Monetary - Policy MCQ

Chapter 29
The Monetary System

MULTIPLE CHOICE
1. Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
a. store of value
b. medium of exchange
c. unit of account
d. None of the above is correct.
2. Which of the following best illustrates the medium of exchange function of money?
a. You keep some money hidden in your shoe.
b. You keep track of the value of your assets in terms of currency.
c. You pay for your double latte using currency.
d. None of the above is correct.
3. Economists use the word “money” to refer to

a. income generated by the production of goods and services.
b. those assets regularly used to buy goods and services.
c. the value of a person’s assets.
d. the value of stocks and bonds.
4. Liquidity refers to
a. the ease with which an asset is converted to the medium of exchange.
b. a measurement of the intrinsic value of commodity money.
c. the suitability of an asset to serve as a store of value.
d. how many time a dollar circulates in a given year.
5. Which list ranks assets from most to least liquid?

a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency
6. M1 includes
a. currency.
b. demand deposits.
c. travelers’ checks.
d. All of the above are correct.
7. Which of the following is not included in M1?

a. currency
b. demand deposits
c. savings deposits
d. travelers’ checks
8. Which of the following is included in M2 but not in M1?

a. currency
b. demand deposits
c. savings deposits
d. All of the above are included in both M1 and M2
9. M1 is
a. smaller and less liquid than M2.
b. smaller but more liquid than M2.
c. larger than and less liquid than M2.
d. larger than but more liquid than M2.
10. Savings deposits are included in

a. M1 but not M2.
431
432  Chapter 16/The Monetary System
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
11. Credit cards are

a. used as a method of payment.
b. part of the M1 money supply.
c. a method of deferring payment.
d. a unit of account.
12. Credit cards

a. defer payments.
b. are a store of value.
c. have led to wider use of currency.
d. are part of the money supply.
13. Debit cards

a. defer payments.
b. are equivalent to credit cards.
c. are included in M2.
d. are used as a method of payment.
14. When the Fed wants to change the money supply, it most frequently
a. changes the discount rate.
b. changes the reserve requirement.
c. conducts open market operations.
d. issues Federal Reserve notes.
15. When the Federal Reserve conducts open market transactions, it

a. issues Federal Reserve notes.
b. buys or sells government bonds from the public.
c. lowers the discount rate.
d. increases its lending to member banks.
16. When the Fed conducts open market purchases,

a. it buys Treasury securities, which increases the money supply.
b. it buys Treasury securities, which decreases the money supply.
c. it borrows from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.
17. When the Fed conducts open market sales,

a. it sells Treasury securities, which increases the money supply.
b. it sells Treasury securities, which decreases the money supply.
c. it borrows from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.
18. When the Fed conducts open market purchases,

a. it buys Treasury securities, which increases the money supply.
b. it buys Treasury securities, which decreases the money supply.
c. it sells Treasury securities, which increases the money supply.
d. it sells Treasury securities, which decreases the money supply.
19. The Fed can increase the money supply by conducting open market
a. sales and raising the discount rate.
b. sales and lowering the discount rate.
c. purchases and raising the discount rate.
d. purchases and lowering the discount rate.
20. The Fed can increase the price level by conducting open market
a. sales and raising the discount rate.
b. sales and lowering the discount rate.
c. purchases and raising the discount rate.
d. purchases and lowering the discount rate.
Chapter 16/The Monetary System  433
21. As the reserve ratio increases, the money multiplier
a. increases.
b. does not change.
c. decreases.
d. could do any of the above.
22. If the central bank in some country lowered the reserve ratio, the money multiplier
a. would increase.
b. would not change.
c. would decrease.
d. could do any of the above.
23. If the reserve ratio is 10 percent, the money multiplier is

a. 100.
b. 10.
c. 9/10.
d. 1/10.
24. If the reserve ratio is 20 percent, the money multiplier is

a. 2.
b. 4.
c. 5.
d. 8.
25. Which list contains only actions that increase the money supply?
a. raise the discount rate, make open market purchases
b. raise the discount rate, make open market sales
c. lower the discount rate, make open market purchases
d. lower the discount rate, make open market sales
26. Which list contains only actions that increase the money supply?
a. make open market purchases, raise the reserve requirement ratio
b. make open market purchases, lower the reserve requirement ratio
c. make open market sales, raise the reserve requirement ratio
d. make open market sales, lower the reserve requirement ratio
27. Which list contains only actions that decrease the money supply?
a. lower the discount rate, raise the reserve requirement ratio
b. lower the discount rate, lower the reserve requirement ratio
c. raise the discount rate, raise the reserve requirement ratio
d. raise the discount rate, lower the reserve requirement ratio
a. raise the discount rate, make open market purchases
b. raise the discount rate, make open market sales
c. lower the discount rate, make open market purchases
d. lower the discount rate, make open market sales
a. make open market purchases, raise the reserve requirement ratio
b. make open market purchases, lower the reserve requirement ratio
c. make open market sales, raise the reserve requirement ratio
d. make open market sales, lower the reserve requirement ratio

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Chapter 29

The Monetary System

3. Economists use the word “money” to refer to

5. Which list ranks assets from most to least liquid?

7. Which of the following is not included in M1?

8. Which of the following is included in M2 but not in M1?

10. Savings deposits are included in

11. Credit cards are

12. Credit cards

13. Debit cards

15. When the Federal Reserve conducts open market transactions, it

16. When the Fed conducts open market purchases,

17. When the Fed conducts open market sales,

18. When the Fed conducts open market purchases,

23. If the reserve ratio is 10 percent, the money multiplier is

24. If the reserve ratio is 20 percent, the money multiplier is

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