QUIZ 1 MONEY AND BANKING 1. For something to satisfy the medium of exchange function of money, it must be: a. backed by gold. b. issued by a central government. c. readily exchangeable for other goods. d. an inherently valuable commodity. a b c d 2. The price tag on your new management book represents money functioning as a : a. medium of exchange b. unit of account c. store of value a b c 3. Prices in a pure barter economy : a. are indeterminable. b. established by government fiat. c. are in relative quantities of the goods exchanged. d. are expressed in terms of money. e. cannot exist because exchange does not occur. a b c d e ANSWER QUESTIONS 4 THROUGH 7 USING THE FOLLOWING DATA. Nominal GDP M1 M2 Year ( $ Billions) ( $ Billions) ( $ Billions) 1980 2,708.0 395.8 1,563.1 1985 4,038.7 586.3 2,474.2 1990 5,522.2 810.9 3,289.4 1994 6,609.4 1,142.4 3,581.2 4. What is the M1 velocity of money ( V1 ) in 1980 ? a. 0.15 b. 1.95 c. 5.64 d. 6.84 e. 7.65 a b c d e 5. What is the M2 velocity of money ( V2 ) in 1980 ? a. 1.73 b. 1.95 c. 1.35 d. 0.65 e. 2.47 a b c d e 6. What is the M1 velocity of money ( V1 ) in 1994 ? a. 0.24 b. 1.95 c. 6.83 d. 7.65 e. 5.79 a b c d e 7. What is the M2 velocity of money ( V2 ) in 1994 ? a. 1.34 b. 1.95 c. 1.85 d. 0.92 e. 1.56 a b c d e 8. Gold coins are an example of : a. representative full-bodied money b. fiat money c. full-bodied money d. credit money a b c d 9. The Gold Reserve Act of 1934 placed the United States on a full-bodied gold coin standard for the first time in history. a. True b. False c. Neither a b c 10. The ____________ is the market where the interest rate is determined. a. Stock Market b. Foreign Exchange Market c. Commodity Market d. Bond Market a b c d 11. Assuming that large Federal deficits have a significant impact on the level of interest rates. In which market will budget deficits have their biggest direct impact. a. Commodity market b. Gold market c. Bond market d. Stock market a b c d 12. Another name for the rental price of borrowed money is the _______________ . a. foreign exchange rate b. yield on common stock. c. consumer price index d. interest rate a b c d QUESTIONS 13 THROUGH 15 USE THE FOLLOWING INFORMATION. Amount Component ( $ Billion ) Currency............................. $ 267.4 Travelers Checks ........................ 7.7 Demand Deposits ....................... 289.5 Other Checkable Deposits .............. 332.7 Saving Deposits , including MMDAs .... 1041.2 Small Time Deposits .................. 1066.6 Large Time Deposits ................... 416.6 Money Market Mutual Funds General Purpose/Broker-Dealer ......... 374.2 Institution - Only .................... 180.0 Repurchase Agreements and Eurodollars Overnight .............................. 78.6 Term ...................................121.5 13. Compute the monetary aggregate denoted as M1 . Its dollar value is ___________ . a. $ 4990.9 b. $ 975.9 c. $ 897.3 d. $ 1097.4 e. $ 2560.6 a b c d e 14. Compute the monetary aggregate denoted as M2 . Its dollar value is __________ . a. $ 4990.9 b. $ 2763.3 c. $ 5150.3 d. $ 3457.9 e. $ 2560.6 a b c d e 15. Compute the monetary aggregate denoted as M3 . Its dollar value is ___________ . a. $ 4990.9 b. $ 4176.0 c. $ 3630.3 d. $ 4304.5 e. $ 5426.0 a b c d e 16. During periods of rapid inflation , the real value of money __________ . a. falls b. rises c. neither falls nor rises d. cannot be determined because a b c d 17. The price of one country's currency in terms of another country's currency is referred to as the _____________ . a. equity yield b. rental value of borrowed money c. exchange rate d. interest spread a b c d 18. A decrease in the value of the Yen relative to the Dollar means that the prices of Japanese goods purchased by Americans will ______________ . a. increase b.decrease c. remain unchanged a b c 19. The function of money that is important if people are to specialize at what they do best is ________________ . a. store of value b. medium of exchange c. unit of account a b c 20. If the dollar value of the Japanese Yen goes from $.00853 to $.00795 , then we would say that the dollar has __________ . a. appreciated b. depreciated c. remain constant a b c 21. A strong dollar is likely