Chapter 31 review
Student: ___________________________________________________________________________
1. The functions of money are to serve as a: 
A) Resource allocator, method for accounting, and means of income distribution
B) Unit of account, store of value, and medium of exchange
C) Determinant of consumption, investment, and government spending
D) Factor of production, exchange, and aggregate supply
 
2. When a consumer wants to compare the price of one product with another, money is primarily functioning as a: 
A) Store of value
B) Unit of account
C) Checkable deposit
D) Medium of exchange
 
3. What function is money serving when you deposit money in a savings account? 
A) A store of value
B) A unit of account
C) A checkable deposit
D) A medium of exchange
 
4. What function is money serving when you use it when you go shopping? 
A) A store of value
B) A unit of account
C) A medium of deferred payment
D) A medium of exchange
 
5. If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as: 
A) Fiat money
B) Legal tender
C) A store of value
D) A unit of account
 
6. One major advantage of money serving as a medium of exchange is that it allows society to: 
A) Transfer purchasing power from the present to the future
B) Measure the relative worth of products
C) Escape the complications of barter
D) Use credit cards instead of currency
 
7. The M1 money supply is composed of: 
A) All coins and paper money held by the general public and the banks
B) Bank deposits of households and business firms
C) Bank deposits and mutual funds
D) Checkable deposits and currency in circulation
 
8. Joe Rogers deposits $200 in currency in his checking account at a bank. This deposit is treated as: 
A) A subtraction of $200 from the money supply because the $200 in currency is no longer in circulation
B) An addition of $200 to the money supply because of the creation of a checkable deposit of $200
C) An addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200
D) No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits
 
9. Which of the following would be considered to be the most liquid? 
A) Checkable deposits
B) Small time deposits
C) Money market mutual funds
D) Savings deposits
 
10. Which of the following items are included in money supply M2 but not M1? 
A) Federal Reserve notes
B) Coins
C) Savings deposits
D) Checkable deposits
 
11. Checkable deposits are included in: 
A) M1 but not in M2
B) M2 but not in M1
C) both M1 and M2
D) neither M1 nor M2
 
 Use the following list to answer the question about the money supply Items.

1. Money market mutual funds held by individuals
2. Savings deposits, including money market deposit accounts
3. Money market mutual funds held by businesses
4. Currency held by the public
5. Small time deposits
6. Checkable deposits
 
12. Refer to the above table. The M2 money supply is composed of items: 
A) 1, 2, 3, 4, 5, and 6
B) 1, 2, 4, 5, and 6
C) 1, 2, 4, and 6
D) 2, 4, 5, and 6
 
13. United States currency has value primarily because it: 
A) Is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the Federal government
B) Is generally acceptable in exchange for goods or services, is backed by the gold and silver of the Federal government, and facilitates trade
C) Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services
D) Facilitates trade, is legal tender, and permits the use of credit cards and near-monies
 
14. The Federal backing for money in the United States comes from: 
A) Providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation
B) Pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency
C) Controlling the money supply in order to keep the value of money relatively stable over time
D) Protecting checkable deposits at financial institutions with deposit guarantees
 
15. What "backs" the money supply of the U.S.? 
A) The U.S. government's ability to keep the value of money relatively stable
B) The amount of gold the U.S. government has on deposit at its banks
C) The fact that currency is issued by the Federal Reserve System
D) The fact that the intrinsic value of coins in circulation is greater than their face value
 
16. When there is inflation in the economy, it implies that the: 
A) Price index is rising and the purchasing power of money is also rising
B) Price index is falling and the purchasing power of money is also falling
C) Price index is falling and the purchasing power of money is rising
D) Price index is rising and the purchasing power of money is falling
 
17. The Federal Reserve System consists of which of the following? 
A) Federal Open Market Committee and Office of Thrift Supervision
B) Federal Deposit Insurance Corporation and Controller of the Currency
C) U.S. Treasury Department and Bureau of Engraving and Printing
D) Board of Governors and the 12 Federal Reserve Banks
 
18. The Federal Reserve System of the U.S. is the country's: 
A) Financial adviser
B) Comptroller or Accountant
C) Central bank
D) Deposit insurance provider
 
19. Which group assists the Board of Governors of the Federal Reserve System in determining monetary policy? 
A) U.S. Treasury
B) U.S. Congress
C) Federal Advisory Council
D) Federal Open Market Committee
 
20. The Federal Open Market Committee (FOMC): 
A) Provides advice on banking stability to the Fed
B) Monitors regulatory banking laws for member banks
C) Sets policy on the sale and purchase of government bonds by the Fed
D) Follows the actions and operations of financial markets to keep them open and competitive
 
21. The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for: 
A) Maintaining cash reserves that can be used to settle international transactions
B) Supervising banks to make sure that markets are open to all and remain competitive
C) Issuing currency and acting as the fiscal agent for the Federal government
D) Setting the Fed's monetary policy and directing the purchase and sale of government securities
 
22. Which of the following is the most important function of the Federal Reserve System? 
A) Setting reserve requirements
B) Controlling the money supply
C) Lending money to banks and thrifts
D) Acting as the fiscal agent for the U.S. government
 
23. Which group is responsible for the policy of changing the money supply? 
A) Federal Open Market Committee
B) Office of Management and Budget
C) Thrift Advisory Council
D) Federal Advisory Council
 
24. The Federal Reserve System is an: 
A) Agency that is controlled by Congress
B) Agency that is under the direction of the President
C) Independent agency of government
D) Agency ran by popularly-elected officials

Chapter 31 review Key
 
1. B
 
2. B
 
3. A
 
4. D
 
5. D
 
6. C
 
7. D
 
8. D
 
9. A
 
10. C
 
11. C
 
12. B
 
13. C
 
14. C
 
15. A
 
16. D
 
17. D
 
18. C
 
19. D
 
20. C
 
21. D
 
22. B
 
23. A
 
24. C