Podcast
Questions and Answers
If you are estimating your total expenses for school next semester, you are using money primarily as?
If you are estimating your total expenses for school next semester, you are using money primarily as?
- A medium of exchange
- A unit of account (correct)
- An economic investment
- A store of value
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as?
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as?
- A unit of account
- An economic investment
- A medium of exchange (correct)
- A store of value
When economists say that money serves as a unit of account, they mean that it is?
When economists say that money serves as a unit of account, they mean that it is?
- A monetary unit for measuring and comparing the relative values of goods (correct)
- A way to keep wealth in a readily spendable form for future use
- A means of payment
- Declared as legal tender by the government
In the United States, the money supply (M1) includes?
In the United States, the money supply (M1) includes?
Checkable deposits are classified as money because?
Checkable deposits are classified as money because?
In defining money as M1, economists exclude time deposits because?
In defining money as M1, economists exclude time deposits because?
Currency in circulation is part of?
Currency in circulation is part of?
Money market deposit accounts are included in?
Money market deposit accounts are included in?
Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, then?
Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, then?
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
The money supply is backed?
The money supply is backed?
To keep high inflation from eroding the value of money, monetary authorities in the United States?
To keep high inflation from eroding the value of money, monetary authorities in the United States?
The basic requirement for an item to function as money is that it be?
The basic requirement for an item to function as money is that it be?
The central authority of the U.S. banking system is the?
The central authority of the U.S. banking system is the?
The Federal Reserve System was created in?
The Federal Reserve System was created in?
As it relates to Federal Reserve activities, the acronym FOMC describes the?
As it relates to Federal Reserve activities, the acronym FOMC describes the?
The Federal Open Market Committee (FOMC) is made up of?
The Federal Open Market Committee (FOMC) is made up of?
Which one of the following is true about the U.S. Federal Reserve System?
Which one of the following is true about the U.S. Federal Reserve System?
To say that the Federal Reserve Banks are quasi-public banks means that?
To say that the Federal Reserve Banks are quasi-public banks means that?
The Federal Reserve Banks are owned by the?
The Federal Reserve Banks are owned by the?
Which of the following is not true about the Federal Reserve Banks?
Which of the following is not true about the Federal Reserve Banks?
The Federal Open Market Committee (FOMC)?
The Federal Open Market Committee (FOMC)?
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the?
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the?
An important routine function of the Federal Reserve Bank is to?
An important routine function of the Federal Reserve Bank is to?
Which of the following statements best describes the 12 Federal Reserve Banks?
Which of the following statements best describes the 12 Federal Reserve Banks?
Study Notes
Money Functions
- Money is used primarily as a unit of account for estimating total expenses and for measuring and comparing values of goods.
- As a medium of exchange, money facilitates transactions, such as writing a check to purchase a car.
Money Supply Definitions
- In the U.S., M1 consists of coins, paper currency, and checkable deposits, while M2 includes M1 plus money market deposit accounts.
- Checkable deposits are considered money because they can be immediately used for purchases, reflecting their liquidity.
Changes in Money Supply
- A decrease in checkable deposits coupled with an increase in money market mutual funds results in a decline in M1 while M2 remains unchanged.
- Transferring funds from savings to checking accounts increases M1 without affecting M2.
Control of Money Supply
- The money supply's value is primarily backed by the government's ability to control it, ensuring economic stability.
- To prevent high inflation, U.S. monetary authorities control the money supply actively.
Characteristics of Money
- An item must be generally accepted as a medium of exchange to function effectively as money.
- Legal tender status helps ensure money's acceptance in transactions.
Federal Reserve System
- The central authority of the U.S. banking system is the Board of Governors of the Federal Reserve.
- Created in 1913, the Federal Reserve System includes 12 regional banks and governs monetary policy to stabilize the economy.
Federal Open Market Committee (FOMC)
- The FOMC plays a crucial role in setting policies regarding government bond sales and purchases, consisting of Board members and other Federal Reserve Bank presidents.
- The FOMC's actions influence the money supply and financial markets, contributing to economic stability.
Federal Reserve Banks' Structure
- Federal Reserve Banks are privately owned but serve the public interest, owned by member banks rather than the government.
- They do not compete directly with commercial banks in their standard functions and are controlled by federally mandated regulations.
Key Functions of Federal Reserve
- An essential function of the Federal Reserve includes facilitating check collection for commercial banks and thrift institutions.
- The FOMC is responsible for guiding the buying and selling of government securities, impacting monetary policy and financial markets.
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Description
Testing your understanding of the functions and definitions of money supply, including M1 and M2. This quiz covers how transactions are facilitated through money and the implications of changes in the money supply. Delve into the role of monetary authorities in controlling inflation and ensuring economic stability.
