1. The three functions of money are:
a. Unit of account, double coincidence of wants, and barter
b. Unit of account, double coincidence of wants, and store of value
c. Medium of exchange, unit of account, and double coincidence of wants
d. Medium of exchange, unit of account, and store of value
e. Medium of exchange, store of value, and double coincidence of wants

2. Commitments to make or receive payments in the future are made easier by money's function as a
a. unit of account
b. store of value
c. medium of exchange
d. form of barter
e. Commodity

3. If money is acceptable because the government requires that it be accepted in payment for debt, the money is
a. legal tender
b. commodity money
c. guaranteed to be a good store of wealth
d. convertible to a valuable commodity
e. subject to Gresham's Law

4. As the number of goods and services increases, barter becomes
a. easier because the chance of there being a double coincidence of wants increases
b. harder because the chance of there being a double coincidence of wants increases
c. easier because the chance of there being a double coincidence of wants decreases
d. harder because the chance of there being a double coincidence of wants decreases
e. easier because people have more choice

5. All of the following are goals of the Fed except one. Which is the exception?
a. a high level of employment
b. stability in interest rates
c. rising prices (to encourage production)
d. stability in financial markets
e. stability in foreign-exchange markets

6. Federal Reserve banks do all of the following except one. Which is the exception?
a. hold member banks' reserves on deposit
b. make loans to member banks
c. issue bank notes
d. serve as bankers to the federal government
e. hold deposits of households and firms

7. The Board of Governors consists of
a. seven elected members
b. seven members appointed by the president
c. a representative from each of the 12 district banks
d. 12 elected members
e. 12 members appointed by the president

8. Lowering the discount rate is a way to expand the money supply because
a. it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans
b. it encourages business customers to borrow directly from the Fed
c. a lower discount rate reduces the amount of reserves banks are required to keep
d. a lower discount rate automatically reduces excess reserves
e. it encourages banks to sell U.S. government securities and increase their cash reserves

9. All of the following are depository institutions except one. Which is the exception?
a. commercial banks
b. savings and loan associations
c. stock brokers
d. mutual savings banks
e. credit unions
6.

10. Today financial intermediaries do all of the following except one. Which is the exception?
a. link savers and borrowers
b. earn profits by loaning money
c. offer lower interest rates on savings than they charge on loans
d. print money
e. accept deposits

11. The main source of profit for financial institutions is
a. their ownership of stocks in commercial corporations
b. their ownership of real assets received in foreclosures on loans to households
c. the fees charged for holding and servicing checking accounts
d. the difference between interest paid on deposits and interest received on loans
e. the difference between the cost of creating new money and the interest paid on loans

12. The banking crisis of the 1980s was due, in part, to all of the following except one. Which is the exception?
a. the rising interest rates of the 1970s and early 1980s
b. the existence of deposit insurance
c. the deregulation of deposit rates that allowed unsafe banks to grow
d. the deregulation of lending practices
e. the highly concentrated U.S. banking industry, where big banks had branches in nearly every state

13. All of the following are part of the narrowest definition of money supply, M1, except:
a. Bill has $50 worth of pennies in a coffee jar
b. Mike has $600 in his checking account
c. Jill has $400 in traveler's checks
d. Jules has $400 worth of $1 bills in the piggybank
e. John has $500 in his savings account

14. The distinction between M1 and M2 has blurred over time because
a. M1 is now larger than M2
b. depositors can transfer funds between accounts so easily
c. the Federal Reserve has defined them less precisely
d. M1 is becoming less liquid
e. banks are offering time deposits

15. If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, then the bank can lend
a. $4,000
b. $16,000
c. no more than $4,800
d. no less than $3,000
e. $1,000

16. . If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution, what happens to the money supply, using the simple multiplier?
a. Nothing.
b. It increases by $5,000.
c. It decreases by $5,000.
d. It increases by $50,000.
e. It decreases by $50,000.

17. In the previous question, how much is primary money emission by Fed and how much is secondary money emission by the banking system?
a. 5,000 and 5,000
b. 0 and 50,000
c. 5,000 and 45,000
d. 50,000 and 0
e. Half and half

18.. In order to meet a deficiency of excess reserves, a bank could
a. buy securities
b. deposit vault cash with the Fed
c. turn some of its deposit at the Fed into cash
d. close some checking accounts
e. borrow from another bank in the federal funds market

19. The higher the required reserve ratio,
a. the larger the money multiplier
b. the smaller the money multiplier
c. the more excess reserves there are after each round of the money-creation process
d. the more money that can be lent in each round of the money-creation process
e. the fewer required reserves after each round of the money-creation process

20. What essential factor enables commercial banks to create money?
a. required reserves
b. excess reserves
c. state and local government securities
d. U.S. government securities
e. net worth