to hurt ____________________ . a. automobile producers in Michigan b. wheat farmers in Kansas c. textile producers in South Carolina d. all of the above since exports will decline e. none of the above since exports will increase a b c d e 22. Sustained downward movements in the business cycle are referred to as a. expansions b. recoveries c. inflation d. recessions e. depreciations a b c d e 23. The Coinage Act 0f 1792 established a __________________ in the United States . a. wampum standard b. fiat standard c. pure gold standard d. bimettallic standard e. pure silver standard a b c d e 24. The U.S. dollar is considered legal tender in all countries where the dollar is convertible into that countries currency. a. True b. False a b 25. When a country's price level increases by more than 50 percent per month, the country is to be suffering from ______________ . a. creeping inflation b. hyperinflation c. disinflation d. stagflation e. deflation a b c d e 26. In 1980, a British pound cost approximately $ 2.40 . At the same time a copy of the Wealth of Nations by Adam Smith ( 1822 edition) costs 50 pounds sterling or $120 . With a stronger dollar this book would cost ___________________ . a. more than $ 120 . b. less than $ 120 . c. exactly $ 120 , since the exchange rate does not affect the prices that Americans consumers pay for foreign goods. a b c 27. One way to compare apples and oranges is to compare their money prices. When money prices are used to facilitate comparison of value , money is said to function as a __________________ . a. medium of exchange b. store of value c. unit of account a b c 28. Today we have confidence in the dollar because of the large stock of gold held by the Treasury in Fort Knox . a. True b. False a b 29. The real value of money tends to decline during periods of deflation. a. True b. False a b 30. Pure barter tends to be highly inefficient because it _________________________ . a. reduces search costs . b. requires government intervention c. creates a necessity for a double coincidence of wants d. causes people to hoard money a b c d 31. The difference between the rate charged to borrowers and the rate paid to savers is referred to as the ________________ . a. exchange rate b. interest spread c. interest rate d. equity yield a b c d 32. ___________ of the dollar means that a vacation in France will be more expensive than it was a year ago . a. Depreciation b. Appreciation a b 33. Rudimentary economies developed _______________ to overcome the double coicidence of wants. a. exchange b. self-sufficiency c. specialization d. division of labor e. money a b c d e 34. Control of the aggregate money supply to achieve certain macroeconomic goals is referred to as ____________ . a. debt management b. monetary policy c. fiscal policy d. strategic planning e. total quality management a b c d e 35. The liquidity of an asset depends on _______________________ . a. its marketability b. how stable and predictable its price or value is c. a only d. both a and b a b c d 36. The rental rate for the use of money is the _____________ . a. profit rate b. inflation rate c. stock yield d. velocity of money e. interest rate a b c d e 37. If prices increase by 4% per year and nominal GDP increases by 4% per year, then real output increases by how much per year ? a. 4% b. 8% c. 0% d. 1% e 16% a b c d e 38. According to the equation of exchange, if the money supply is $800 billion, the price index is 1.30, and real output is $4000 billion, then the velocity of money is __________ . a. 8.00 b. 3.89 c. 10.00 d. 6.50 e. 4.97 a b c d e 39. If the money supply is equal to $1,000 billion and the velocity of money is 5.5, and the price index is 1.27, then real output would be __________ . a. $5500 b. $4331 c. $1270 d. 6985 a b c d 40. Gross domestic product (GDP) is the most commonly used measure of an economy's ________ ? a. money supply b. aggregate output c. aggregate investment spending d. government deficit a b c d
QUIZ 1 MONEY AND BANKING 1. For something to satisfy the medium of exchange function of money, it must be: a. backed by gold. b. issued by a central government. c. readily exchangeable for other goods. d. an inherently valuable commodity.
