Eco 111 part 2 of 4

The functions of money are to serve as a?
Unit of account, store of value, and medium of exchange

When a consumer wants to compare the price of one product with another, money is primarily functioning as a?
Unit of account

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a?
Unit of account

What function is money serving when you deposit money in a savings account?
a store of value

What function is money serving when you use it when you go shopping?
a medium of exchange

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?
Medium of exchange

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as?
a unit of account

Money functions as a store of value if it allows you to?
Delay purchases until you want the goods

One major advantages of money serving as a medium of exchange is that is allows society to?
Escape the complications of barter

Money eliminates the need for a coincidence of wants in trading primarily through its role as a?
Medium of exchange

An asset’s liquidity refers to its ability to be?
a means of payment

Which one of the following is considered to be a stock rather than a flow?

The currency or money of the United States, like those of other countries, is?
Token money

Paper money or currency in the U.S. is essentially?
a debt of a government agency

Checkable deposits are?
Debts of commercial banks and savings institutions

Currency and checkable deposits are?
The major components of money supply M1

The paper currencies of the U.S. are also called?
Federal Reserve notes

As of January 2010, slightly more than half of the money supply (M1) was in the form of?

Which of the following institutions does not provide checkable-deposit services to the general public?
U.S. Treasury

The M1 money supply is composed of?
Checkable deposits and currency in circulation

Which definition of the money supply include only items which are directly and immediately usable as a medium of exchange?

Money supply M1 does not include the currency held by?
Commercial banks

Joe Rogers deposits $200 in currency in his checking account at a bank. This deposit is treated as?
No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

Which of the following would be considered to be the most liquid?
Checkable deposits

Which of the following items are included in money supply M2 but not M1?
Savings deposits

Checkable deposits are included in?
both M1 nor M2

The M1 money supply is composed of items?
Currency held by the public and checkable deposits

The so-called near-monies have the following characteristics, except?
Part of money supply M1

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
M1 increases and M2 stays the same

One reason that “near-monies” are important is because?
They can be easily converted into money or vice versa, and thereby can influence the stability of the economy

United States currency has value primarily because it?
Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

The federal backing for money in the United States comes from?
Controlling the money supply in order to keep the value of money relatively stable over time

What “backs” the money supply of the U.S?
The U.S. government’s ability to keep the value of money relatively stable

Money in the U.S. are essentially debts of?
The government and the banks

The basic requirement of money is that it be?
Generally accepted as a medium of exchange

Checkable deposits are money because they are?
Acceptable as payment

When paper money is designated as legal tender, it means that?
It is a means of payment by law

When there is inflation in the economy, it implies that the?
Price index is rising and the purchasing power of money is falling

If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about:
23 percent (30/130 =23%)

A 15 percent increase in the price level?
Decrease the value of a dollar by 13 percent (15/115 = 13%)

If the value of the dollar is falling, then it follows that?
The price index is rising

The purchasing power of the dollar would fall by 20% if the price index rises by?
25 percent (20/80 = 25%)

An inflation rate of 8% would erode the purchasing power of the dollar by?
7.4 percent (8/108 =7.4%)

To keep high inflation from eroding the value of money, monetary authorities in the United States?
Control the supply of money in the economy

The Federal Reserve Banks are owned by the?
Member banks

The Federal Reserve System consists of which of the following?
Board of Governors and the 12 Federal Reserve Banks

How many members can serve on the Board of Governors of the Federal Reserve System?

How long is the term of office for members appointed to serve on the Board of Governors of the Federal Reserve System?
14 years

When was the Federal Reserve System established?

The Federal Reserve System of the U.S. is the country’s?
Central banks

Members of the Federal Reserve Board of Governors are?
Appointed by the President to staggered 14-year terms

Which group assists the Board of Governors of the Federal Reserve System in determining monetary policy?
Federal Open Market Committee

The Federal Open Market Committee (FOMC)?
Sets policy on the sale and purchase of government bonds by the Fed

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for?
Setting the Fed’s monetary policy and directing the purchase and sale of government securities

The most important of the Federal Reserve district banks is the?
New York bank

How many Federal Reserve Banks are there?

