Economics

. When we keep part of our wealth in a savings account, money is playing the role of:
A) medium of exchange.
B) unit of account.
C) barter.
D) store of value.
52. When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from:
A) using commodity money to using fiat money.
B) using commodity-backed money to using fiat money.
C) using commodity money to using commodity-backed money.
D) using fiat money to using commodity-backed money.
53. Commodity money is:
A) whatever the government has decreed is money.
B) a good used as a medium of exchange that has other uses.
C) money used for commodity futures trading.
D) whatever people accept as money.
54. Money that has value apart from its use as money is:
A) fiat money.
B) currency.
C) convertible paper money.
D) commodity money.
55. Money that the government has ordered to be accepted as money is:
A) fiat money.
B) currency.
C) convertible paper money.
D) commodity money.
56. Money whose value derives entirely from its official status as a means of exchange is known as:
A) commodity money.
B) commodity-backed money.
C) fiat money.
D) bank reserves.
57. A share of stock is considered:
A) an asset for the owner of the stock.
B) part of M2.
C) a liability for the owner of the stock.
D) part of the money supply.
58. The primary difference between M1 and M2 is that:
A) the dollar amount of M1 is much larger than the dollar amount of M2.
B) M1 includes checkable deposits, but M2 does not.
C) M2 includes checkable deposits, but M1 does not.
D) M2 includes savings deposits and time deposits, but M1 does not.
59. Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account:
A) M1 increases by $50.
B) M2 increases by $50.
C) M1 and M2 both increase by $50.
D) there is no change in M1 or M2.
60. If you transfer $1,000 from your savings account to your checking account:
A) M1 decreases by $1,000, and M2 increases by $1,000.
B) M1 increases by $1,000, and M2 decreases by $1,000.
C) M1 and M2 don’t change.
D) M1 increases by $1,000, but M2 doesn’t change.
61. The Federal Reserve is able to have an impact on financial crises because it:
A) determines tax rates.
B) determines government spending.
C) conducts monetary policy.
D) is responsive to the people who elected its members to office.
62. Generally, the more liquid an asset is:
A) the lower its purchasing power.
B) the lower its rate of return.
C) the higher its capacity to store value over time.
D) the higher its rate of return.
63. The short-term interest rate is the interest rate on financial assets that mature within:
A) less than a year.
B) a year or more.
C) 2 years.
D) 5 years.
64. If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is:
A) zero.
B) 0.02%.
C) 1%.
D) 2%.
65. The money demand curve shows the relationship between the:
A) money supply and the quantity of money demanded.
B) aggregate price level and the nominal quantity of money demanded.
C) interest rate and the nominal quantity of money demanded.
D) real GDP and the nominal quantity of money demanded.
66. The money demand curve is:
A) downward-sloping because the opportunity cost of holding money is inversely related to the interest rate.
B) downward-sloping because the opportunity cost of holding money rises as the interest rate rises.
C) downward-sloping because the opportunity cost of holding money rises as the interest rate falls.
D) upward-sloping because the opportunity cost of holding money rises with the interest rate.
67. A 20% increase in the aggregate price level will increase the quantity of money demanded by:
A) 20%.
B) the money multiplier.
C) 10%.
D) half the money multiplier.
68. An increase in interest rates causes the demand for money to:
A) increase.
B) decrease.
C) stay the same.
D) shift to the right.
69. Workers in country A have cost-of-living adjustments (COLAs), which adjust wages to offset the effect of inflation, in their wage contracts, and workers in country B do NOT. When the central banks of countries A and B increase the money supply:
A) prices in country A increase faster than prices in country B.
B) prices in country B increase faster than prices in country A.
C) prices in countries A and B will change at the same rate.
D) COLAs have no effect on the speed of price changes.
70. Inflation doesn’t reduce purchasing power if:
A) prices of essential products, such as food and gasoline, don’t increase too much.
B) nominal wages rise at the same rate as prices.
C) it remains under 10% per year.
D) the Federal Reserve increases the money supply enough to offset it.
71. In the classical model, it is thought that the long-run:
A) and short-run aggregate supply curves are both upward sloping.
B) aggregate supply curve is vertical and the short-run aggregate supply curve is upward sloping.
C) and short-run aggregate supply curves are both vertical.
D) aggregate supply curve is upward sloping and the short-run aggregate supply curve is vertical.

Use the following to answer question 72:

Figure: AD–AS Model

72. (Figure: AD–AS Model) Refer to the information in the figure. Suppose the economy is at YE with a price level of P1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD1 to AD2 as a result of an increase in the money supply?
A) YE and P2
B) YE and P1
C) Y1 and P2
D) YE and P3
73. In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to:
A) higher prices and higher unemployment.
B) higher prices and higher output.
C) lower prices and higher output.
D) lower prices and higher unemployment.
74. In the long run, an increase in aggregate demand from a position of full employment leads to:
A) higher prices and higher output.
B) higher prices and the same output.
C) higher output and lower prices.
D) higher output and higher unemployment.
75. In the long run, any given percentage increase in the money supply:
A) decreases real GDP.
B) leads to an equal percentage increase in the overall price level.
C) increases real GDP.
D) leads to an equal percentage decrease in the unemployment rate.
76. Investment banks differ from commercial banks because:
A) commercial banks are allowed to advertise, but investment banks are prohibited from advertising.
B) commercial banks can have offices only in one state, but investment banks can have offices in many countries.
C) commercial banks do not sell foreign currencies, but investment banks do.
D) commercial banks accept deposits from customers, but investment banks do not.
77. Without banks, people would:
A) hold more of their wealth as cash.
B) hold less of their wealth as cash.
C) invest most of their wealth in real estate.
D) earn higher rates of return and enjoy more liquidity.
78. The first bankers were:
A) farmers.
B) merchants who engaged in foreign trade.
C) insurance companies.
D) goldsmiths.
79. One of the first forms of paper money developed when:
A) the Federal Reserve was formed in the early 1900s.
B) the government of Rome printed money to pay Roman soldiers.
C) customers who had deposited gold and silver with medieval goldsmiths began to use their receipts to pay for purchases.
D) Europe adopted the euro.
80. Depository banks:
A) borrow on a short-term basis from depositors and lend on a long-term basis to others.
B) borrow on a long-term basis from depositors and lend on a long-term basis to others.
C) borrow on a short-term basis from depositors and lend on a short-term basis to others.
D) borrow on a long-term basis from depositors and lend on a short-term basis to others.
81. Most of a bank’s short-term liabilities are:
A) loans from the Federal Reserve.
B) loans from the U.S. Treasury.
C) loans to its customers.
D) deposits of customers’ savings.
82. Most of a bank’s assets are:
A) loans from the Federal Reserve.
B) loans to the Federal Reserve.
C) loans to its customers.
D) deposits of savings from its customers.
83. Which of the following is an example of maturity transformation?
A) Anne sells her house for $200,000 and uses the money to open a bakery.
B) Matthew sells his car and uses the money to pay college tuition.
C) Justin takes $10,000 from his savings account and uses it to buy some Apple stock.
D) Michael closes his checking account at Bank of America and opens a checking account at a local credit union.
84. Which of the following are regulations intended to prevent bank runs?

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