1) Money is any commodity or token that is A) backed by gold. B) ...

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1) Money is any commodity or token that is
A) backed by gold.
B) generally accepted as a means of measurement.
C) generally accepted as a means of payment.
D) issued by the government.
E) a store of value.

2) The functions of money are
A) medium of exchange, unit of account, and store of value.
B) medium of exchange, the ability to buy goods and services, and the ability to pay off debts.
C) medium of exchange, the ability to buy goods and services, and checking accounts.
D) credit cards, checking accounts, currency, and coins.
E) store of value, use as a barter mechanism, and unit of account.

3) Money serves as a
A) means of payment, legal obligation, and public tax.
B) medium of exchange, unit of account, and store of value.
C) means of settling debts, transaction lubricant, and private commodity.
D) means of worker exploitation and capitalist enrichment.
E) means to conduct barter transactions.

4) What is a problem with barter that makes it so difficult to use?
A) Individuals have to produce something to trade with.
B) Barter requires a double coincidence of wants.
C) Barter is very efficient but illegal because it avoids taxation.
D) Barter requires use of only fiat money.
E) Barter omits the store of value role for money.

5) The unit of account is defined as
A) the exchange of goods and services directly for other goods and services.
B) barter.
C) an object that is accepted in return for goods and services.
D) an agreed-upon measure for stating prices of goods and services.
E) the medium of exchange.

6) The function of money that helps assess the opportunity cost of an activity is money's use as a
A) medium of exchange. D) store of debt.
B) store of value. E) barter tool.
C) unit of account.

7) When money is used to compare the relative price of a burrito and a taco, money is being used as a
A) medium of exchange.
B) store of value.
C) measurement of inflation.
D) unit of account.
E) token of bartering.

8) The objects we use as money today include
A) currency inside banks and bank deposits.
B) currency outside the banks and bank deposits.
C) only currency outside the banks.
D) only deposits inside the banks.
E) credit cards and debit cards.

9) A credit card is
A) money. D) fiat money.
B) barter money. E) not money, but the card's credit line is money
C) not money.

10) When you use a credit card to pay your tuition,
A) you've used the credit card as money because it is a means of payment.
B) the credit card is not money but is an ID card for an instant loan.
C) the credit card is not money because it involves an electronic transaction.
D) the credit card is not money because it is not officially issued by the government.
E) you've used the credit card as money since you received something in return.

11) An official measure of money in the United States is M1, which includes the sum of
A) checkable deposits plus small time deposits.
B) currency plus checkable deposits.
C) currency plus credit card transactions.
D) currency plus traveler's checks plus time deposits.
E) currency plus traveler's checks plus checkable deposits plus small time deposits plus money market funds and other deposits.

12) Which of the following are included in the M1 definition of money?
A) currency and checkable deposits
B) currency and savings deposits
C) traveler's checks and money market mutual funds
D) currency and small time deposits
E) traveler's checks and savings deposits

13) Which of the following is NOT a component of M1?
A) demand deposits
B) traveler's checks
C) savings deposits
D) currency
E) Both answers C and D are correct.

14) If you deposit $1,000 in cash in your checkable deposit at your bank, the quantity of M1 immediately
A) increases by $1,000.
B) decreases by $1,000.
C) increases by $2,000.
D) does not change in size.
E) changes, but more information about the required reserve ratio is necessary to determine the amount of the change.

15) If we look at the components of M2, we find that
A) money market funds are the largest component.
B) savings deposits are the largest component.
C) currency is the largest component.
D) banks' reserves are the largest component.
E) loans are the largest component.

16) When a commercial bank receives a deposit, it must keep part of the deposit as cash reserves to satisfy its
A) securities and loans.
B) required reserves.
C) excess reserves.
D) interbank loans.
E) loan requirements.

17) When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
E) do not change; increases

18) When the Fed ________, the quantity of banks' reserves decreases.
A) hikes taxes
B) buys government securities
C) sells government securities
D) lowers the required reserve ratio
E) raises the required reserve ratio

19) When the Fed buys $100 million of securities from a commercial bank the
A) The monetary base increases.
B) money supply decreases.
C) bank's reserves decrease.
D) required reserve ratio decreases.
E) bank is risking its depositors' money.

20) When the Fed purchases government securities,
A) excess reserves in the banking system increase, leading to more loans being made.
B) required reserves in the banking system increase, leading to more loans being made.
C) excess reserves in the banking system decrease, leading to fewer loans being made.
D) required reserves in the banking system decrease, leading to fewer loans being made.
E) the monetary base does not change.