The Federal Reserve System is divided into?
12 districts

Holding the money deposits of businesses and households and marking loans to the public are the basic functions of?
Commercial banks and thrift institutions

Which of the following is the most important function of the Federal Reserve System?
Controlling the money supply

When the Fed acts as a “lender of last resort”, like it did in the financial crisis of 2007-2008, it is performing its role of?
Being the bankers’ bank

Which group is responsible for the policy of changing the money supply?
Federal Open Market Committee

The main function of the Federal Reserve System is to?
Control the money supply

The Federal Reserve System performs many functions but its most important one is?
Controlling the money supply

The Federal Reserve System performs the following functions, except?
Providing banking services to the general public

The Federal Reserve System is an?
Independent agency of government

The Financial Crisis of 2007-2008 started in which sector of the economy?
Real Estate and housing sector

The major wave of defaults on home mortgages in 2007 destabilized?
Banks including those that made the loans indirectly

When a bank’s loans are written off, it means that the bank’s?
Reserves shrink, whereas its debt remains the same

When a bank’s loans are written off, then the bank’s?
Ability to make new loans is restricted

The causes of the skyrocketing mortgage default rates that triggered the financial crisis on 2007-2008 include the following, except?
Housing price increased drastically and that sparked the crisis

Securitization, the process of forming new securities by bundling or slicing up groups of securities like mortgages and bonds, is?
A way of reducing risk though diversification

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread?

The “bail-out” money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler, came from the?
Troubled Assets Relief Program

The government bail-out of the large institutions creates the problem of moral hazard, which means that these large firms will?
Have an incentive to make highly risky investments

The so-called moral hazard problem refers to one’s tendency to?
Take on greater risk if one is at least partly insured against losses

Which of the following bank-related policies of the Fed fosters huge moral hazard problem?
Too big to fail policy

Traditionally, the Federal Reserve can give emergency loans only to?
Commercial banks

During the Financial Crisis of 2007-2008, Goldman Sachs, Morgan Stanley, and other financial firms with heavy exposure to the mortgage-related problems rushed to become bank holding companies in order to?
Get massive loans from the Fed

“Thrifts” refer to the following institutions, except?
Commercial banks

The following financial institutions traditionally accept deposits from savers, except?
Investment banks

Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both?
Mutual funds

The electronic-based payment that involves a loan is the?
Credit card

The use of a credit card is most similar to?
Paying with a check

The so-called stored-value cards include the following except?
Debit cards

The so-called electronic money is used when one pays through?

One major advantage of credit card used for transactions is that they?
Allow consumers to coordinate timing and payment for purchases

Gift-cards that people give one another for special occasions and holidays are examples of?
Stored-value cards

The fractional reserve system of banking started when goldsmiths began?
Issuing paper receipts in excess of the amount of gold held

What is one significant consequence of fractional reserve banking?
Banks are vulnerable to “panics” or “bank runs”

A bank’s net worth is equal to its?
Assets minus its liabilitites

A bank’s net worth is the?
Claims of its owners against the bank’s assets

A bank owns a 10-story office building. In the bank’s balance sheet, this would be listed as part of?

A bank has $2 million in checkable deposits. In the bank’s balance sheet, this would be part of?

The claims of creditors of a bank against the bank’s assets are called?

Which are liabilities to a bank?
Demand and time deposits

Money supply M1 includes a component that is part of a bank’s?

A checkable deposit at a commercial bank is an?
Asset to the depositor and a liability to the bank

Cash held by a bank in its vault is a part of the bank’s?

When a bank sells capital stock (equity shares) in return for cash?
The capital stock represents the net worth of the bank and the cash is an asset

When cash is deposited in a checkable-deposit account at a bank, there is?
An increase in the bank’s liabilities

When cash is withdrawn from a checkable-deposit account at a bank?
The money supply M1 does not change but its composition changes

The Federal Reserve System is the institution that issues the U.S. paper currency or dollar bills. TRUE When there is inflation in the economy, it implies that the: Price index is rising and the purchasing power of money is falling …

medium of exchange Any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter. unit of account A standard unit in which …

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