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Stock market price quotations best exemplify money serving as a


A) store of value.
B) unit of account.
C) medium of exchange.
D) index of satisfaction.

E) A) and D)
F) A) and B)

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A $20 bill is a


A) gold certificate.
B) Treasury note.
C) Treasury bill.
D) Federal Reserve note.

E) A) and B)
F) B) and C)

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Currency (paper money plus coins) constitutes about


A) 25 percent of the U.S. M1 money supply.
B) 43 percent of the U.S. M1 money supply.
C) 57 percent of the U.S. M1 money supply.
D) 66 percent of the U.S. M1 money supply.

E) B) and C)
F) All of the above

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Currency in circulation is part of


A) M1 only.
B) M2 only.
C) neither M1 nor M2.
D) both M1 and M2.

E) A) and C)
F) All of the above

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 Money Market Mutual Fund Balances Held by Businesses  Money Market Mutual Fund Balances Held by individuals $100 Currency in Banks 220 Currency in Circulation 10 Savings Deposits, Including Money Market Deposit Accounts 40 Large-denominated ( $100,000 or more)  Time Deposits 50 Small-denominated ($100,000 or less)  Time Deposits 180 Checkable Deposits 70\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \\\hline \text { Money Market Mutual Fund Balances Held by individuals } & \$ 100 \\\hline \text { Currency in Banks } & 220 \\\hline \text { Currency in Circulation } & 10 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 40 \\\hline \text { Large-denominated ( } \$ 100,000 \text { or more) Time Deposits } & 50 \\\hline \text { Small-denominated (\$100,000 or less) Time Deposits } & 180 \\\hline \text { Checkable Deposits } & 70 \\\hline\end{array} Refer to the table. Money supply M1 for this economy is


A) $110.
B) $40.
C) $70.
D) $120.

E) All of the above
F) A) and D)

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The so-called moral-hazard problem in financial management refers to the fact that managers will tend to take on more risk if they know that they are somehow insured against some or all of their losses.

A) True
B) False

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Stabilizing a nation's price level and the purchasing power of its money can be achieved


A) only with fiscal policy.
B) only with monetary policy.
C) with both fiscal and monetary policy.
D) with neither fiscal nor monetary policy.

E) B) and D)
F) All of the above

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The paper money, or currency, in the United States essentially represents


A) a debt of commercial banks and savings institutions.
B) a debt of the U.S. Treasury.
C) an asset of the Federal government.
D) a debt of the Federal Reserve System.

E) B) and D)
F) A) and B)

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Money performs its function as a store of value very well, because it protects one against the erosion of purchasing power from inflation.

A) True
B) False

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Checkable deposits are


A) included in M1.
B) not included in either Ml or M2.
C) considered to be a near money.
D) also called time deposits.

E) A) and D)
F) None of the above

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Credit card balances are part of money supply M2.

A) True
B) False

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Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as


A) a subtraction of $200 from the money supply because the $200 in currency is no longer in circulation.
B) an addition of $200 to the money supply because of the creation of a checkable deposit of $200.
C) an addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200.
D) no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits.

E) A) and D)
F) B) and D)

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The basic requirement for an item to function as money is that it be


A) backed by precious metals-gold or silver.
B) authorized as legal tender by the central government.
C) generally accepted as a medium of exchange.
D) some form of debt or credit.

E) C) and D)
F) A) and C)

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The federal backing for money in the United States comes from


A) providing sufficient quantities of precious metals, such as gold and silver, to cover the amount of paper money in circulation.
B) pledging physical assets, such as land, natural resources, and public buildings, as collateral for outstanding currency.
C) controlling the money supply in order to keep the value of money relatively stable over time.
D) protecting checkable deposits at financial institutions with deposit guarantees.

E) None of the above
F) C) and D)

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The purchasing power of the dollar would fall by 20 percent if the price index rises by


A) 10 percent.
B) 12.5 percent.
C) 25 percent.
D) 44 percent.

E) None of the above
F) A) and B)

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What are "mortgage-backed securities"?


A) company stock shares for financial institutions that lend to home buyers
B) bonds backed by mortgage payments
C) Treasury bills and savings bonds that banks sold to maintain liquidity during the mortgage default crisis
D) insurance against mortgage loan defaults

E) A) and C)
F) All of the above

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The Federal Reserve System was created in


A) 1926.
B) 1946.
C) 1895.
D) 1913.

E) B) and D)
F) A) and B)

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Coins held in commercial bank vaults are


A) included in M1 but not in M2.
B) included both in M1 and in M2.
C) included in M2 but not in M1.
D) not part of the nation's money supply.

E) C) and D)
F) A) and D)

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Which of the following statements best describes the 12 Federal Reserve Banks?


A) They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.
B) They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
C) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
D) They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

E) B) and D)
F) C) and D)

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 Money Market Mutual Fund Balances Held by Businesses $100 Money Market Mutual Fund Balances Held by Individuals 220 Currency in Banks 10 Currency in Circulation 60 Savings Deposits, Including Money Market Deposit Accounts 50 Large-denominated ( $100,000 or more)  Time Deposits 180 Small-denominated ($100,000 or less)  Time Deposits 80 Checkable Deposits 70\begin{array} { | l | c | } \hline \text { Money Market Mutual Fund Balances Held by Businesses } & \$ 100 \\\hline \text { Money Market Mutual Fund Balances Held by Individuals } & 220 \\\hline \text { Currency in Banks } & 10 \\\hline \text { Currency in Circulation } & 60 \\\hline \text { Savings Deposits, Including Money Market Deposit Accounts } & 50 \\\hline \text { Large-denominated ( } \$ 100,000 \text { or more) Time Deposits } & 180 \\\hline \text { Small-denominated } ( \$ 100,000 \text { or less) Time Deposits } & 80 \\\hline \text { Checkable Deposits } & 70\\\hline\end{array} Refer to the table. Money supply M1 for this economy is


A) $60.
B) $70.
C) $130.
D) $140.

E) A) and D)
F) None of the above

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