21) To increase the quantity of money in the economy, the Federal Reserve can
A) print more money and give it to the banks.
B) increase the required reserve ratio.
C) buy government bonds in open market operation.
D) sell government bonds in open market operation.
E) cut taxes.

22) The money multiplier is the
A) fraction of the monetary base that is kept in currency.
B) factor by which a change in the monetary base is multiplied to give the change in the quantity of money.
C) factor by which a change in the deposits base is multiplied to give the change in the monetary base.
D) proportion by which a change in the quantity of money changes the monetary base.
E) number of times that the Fed conducts open market operations in a month.

23) The quantity of money decreases if
A) the currency drain ratio increases.
B) the desired reserve ratio decreases.
C) banks loan all excess reserves.
D) the Treasury Department issues fewer government securities.
E) the Fed buys U.S. government securities.

Chapter 12:

24) The quantity of money demanded will decrease if the
A) inflation rate decreases.
B) nominal interest rate decreases.
C) real interest rate decreases.
D) nominal interest rate increases.
E) price level rises.

25) The opportunity cost of holding money
A) increases as the nominal interest rate increases.
B) decreases as the nominal interest rate increases.
C) does not change with the changes in the nominal interest rate.
D) is fixed at all interest rates.
E) is the price level.

26) The demand for money curve shows the relationship between the quantity of money demanded and
A) the nominal interest rate.
B) the real interest rate.
C) the inflation rate.
D) the price level.
E) real GDP.

27) The demand for money is
A) positively related to the price level.
B) positively related to the nominal interest rate.
C) negatively related to the price level.
D) negatively related to real GDP.
E) positively related to the real interest rate.

28) The demand for money increases and the demand curve for money shifts rightward as a result of
A) an increase in real GDP.
B) a decrease in the real interest rate.
C) an increase in the use of credit cards.
D) a decrease in the price level.
E) a decrease in the nominal interest rate.

29) The supply of money curve is
A) upward sloping, showing the influence of the interest rate.
B) horizontal because interest rates are fixed at any one moment.
C) vertical because the quantity of money is fixed at any one moment.
D) downward sloping, showing the negative influence of the interest rate.
E) horizontal because the Fed controls the quantity of money supplied.

30) If the quantity of money supplied is greater than the quantity of money demanded, then the
A) nominal interest rate rises.
B) nominal interest rate falls.
C) The price of financial assets falls.
D) money supply decreases.
E) price level falls.

31) Other things the same, if the Fed increases the quantity of money, the supply of money curve shifts
A) rightward and the nominal interest rate decreases.
B) leftward and the nominal interest rate increases.
C) rightward and the real interest rate increases.
D) leftward and the real interest rate increases.
E) leftward and the nominal interest rate decreases.

32) The "velocity of circulation" refers to the
A) ratio between the quantity of money and the price level.
B) the average number of times in a year each dollar is used to buy goods and services.
C) the average number of times a dollar is deposited and withdrawn from a bank account.
D) average speed with which the Fed increases or decreases the quantity of money.
E) average speed with which the nominal interest rate changes when the inflation rate changes.

33) The velocity of circulation is equal to
A) the price level divided by real GDP.
B) the price level multiplied by the quantity of money.
C) nominal GDP divided by the quantity of money.
D) the quantity of money divided by the price level and then multiplied by real GDP.
E) the quantity of money divided by nominal GDP.

Chapter 14:

34) During 2012, a country has consumption expenditures of $3.0 trillion, investment expenditures of $1.5 trillion, government expenditure of $1.5 trillion, exports of $1.0 trillion, and imports of $1.5 trillion. Aggregate expenditure for the country is
A) $5.5 trillion.
B) $6.0 trillion.
C) $7.0 trillion.
D) $8.5 trillion.
E) $6.5 trillion.

35) When consumption expenditure is ________ disposable income, saving is ________.
A) less than; positive
B) greater than; positive
C) equal to; positive
D) equal to; negative
E) less than; negative

36) The slope of the consumption function is
A) equal to the MPC and is less than 1.
B) equal to the MPC and is greater than 1.
C) equal to the MPC and is equal to 1.
D) not equal to the MPC and is equal to 1.
E) not equal to the MPC and is less than 1.

