unknown, total $800,000 Liabilities: $500,000 deposits, unknown net worth, total $800,000: People'ʹs Bank excess reserves are $________.
A) 200,000
B) 100,000
C) 300,000
D) 400,000
 
Assets: Reserves $300,000 (required $100,000, Excess unknown), Loans unknown, total $800,000 Liabilities: $500,000 deposits, unknown net worth, total $800,000: Total loans of People'ʹs Bank equal $________. A) 100,000
B) 400,000
C) 500,000
D) 800,000
 
Crescent City Bank has $200 million in deposits. Crescent City Bank is meeting its reserve requirement and has no excess reserves. It has $40 million in reserves. Crescent City Bank faces a required reserve ratio of
A) 5%.
B) 4%.
C) 20%.
D) 25%.
 
Narnia National Bank has $750 million in deposits. The required reserve ratio is 30%. Narnia National Bank must keep ________ in reserves.
A) $125 million
B) $150 million
C) $225 million
D) $250 million
 
Neon Bank has $300 million in deposits. The required reserve ratio is
25%. Neon Bank must keep ________ in reserves.
A) $275 million
B) $145 million
C) $75 million
D) $120 million
C
 
The Intracoastal Bank has $5 million in deposits and $500,000 in reserves. If the required reserve ratio is 5%, excess reserves are equal to
A) $125,000.
B) $500,000.
C) zero.
D) $250,000.
 
The Bank of Arugula has $9 million in deposits and $900,000 in reserves. If the required reserve ratio is 10%, excess reserves are equal to
A) $90,000.
B) $180,000.
C) $81,000.
D) zero.
 
The Bank of Red Oak has $2 million in deposits and $400,000 in reserves. If excess reserves are equal to $100,000, the required reserve ratio is
A) 15%.
B) 10%.
C) 20%.
D) 5%
 
Reserves 1.2 mill, Loans 6.8 mill, total assets 8 mill; 8 mill deposits, total liabilities 8 mill If the required reserve ratio is 15%, First Charter Bank
A) is loaned up.
B) has too few reserves on hand.
C) is meeting its required reserve ratio and has $200,000 in excess reserves.
D) has excess reserves of
$100,000.
 
Reserves 1.2 mill, Loans 6.8 mill, total assets 8 mill; 8 mill deposits, total liabilities 8 mill: First Charter Bank could make additional, first round loans of $400,000 if the required reserve ratio were
A) 10%.
B) 8%.
C) 7.5%.
D) 12%.
 
Reserves 1.2 mill, Loans 6.8 mill, total assets 8 mill; 8 mill deposits, total liabilities 8 mill: If the required reserve ratio were changed to 5% and First Charter Bank continues to hold $1,200,000 in reserves, its excess reserves will be
A) $600,000.
B) $1,000,000.
C) $800,000.
D) $400,000.
 
Dollar Bank is currently loaned up. If the required reserve ratio is lowered,
A) Dollar Bank'ʹs net worth will increase.
B) Dollar Bank will have excess reserves that it can lend out.
C) Dollar Bank will still be loaned up because it did not receive any additional deposits.
D) Dollar Bank'ʹs actual reserves will increase, but it will still be loaned up.
 
When a bank has no excess reserves, and thus can make no more loans, it is said to be
A) bankrupt.
B) ripe for a takeover.
C) in receivership.
D) loaned up.
 
Commercial banks create money through
A) printing treasury notes.
B) making loans.
C) facilitating borrowing from the Federal Reserve to the public.
D) reducing risk in the economy.
 
The multiple by which total deposits can increase for every dollar increase in reserves is the
A) required reserve ratio.
B) bank'ʹs line of credit.
C) deposit insurance limit.
D) money multiplier.
 
Suppose the required reserve ratio is 20%. A $40 million cash deposit will, at most, allow an expansion of the money supply to
A) $20 million.
B) $80 million.
C) $200 million.
D) $800 million.
 
Suppose the required reserve ratio is 15%. A $10 million deposit will, at most, allow an expansion of the money supply to
A) $147.5 million.
B) $250 million.
C) $150 million.
D) $66.7 million.
 
The required reserve ratio is 5%. The money multiplier is
A) 0.5.
B) 5.
C) 15.
D) 20.
 
The required reserve ratio is 50%. The money multiplier is
A) 2.5.
B) 10.
C) 5.
D) 2.
 
If the money multiplier is 8, the required reserve ratio is
A) 8%.
B) 16%.
C) 12.5%.
D) 20%.
 
Assume that banks become more conservative in their lending policies and start holding some excess reserves.  Compared to a situation in which banks are not holding excess reserves, the size of the money supply will be
A) zero.
B) larger.
C) the same.
D) smaller.
 
