Question

M PIOLICE PLODICIS Oll your CSL SLO on your Scantron and on the test sheet. 1. The Federal Reserve System performs many functions but its most important one in normal times (ie, when there is not a financial crisis) is: Ya stop printing money so as to prevent inflation (b) providing a safe and secure place for the government's money (C) cutting or increasing interest rates to try to limit unemployment or inflation. (d) to be a lender of last resort for troubled financial institutions. 2. To use money as a store of wealth you are the most likely to go to: (a) a bank (6) a college bookstore (c) your tax accountant (d) your job's payroll office 3. Which of the following people has the LEAST money (using the economic definition of money or M-1)? (a) Elena's allowance is $1 per week and she has $300 in a piggy bank. (b) Fred makes $50,000 per year and had $500 in his checking account. (c) Phyllis has $100 in cash but owns more than $25,000 in stocks and bonds. (d) Susan has no checking account or cash but her bitcoins are worth $75,000. 4. The Federal Reserve still has billions of dollars of gold left over from the gold standard period (1879-1933). Today this gold: (a) is used to back the U.S. Dollar (b) is used to make jewelry for the first lady. (c) is used to pay salaries for Federal government employees. (d) is NOT used to back the U.S. dollar 5. Which of the following is widely used as a store of wealth but in NOT considered to be money (M-1) today in the United States? (a) paper bills (b) checking accounts (c) savings accounts (d) credit cards

Answer 1

1. The answer is "Cutting or increasing interest rate to try to limit unemployment or inflation"

The federal Reserve uses its most common conventional tool "changing Federal Fund rate" to maintain price stability and employment.

2. To use the money as store of wealth you are most likely to go yo a bank.

(Bank provides safe keeping of wealth)

3. "Fred Makes 50000 $ per year and had 500 $ in his checking account"

M1 includes cash, coins, Current account (Checking account), traveler checks etc. Here Elena money is stored in piggy bank and is not moving, so not included in M1.

4. The answer is "is Not used to back the US dollar"

The dollar was pegged to Gold at 35$ / ounce, but President Nixon in 1971 broke the peg and allowed the dollar to trade freely. Now the Dollar is not backed by Gold

5. The answer is "Credit card"

Credit card is Not a part of M1 money supply.