37) The above table has data from the nation of Atlantica. Based on these data, at what point does saving equal zero?
A) None, dissavings occurs at all of the above points.
B) None, savings occur at all of the above points.
C) Between disposable income of $0.0 and $1.5 trillion
D) Between disposable income of $8.0 trillion and $7.5 trillion
E) At a disposable income of $6.0

38) The above table has data from the nation of Atlantica. Based on these data, when disposable income equals 8.0 there is
A) dissavings of $7.5 trillion.
B) savings of $15.5 trillion.
C) dissavings of $15.5 trillion.
D) dissavings of $0.5 trillion.
E) savings of $0.5 trillion.

39) The above table has data from the nation of Atlantica. Based on these data, when disposable income equals 2.0 there is
A) dissavings of $1.0 trillion.
B) savings of $1.0 trillion.
C) dissavings of $5.0 trillion.
D) dissavings of $3.0 trillion.
E) savings of $3.0 trillion.

40) The above table has data from the nation of Atlantica. Based on these data, the amount of autonomous consumption is
A) $1.5 trillion.
B) $1.0 trillion.
C) $0.5 trillion.
D) $7.5 trillion.
E) $6.0 trillion.

41) The above table has data from the nation of Atlantica. Based on these data, what is marginal propensity to consume?
A) 0.75
B) 0.50
C) 1.33
D) 1.00
E) 1.50

42) The figure above shows a nation's consumption function. The amount of autonomous consumption expenditure is
A) $0.
B) $1 trillion.
C) $2 trillion.
D) $3 trillion.
E) more than $3 trillion.
Answer: B

43) The figure above shows a nation's consumption function. If disposable income is $2 trillion, then the MPC is ________ and saving is ________.
A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative
E) positive; zero

44) The figure above shows a nation's consumption function. If disposable income is $4 trillion, then the MPC is ________ and saving is ________.
A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative
E) positive; zero

45) When disposable income is $8 trillion, consumption expenditure is $5 trillion; when disposable income is $5 trillion, consumption expenditure is $3 trillion. The MPC is
A) (5/8 + 3/5) = 1.225.
B) (5 + 3) ÷ (8 + 5) = 0.615.
C) (5 - 3) ÷ (8 - 5) = 0.667.
D) (5 + 3) ÷ (8 - 5) = 2.667.
E) (8 - 5) ÷ (5 - 3) = 1.333.

46) Unplanned inventories increase when
A) real GDP is less than aggregate planned expenditure.
B) actual aggregate expenditure is greater than the aggregate planned expenditure.
C) actual aggregate expenditure is equal to GDP.
D) aggregate planned expenditure is less than GDP.
E) actual aggregate expenditure is less than GDP.

47) When aggregate planned expenditure is less than GDP,
A) firms increase production until the economy reaches equilibrium expenditure.
B) firms decrease production until the economy reaches equilibrium expenditure.
C) the economy might be at its equilibrium expenditure and if it is, firms do not change their production.
D) the economy definitely is at its equilibrium expenditure and firms do not change production.
E) the economy definitely is at its equilibrium expenditure but even so, firms decrease production.

48) In an economy with no income taxes or imports, the expenditure multiplier is
A) less than 1 only if the MPC is less than 1.
B) greater than 1 only if the MPC is greater than 1.
C) equal to 1 if the MPC is greater than 1.
D) greater than 1 if the MPC is less than 1.
E) always less than 1 no matter what the size of the MPC.

49) If the marginal propensity to consume is 0.85 and there are no imports or income taxes, the expenditure multiplier is equal to
A) 1 - 0.85 = 0.15.
B) 0.85 × the change in autonomous expenditure.
C) 1 ÷ 0.85 = 1.176.
D) 1 ÷ (1 - 0.85) = 1 ÷ 0.15 = 1.45.
E) 0.85 ÷ 1 = 0.85.

50) The formula, , is equal to the
A) marginal propensity to consume.
B) marginal propensity to export.
C) expenditure multiplier.
D) marginal tax rate.
E) the total amount of autonomous expenditure.

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These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.

1) Money is any commodity or token that is
Ans: C) generally accepted as a means of payment.

2) The functions of money are
Ans) C) generally accepted as a means of payment.

3) Money serves as a
Ans) B) medium of exchange, a unit of account, and store of value.

4) What is a problem with barter that makes it so difficult to use?
Ans) B) Barter requires a double coincidence of wants.

5) The unit of account is defined as
Ans) D) an agreed-upon measure for stating prices of goods and services.

6) The function of money that helps assess the opportunity cost of an activity is money's use as a
Ans ) C) unit of account.

7) When money is used to compare the relative price of a burrito and a taco, money is being used as a
Ans) D) unit of account....

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