Question

1 Which of the following uses of money is the focus of those economists who favor the transactions approach to money measurement?
Select one:

a Store of value
b Unit of account
c Medium of exchange
d Standard of deferred payment

2 Which of the following assets is traded only in an over-the-counter market?
a. Stocks
b. Commodities
c. Treasury bonds
d. All of the above
e. None of the above

3 Which of the following forms of electronic money is a substitute for cash?
a. a smart card
b. b. a stored-value card
c. a debit card
d. all of the above
e. only B and C

4 Economists take the study of money seriously because evidence suggests that
a. business cycle downturns are preceded by downturns in money growth.
b. the money supply and the price level move closely together.
c. money and interest rate movements are related.
d. All of the above are true
e. Only A and B true

5 When the Fed purchases $100 of bonds from a bank, the bank may either deposit the check it receives in its account with the Fed or cash it for currency, which will be counted as vault cash. Either action means that the bank will find itself with
a. Additional reserves
b. More assets
c. Both A and B
d. None of the above

6 The classical economists believe that:
a. Money doesn’t matter
b. Money does matter
c. The lack of money is the root of all evil
d. Money and output has a positive relation

7 Which of the following is NOT central banks' major concern over electronic money?
a. The status of issuers
b. Risk to issuers
c. The quantity supply
d. None of the above

8 Commercial banks normally prefer REPO transactions to outright transactions in the money market due to:
a. The maintenance of a stable investment portfolio
b. The maximization of investment returns
c. The liquidity concern
d. None of the above

Answer 1

1. C. Medium of exchange. Transactions approach just sees money as a medium of exchange as it consists of two elements currency and demand drafts.

2. E. None of the above. All these can be traded in either otc markets or exchange markets both.

3. D. All of the above. Smart cards, store value cards and debit cards all three can be substituted for cash.

4. D. A of the above are true.

5. C. Both a and b. The bank will have additional reserves with it after the purchase of bonds by fed and also more assets.

6. B. Moeny does matter.

7. C. The quantity supply. It doesn't matter the quantity supplied as long as the central bank is able to keep a check and regulate things accordingly.

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