ECONOMICS 201 SPRING 2015 REVIEW QUESTIONS FOR EXAM 3 – KEY MONEY AND THE FEDERAL RESERVE 1. Which of the following could NOT be commodity money? a) gold b) precious stones c) cigarettes d) paper money e) silver 2. Which of the following is fiat money? a) cigarettes b) paper money c) gold d) sugar e) rum 3. Demand deposits are also known as ____. a) savings accounts b) checking accounts c) time-deposits d) U.S. government bonds e) traveler’s checks 4. Time deposits are also known as ____. a) certificates of deposits (CD’s) b) checking accounts c) savings accounts d) traveler’s checks e) U.S. government bonds5. Which of the following assets is the most liquid? a) savings account b) checking account c) gold d) a U.S. government bond e) share of IBM stock 6. Which of the following assets is the most liquid? a) savings account b) gold c) real estate d) stock of IBM e) U.S. government bond 7. Which of the following statements about money is (are) correct? a) Money is a more efficient form of trade than barter. b) Money allows greater specialization. c) The purpose of money is to create wealth. d) All of the above are correct. e) Only a and b are correct. 8. What is the largest component of M1? a) Traveler’s Checks b) Checking Accounts at Commercial Banks c) Checking Accounts at Thrifts d) Currency (held outside of banks) e) Gold 9. According to M1, how much “money” was in circulation as of spring 2015? a) $500 Million b) $1.5 Billion c) $450 Billion d) $900 Billion e) $3 Trillion10. What is the largest component of M2? a) Checking Accounts b) M1 – all cash, traveler’s checks and checking accounts c) Savings Accounts d) Certificate of Deposits e) Gold 11. According to M2, how much “money” was in circulation as of spring 2015? a) $100 Billion b) $2.5 Trillion c) $12 Trillion d) $150 Trillion e) $500 Trillion f) One gazillian! 12. How is currency (outside of banks) classified as money? a) Included in M1 only b) Included in M2 only c) Included in both M1 and M2 d) Not counted as money 13. How are checking accounts at commercial banks (SunTrust) classified as money? a) Included in M1 only b) Included in M2 only c) Included in both M1 and M2 d) Not counted as money 14. How are checking accounts at thrifts (Tennessee Credit Union) classified as money? a) Included in M1only b) Included in M2 only c) Included in both M1 and M2 d) Not counted as money 15. How is gold classified as money? a) Included in M1 only b) Included in M2 only c) Included in both M1 and M2 d) Not counted as money16. How are U.S. Government Bonds classified as money? a) Included in M1 only b) Included in M2 only c) Included in both M1 and M2 d) Not counted as money 17. How are savings accounts classified as money? a) Included in M1 only b) Included in M2 only c) Included in both M1 and M2 d) Not counted as money 18. Which of the following is NOT included in M2? a) cash b) savings accounts c) time deposits (certificate of deposits) d) money market mutual funds e) All of the above are included in M2. 19. Which of the following is NOT included in M1? a) currency held by the public. b) small time deposits c) checking accounts d) traveler’s checks e) All of the above are included in M1. 20. Which of the following is NOT a component of M1? a) travelers' checks b) cash held by the public c) checking accounts (demand deposits) d) reserves (currency in bank vaults) e) All of the above are included in M1.Suppose there is a small, isolated island known as “Kardashian Island”, made up entirely of incredibly shallow people. Suppose that the total assets for the island consists of the following: $250,000 in cash; $50,000 in coins; $400,000 in savings accounts; $75,000 in gold; $200,000 in checking accounts; $125,000 held in government bonds; $300,000 in certificates of deposits; and a huge silver shrine dedicated to someone named “Kim” worth approximately $1. 21. What is the total amount of M1 on the island? a) $250,000 b) $300,000 c) $450,000 d) $500,000 e) $575,000 22. What is the total amount of M2 on the island? a) $700,000 b) 1,275,000 c) $1,200,000 d) $1,400,000 e) $1,400,001 23. Suppose that John Doe transfers $1,000 from his savings account to his checking account. What are the immediate effects on M1 and M2? a) M1 and M2 have both risen. b) M1 rises and M2 falls. c) M1 rises and M2 remains unchanged. d) No change in M1 and M2 falls. e) Both M1 and M2 fall. 24. How many central banks does the U.S. have? a) 0 – the U.S. does not have a central bank b) 1 c) 7 d) 12 e) 14 25. How many members are on the Federal Reserve’s Board of Governors? a) 1 b) 5 c) 7 d) 12 e) 1526. Who makes up the Federal Open Market Committee (FOMC)? a) The 7 members of the Board of Governors b) The 7 members of the Board plus all 12 regional bank presidents c) the 12 regional bank presidents d) 5 regional bank presidents e) The 7 member Board plus 5 rotating regional bank presidents 27. Which of the following is NOT a function performed by the Federal Reserve? a) serve as a lender of the last resort b) serve as the bank for the United States c) keep inflation and unemployment low d) convert gold into paper currency e) regulate and stabilize the banking industry and credit markets 28. Consider the following groups listed below. Which of these does the Federal Reserve typically lend to? i) Commercial banks (such as SunTrust) ii) Thrift banks (such as credit unions) iii) Foreign governments iv) U.S. government v) Private citizens vi) Private corporations a) Commercial banks only b) Commercial and thrift banks c) Commercial and thrift banks, foreign governments and US government d) Commercial banks, the U.S. government and private corporations e) All of the above (i) through (vi) MONEY CREATION AND THE FEDERAL RESERVE II 29. On a bank's balance sheet, how are deposits, loans and reserves categorized? a) reserves are assets; loans and deposits are liabilities b) loans and reserves are assets; deposits are liabilities c) loans are assets; reserves and deposits are liabilities d) deposits are assets; reserves and loans are liabilities e) deposits and reserves are assets; loans are liabilities30. The money (deposit) multiplier is equal to: