Economics Final

Money functions as:

A medium of exchange,
store of value, and
a unit of account

If you write a check on a bank to purchase a care, you are using money primarily as:

a medium of exchange

If you place part of your summer earnings in a savings account, you are using money primarily as:

a store of value

a $70 price tag on a sweater in a department store window is an example of money functioning as:

a unit of account

when economist say that money serves as a medium of exchange, they mean

that it i "a means of payment"

purchasing common stock by writing a check best describes money as:

a medium of exchange

The largest component of the money supply (M1) is:

currency in circulation

Paper money in the US is called:

Federal Reserve notes

When economist say that money serves as a store of value, they mean

that it is a way to keep wealth in a readily spendable form for future use

When economist say that money serves as a unit of account, they mean

that is a monetary unit for measuring and comparing the relative value of goods

Currency in circulation is part of:

M1, M2 and MZM money supply

Checkable deposit are included in what money type?

M1 money supply

Money supply is backed by the government’s ability

to control the supply of money and to keep its value relatively stable

The money supply in the US is comprised of

coins, paper currency and checkable deposits

A $50 dollar bill is a:

Federal Reserve Note

MZM stands for:

Money zero Maturity

Paper money in the US is issued by

the Federal Reserve Bank

MZM includes

M2 minus small time deposit plus money market mutual funds held by businesses

The value of money varies

inversely with the price level

The basic policy making body in the US banking system is

The Board of Governors of the Federal Reserve

The twelve Federal Reserve Banks hold

the reserve deposits of commercial banks

How many members are there in the Federal Reserve Board?

7 members

How many years do members of the Federal Reserve Board serve for?

14 years

Who created money:

The Goldsmiths

Their ability to create money was based on the fact that

paper money in the form of gold receipts was rarely redeemed for gold

When the receipts given by the Goldsmiths to depositors were used to make purchases

the receipts became in effect paper money

The most modern banking system today is based on:

Fractional Reserve

A fractional reserve system is susceptible to

bank panics

Bank panics are

a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently

In a fractional reserve banking system, banks can create money through

the lending process

The following identify parts of the Balance Sheet

Assets equal liabilities plus net worth

The reserves of a commercial bank consist of:

deposits at the Federal Reserve Bank and vault cash

Commercial Banks reserves are

assets to the commercial bank and liabilities to the federal reserve bank holding them

The primary purpose of the legal reserve requirement is

to provide a means by which the monetary authorities can influence the lending ability of commercial banks

The transaction demand for money is most closely related to money functioning

as a medium of exchange

The desire to hold money for transactions purposes arises because

receipts of income and expenditures are not perfectly synchronized

The opportunity cost of holding money varies

directly with the interest rate

It is costly to hold money because in doing so

one sacrifices interest income

The asset demand for money varies

inversely with the rate of interest

The asset demand for money is down sloping because

the opportunity cost of holding money increases as the interest rates rises

In the US monetary policy is the responsibility of

the Board of Governors of the Federal Reserve System

The three main tools of monetary policy are:

reserve ratio, discount rate and open market operations

The purchase of government securities from the public by the Fed will cause:

the money supply to increase

The purpose of a restrictive monetary policy is

to raise interest rates and restrict the availability of bank credit

The asset demand for money varies inversely with the nominal GDP

False

The Higher the interest rate, the larger will be the amount of money demand for transactions purposes

False