2. The price tag on your new management book represents money functioning as a : a. medium of exchange b. unit of account c. store of value
3. Prices in a pure barter economy : a. are indeterminable. b. established by government fiat. c. are in relative quantities of the goods exchanged. d. are expressed in terms of money. e. cannot exist because exchange does not occur.
ANSWER QUESTIONS 4 THROUGH 7 USING THE FOLLOWING DATA. Nominal GDP M1 M2 Year ( $ Billions) ( $ Billions) ( $ Billions) 1980 2,708.0 395.8 1,563.1 1985 4,038.7 586.3 2,474.2 1990 5,522.2 810.9 3,289.4 1994 6,609.4 1,142.4 3,581.2 4. What is the M1 velocity of money ( V1 ) in 1980 ? a. 0.15 b. 1.95 c. 5.64 d. 6.84 e. 7.65
5. What is the M2 velocity of money ( V2 ) in 1980 ? a. 1.73 b. 1.95 c. 1.35 d. 0.65 e. 2.47
6. What is the M1 velocity of money ( V1 ) in 1994 ? a. 0.24 b. 1.95 c. 6.83 d. 7.65 e. 5.79
7. What is the M2 velocity of money ( V2 ) in 1994 ? a. 1.34 b. 1.95 c. 1.85 d. 0.92 e. 1.56
8. Gold coins are an example of : a. representative full-bodied money b. fiat money c. full-bodied money d. credit money
9. The Gold Reserve Act of 1934 placed the United States on a full-bodied gold coin standard for the first time in history. a. True b. False c. Neither
10. The ____________ is the market where the interest rate is determined. a. Stock Market b. Foreign Exchange Market c. Commodity Market d. Bond Market
11. Assuming that large Federal deficits have a significant impact on the level of interest rates. In which market will budget deficits have their biggest direct impact. a. Commodity market b. Gold market c. Bond market d. Stock market
12. Another name for the rental price of borrowed money is the _______________ . a. foreign exchange rate b. yield on common stock. c. consumer price index d. interest rate
QUESTIONS 13 THROUGH 15 USE THE FOLLOWING INFORMATION. Amount Component ( $ Billion ) Currency............................. $ 267.4 Travelers Checks ........................ 7.7 Demand Deposits ....................... 289.5 Other Checkable Deposits .............. 332.7 Saving Deposits , including MMDAs .... 1041.2 Small Time Deposits .................. 1066.6 Large Time Deposits ................... 416.6 Money Market Mutual Funds General Purpose/Broker-Dealer ......... 374.2 Institution - Only .................... 180.0 Repurchase Agreements and Eurodollars Overnight .............................. 78.6 Term ...................................121.5 13. Compute the monetary aggregate denoted as M1 . Its dollar value is ___________ . a. $ 4990.9 b. $ 975.9 c. $ 897.3 d. $ 1097.4 e. $ 2560.6
14. Compute the monetary aggregate denoted as M2 . Its dollar value is __________ . a. $ 4990.9 b. $ 2763.3 c. $ 5150.3 d. $ 3457.9 e. $ 2560.6
15. Compute the monetary aggregate denoted as M3 . Its dollar value is ___________ . a. $ 4990.9 b. $ 4176.0 c. $ 3630.3 d. $ 4304.5 e. $ 5426.0
16. During periods of rapid inflation , the real value of money __________ . a. falls b. rises c. neither falls nor rises d. cannot be determined because
17. The price of one country's currency in terms of another country's currency is referred to as the _____________ . a. equity yield b. rental value of borrowed money c. exchange rate d. interest spread
18. A decrease in the value of the Yen relative to the Dollar means that the prices of Japanese goods purchased by Americans will ______________ . a. increase b.decrease c. remain unchanged
19. The function of money that is important if people are to specialize at what they do best is ________________ . a. store of value b. medium of exchange c. unit of account
20. If the dollar value of the Japanese Yen goes from $.00853 to $.00795 , then we would say that the dollar has __________ . a. appreciated b. depreciated c. remain constant
