Question 1

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 2

Suppose a country experiences a breakdown in its monetary system and reverts to barter. What is the main problem with this system?

Accepted Answer

It requires a double coincidence of wants, making transactions costly and inefficient.

Question 3

Which of the following is included in the M1 measure of money in the United States?

Accepted Answer

Currency held by individuals and businesses

Question 4

A check or debit card swipe is NOT considered money because:

Accepted Answer

It is only an instruction to transfer money from a deposit, not money itself.

Question 5

Which of the following is a correct statement about credit cards?

Accepted Answer

Credit cards are not money because they represent a loan that must be repaid with money.

Question 6

Which of the following best describes the main goal of a commercial bank?

Accepted Answer

To maximize the wealth of its owners while balancing profit and prudence.

Question 7

If the reserve ratio is 0.2, what is the value of the money multiplier?

Accepted Answer

$$\frac{1}{0.2} = 5$$

Question 8

Which of the following is NOT a type of asset held by commercial banks?

Accepted Answer

Consumer durable goods

Question 9

What is the main purpose of the Federal Deposit Insurance Corporation (FDIC)?

Accepted Answer

To guarantee deposits up to $250,000 per depositor per bank

Question 10

Which of the following is a key function of the Federal Reserve System (the Fed)?

Accepted Answer

Controlling the quantity of money in the economy

Question 11

Who appoints the members of the Board of Governors of the Federal Reserve System?

Accepted Answer

The President of the United States, with Senate confirmation

Question 12

Which of the following is a primary policy tool used by the Federal Reserve to influence the money supply?

Accepted Answer

Open market operations

Question 13

If the Fed wants to decrease the money supply, which action should it take?

Accepted Answer

Sell government securities to banks

Question 14

What is the 'discount rate' in the context of the Federal Reserve?

Accepted Answer

The interest rate the Fed charges commercial banks for loans at the discount window

Question 15

Suppose the Fed increases the interest rate paid on reserves. What is the likely effect on the money supply?

Accepted Answer

Banks will hold more reserves, decreasing the money supply.

Question 16

If the Fed increases the monetary base by $1 million and the money multiplier is 3, by how much does the quantity of money increase?

Accepted Answer

$$3,000,000$$

Question 17

Which of the following best describes the relationship between the nominal interest rate and the quantity of money demanded?

Accepted Answer

As the nominal interest rate rises, the quantity of money demanded decreases.

Question 18

In the money market, equilibrium is achieved when:

Accepted Answer

The quantity of money demanded equals the quantity of money supplied.

Question 19

Which of the following is a direct result of an increase in the reserve ratio set by the Fed?

Accepted Answer

The money multiplier decreases.

Question 20

A major goal of the Federal Reserve is to:

Accepted Answer

Keep inflation in check and maintain full employment.

Money, The Price Level, and Inflation: Key Concepts in Macroeconomics

Study Guide - Practice Questions