1.When the price of a product is stated in terms of dollars and cents, then money is functioning as a unit of account

2.Real estate would be an example of a highly liquid asset

3.The money supply designated M1 is the sum of currency and savings deposits

4.The currency component of M1 includes both coins and paper money

5. The checkable deposits of the Federal government at the Federal Reserve Banks are a component of M1

6.The Federal Reserve Banks are owned and operated by the US Government

7. The Federal Open Market Committee (FOMC) is the responsible for keeping stock market open and regulated.

8.The Federal Reserve Banks are responsible for issuing currency

9. The Federal Reserve acts as the fiscal agent for the Federal government

10. The goal of monetary policy is to lower interest rates

11.There is a transactions demand for money because households and business firms use money as a store of value

12.An increase in the price level would increase the transactions demand for money

13.An increase in the nominal GDP, other things remaining the same, will increase both the total demand for money and the equilibrium rate of interest in the economy

14.Bond prices and interest rates are inversely related

15.When the Federal Reserve sells securities in the open market, the price of these securities falls

II. MULTIPLE – CHOICE QUESTIONS: Circle the letter that correspons to the best answer

1.Which one is an economic function of money?

a.A store of gold

b.A unit of account

c.A factor of production

d.A medium of communications

2.Which one of the following items would be considered to be perfectly liquid from an economic perspective?

a.Cash

b.Stocks

c.Real estate

d.Certificate of deposits

3.Which one of the following is included in currency component of M1?

a.Gold  certificates

b.Silver certificates

c.Checkable deposits

d.Federal Reserve notes

4.Checkable deposits are money because they are

a.Legal tender

b.Flat money

c.Token money

d.A medium of exchange

5.If the price level increase 20%, the purchasing power of money decreases?

a.14.14%

b.16.67%

c.20%

d.25%

6.To keep the purchasing power of money fairly stable, the Federal Reserve:

a.Buys corporate stock

b.Employs fiscal policy

c.Controls the money supply

d.Uses price and wage controls

7.The Federal Reserve is responsible for

a.Supervising all banks and thrifts

b.Printing currency for banks and thrifts

c.Collecting Federal taxes from banks and thrifts

d.Holding the required reserves of banks and thrifts

8.The most important function of the Federal Reserve is

a.Issuing currency

b.Controlling the money supply

c.Supervising banks and thrifts

d.Lending money to banks and thrifts

9. A commercial bank has actual reserves of $9000 and liabilities of $30000 and the required reserve ratio is 20%. The excess reserves of the bank are

a. $30000

b. $6000

c.$7500

d.$9000

10.If the required reserve ratio were 12.5%, the value of the monetary multiplier would be

a.5

b.6

c.7

d.8

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