21. A strong dollar is likely to hurt ____________________ . a. automobile producers in Michigan b. wheat farmers in Kansas c. textile producers in South Carolina d. all of the above since exports will decline e. none of the above since exports will increase
22. Sustained downward movements in the business cycle are referred to as a. expansions b. recoveries c. inflation d. recessions e. depreciations
23. The Coinage Act 0f 1792 established a __________________ in the United States . a. wampum standard b. fiat standard c. pure gold standard d. bimettallic standard e. pure silver standard
24. The U.S. dollar is considered legal tender in all countries where the dollar is convertible into that countries currency. a. True b. False
25. When a country's price level increases by more than 50 percent per month, the country is to be suffering from ______________ . a. creeping inflation b. hyperinflation c. disinflation d. stagflation e. deflation
26. In 1980, a British pound cost approximately $ 2.40 . At the same time a copy of the Wealth of Nations by Adam Smith ( 1822 edition) costs 50 pounds sterling or $120 . With a stronger dollar this book would cost ___________________ . a. more than $ 120 . b. less than $ 120 . c. exactly $ 120 , since the exchange rate does not affect the prices that Americans consumers pay for foreign goods.
27. One way to compare apples and oranges is to compare their money prices. When money prices are used to facilitate comparison of value , money is said to function as a __________________ . a. medium of exchange b. store of value c. unit of account
28. Today we have confidence in the dollar because of the large stock of gold held by the Treasury in Fort Knox . a. True b. False
29. The real value of money tends to decline during periods of deflation. a. True b. False
30. Pure barter tends to be highly inefficient because it _________________________ . a. reduces search costs . b. requires government intervention c. creates a necessity for a double coincidence of wants d. causes people to hoard money
31. The difference between the rate charged to borrowers and the rate paid to savers is referred to as the ________________ . a. exchange rate b. interest spread c. interest rate d. equity yield
32. ___________ of the dollar means that a vacation in France will be more expensive than it was a year ago . a. Depreciation b. Appreciation
33. Rudimentary economies developed _______________ to overcome the double coicidence of wants. a. exchange b. self-sufficiency c. specialization d. division of labor e. money
34. Control of the aggregate money supply to achieve certain macroeconomic goals is referred to as ____________ . a. debt management b. monetary policy c. fiscal policy d. strategic planning e. total quality management
35. The liquidity of an asset depends on _______________________ . a. its marketability b. how stable and predictable its price or value is c. a only d. both a and b
36. The rental rate for the use of money is the _____________ . a. profit rate b. inflation rate c. stock yield d. velocity of money e. interest rate
37. If prices increase by 4% per year and nominal GDP increases by 4% per year, then real output increases by how much per year ? a. 4% b. 8% c. 0% d. 1% e 16%
38. According to the equation of exchange, if the money supply is $800 billion, the price index is 1.30, and real output is $4000 billion, then the velocity of money is __________ . a. 8.00 b. 3.89 c. 10.00 d. 6.50 e. 4.97
39. If the money supply is equal to $1,000 billion and the velocity of money is 5.5, and the price index is 1.27, then real output would be __________ . a. $5500 b. $4331 c. $1270 d. 6985
40. Gross domestic product (GDP) is the most commonly used measure of an economy's ________ ? a. money supply b. aggregate output c. aggregate investment spending d. government deficit