Chapter 18
Practice Quiz Tutorial
Money and The
Federal Reserve
©2004 South-Western
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1. Which of the following is a problem with
barter?
a. Individuals will not exchange goods.
b. Individuals’ wants must coincide in order
for there to be exchange.
c. Goods can be exchanged, but services
cannot.
d. None of the above is a problem.
B. Finding coincidence of wants
complicates and therefore decreases
market transactions.
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2. Which of the following is not a characteristic of
money?
a. It provides a way to measure the relative
value of goods and services.
b. It is always backed by something of high
intrinsic value such as gold or silver.
c. It is generally acceptable as a medium of
exchange.
d. It allows for saving and borrowing.
B. Gold or silver backing for U.S. paper money
was removed in 1934.
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3. Which of the following is not a store of
value?
a. Dollar.
b. Money market mutual fund share.
c. Checking account balance.
d. Credit card.
D. Credit cards are a prearranged
short-term loan which can be
canceled by the credit card
company.
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4. The easier it is to convert an asset directly
into goods and services without loss, the
a. less secure it is.
b. more secure it is.
c. more liquid it is.
d. less liquid it is.
C. Money is the most liquid form of
wealth because it can be spent directly
in the marketplace.
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5. M1 refers to
a. the narrowly defined money supply.
b. currency held by the public plus checking
account balances and traveler’s checks.
c. the smallest of the money-supply
definitions.
d. all of the above.
D. M1 is the narrowest definition of the
money supply.
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6. The M1 definition of the money supply
consists of
a. coins and currency in circulation.
b. coins and currency in circulation,
checkable deposits, and traveler’s checks.
c. Federal Reserve notes, gold certificates,
and checkable deposits.
d. Federal Reserve notes and bank loans.
B. Answers a is incomplete and c and d are not
answers because gold certificates and bank
loans are not included in M1.
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7. Which of the following items is not
included when computing M1?
a. Coins in circulation.
b. Currency in circulation.
c. Savings accounts.
d. Checking account entries.
C. Savings accounts are included in M2.
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8. Which of the following is part of the M2
definition of the money supply, but not
part of M1?
a. Traveler’s checks.
b. Currency held in banks.
c. Currency in circulation.
d. Money market mutual fund shares.
D. Note that M1 is part of M2.
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9. Which of the following is not part of M1?
a. Checking accounts
b. Coins
c. Credit cards
d. Traveler’s checks
e. Paper currency
C. Credit cards are not considered money.
They fail to meet the store of value
characteristic.
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10. Which definition of the money supply
includes credit cards, or “plastic money”?
a. M1
b. M2
c. M3
d. All of the above
e. None of the above
E. Credit cards are not money because they
fail to serve as a store of value.
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11. Which of these institutions has the
responsibility to control the money
supply?
a. Commercial banks
b. Congress
c. U.S. Treasury Department
d. Federal Reserve System
D. The Federal Reserve System is our
central bank.
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12. Which of the following is not one of the
function of the Federal Reserve?
a. Clearing checks
b. Printing currency
c. Supervising and regulating banks
d. Controlling the money supply
B. The U.S. Treasury prints our currency.
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13. Which of the following is in charge of the
buying and selling of government securities
by the Fed?
a. president
b. Federal Open Market Committee
(FOMC)
c. Congress
d. None of the above
B. Selling U.S. securities (Treasury bills, notes,
and bonds) is one of the major tools for
controlling the money supply.
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14. The major protection against sudden mass
attempts to withdraw cash from banks is the
a. Federal Reserve.
b. Consumer Protection Act.
c. deposit insurance provided by the FDIC.
d. gold and silver backing the dollar.
C. The FDIC is a government agency
established by Congress in 1933 to insure
commercial bank deposits up to $100,000
per bank account.
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END
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