As commercial banks keep more excess reserves, money creation
A) increases.
B) decreases.
C) remains the same.
D) could either increase or decrease.
 
What is Potential GDP?
The level of GDP attained when all firms are producing at capacity.
 
What happens to firms when a recession ends?
The firms increase the amount of borrowing
 
Without technological progress, high growth rates cannot be sustained.
True
 
How would the equilibrium quantity of loanable funds respond to a change from an income tax to a consumption tax?
The equilibrium quantity of loanable funds would rise
 
The demand for loanable funds is downward sloping because the _____ the interest rate, the ______ the number of profitable investments projects a firm can undertake, and the ____ the quantity demanded of loanable funds
lower, greater, greater
 
What 3 things would encourage economic growth through increases in the capital stock?
Decrease in government deficit
Increase in household savings
Change from an income tax to a consumption tax
 
There is a government budget surplus if?
T - Tr > G
 
GDP, Consumption, Investment, Government purchases, Net Exports
Y = C + I + G + NX
 
What value is equal to zero in a closed economy?
Net exports
 
Workers in low-income countries have more physical capital than in high-income countries.
False
 
How does the BCDC define a recession?
A significant decline in activity visible in industrial production, employment, real income, and wholesale/retail trade lasting more than a few months
 
What is labor productivity?
The quantity of output produced by one worker or by one hour of work
 
The purchase of what type of goods would be reduced during a recession?
Durable goods
 
What is equation for public saving?
T - G - Tr
 
What is equation for private saving?
Y + Tr - C - T
 
Increasing the amount of consumption spending and reducing the amount of savings ____ investment expenditures and _____ long-run economic growth in the economy.
decreases, decreases
 
If net taxes fall by 80 billion, what would we expect for household savings?
For them to rise by less than 80 billion
 
Firms are still hesitant to rehire laid off workers at the end of a recession.
True
 
What do most economists believe to be the key reason for the severe recession during 2007-2009?
Financial instability
 
Who determines when a recession begins and ends?
BCDC (a part of the National Bureau of Economic Research)
 
Typically, what happens to unemployment once an economy just begins to emerge from a recessionary phase of business cycle?
It continues to rise
 
Savings accounts and time deposits that can be easily converted into cash are known as _____
near money
 
The value of the U.S. dollar was linked to Gold until ____
1971
 
______ is backed by something tangible
representative money
 
______ is something that holds value over time (this is one of the 3 functions of money)
store of value
 
____ allows for the precise and flexible pricing of goods and services, making any economic transaction convenient
money
 
One downside too _____ money is that its value fluctuates with the supply of gold or silver
representative
 
_____ determines the economic worth in the exchange process
standard of value
 
The exchange of goods and services without using money
barter
 
What type of money has value because the government says it has value?
fiat money
 
What type of money has intrinsic value based on the material fro which it is made?
commodity money
 
The _________ is a system that backs the basic monetary unit with a set amount of gold
gold standard
 
There are approximately ______ trillion dollars in circulation in the U.S. today
1.18
 
Give 3 examples of commodity money
gold, silver, precious stones
 
What are some benefits of major bank mergers?
lower interest rates, more consumer services
 
What 3 things did the National Banking Act of 1863 accomplish?
set up national currency, set up regulated minimum, taxed state banks
 
In what year was the First National Bank Chartered?
1791
 
How did the FDIC make fractional reserve banking less risky for consumers?
provided federal insurance
 
How did Congress try to eliminate state bank notes from circulation?
taxing them
 
What were 2 of the economic goals of the First National Bank?
issue a national currency, help control money supply
 
Which 2 non-U.S. Presidents have their face on paper currency in the U.S.?
Alexander Hamilton, Ben Franklin
 
What is meant by the term 'wildcat banking'?
remote banks who issued questionable currency
 
What is one situation where money does not serve well as a store of value?
if there is insignificant inflation
 
Who was the first Secretary of Treasury in 1789?
Hamilton
 
List the 4 physical properties of useful money
durability, portability, divisibility, uniformity
 
What are 3 serves that banks provide?
customers can store money, customers can earn money, customers can borrow money
 
List the 3 functions of money
standard of value, medium of exchange, store of value
 
list the 3 types of money
commodity money, representative money, fiat money
 
What is the difference between stocks and bonds?
Stocks do not involve a promise to repay a purchaser of the stock, while bonds promise to repay the purchase price of the bond
 
Since 1950, expansions in the US have become ____, while recessions have become _____.
longer, shorter
 
When production in an economy grows more quickly than the population in that economy, what must be occurring?
Real GDP per capita is rising
 
An increase in the demand for loanable funds will occur if there is:
An increase in expected profits from firm investment projects