Study Game - Topic 4.3Online version The Definition, Measurement, and Functions of Money by Zachary Foust 1 On the island of Mabera, the local money is called “favoli.” The price of every good in Mabera is expressed as the number of favolis needed to buy the good. The use of favolis to express the price of goods describes which function of money? a Store of value b Medium of exchange c Means of payment d Unit of account 2 The table above gives the value of various monetary measures, in millions of dollars. Based on the table above, what is the value of M1, a measure of the money supply? a $100 million b $102 million c $1,000 million d $1,120 million 3 The table gives the value of various monetary measures, in millions of dollars. Based on the table, what is the value of the monetary base? a $100 million b $102 million c $110 million d $112 million 4 Which of the following transactions will keep M1 unchanged? a Sam transferred money from his certificate of deposit to his checking account. b Mike purchased government bonds and paid with a check. c Leila deposited coins from her piggy bank into her checking account. d Sandy converted a small-denomination time deposit into cash. 5 Which of the following is included in the monetary base? a Currency held by the public and commercial bank reserves held with the central bank b Currency held by the public, demand deposits at depository institutions, and commercial bank reserves held with the central bank c Currency held by the public, demand deposits, savings deposits, and certificates of deposit d Currency held by the public and small and large time deposits 6 What is the nominal interest rate? a The interest rate actually paid for a loan b The nominal interest rate minus the rate of inflation c The interest rate the central bank charges on loans to banks d The interest rate that banks charge other banks for loans, as determined in the reserves market 7 What is the real interest rate? a The interest rate actually paid for a loan b The nominal interest rate minus the rate of inflation c The interest rate the central bank charges on loans to banks d The interest rate that banks charge other banks for loans, as determined in the reserves market 8 Which of the following types of financial assets is the most liquid? a Demand deposits b Bonds c Cash d Stocks 9 Assume that the nominal interest rate rises. Which of the following will most likely occur? a The price of previously issued bonds will increase. b The price of stocks will increase. c The price of previously issued bonds will decrease. d The price of previously issued bonds will remain unchanged. 10 Assume that the nominal interest rate is 7 percent and the inflation rate is 3 percent. What is the real interest rate? a 2 percent b 4 percent c 10 percent d -4 percent 11 What is included in M1? a Demand deposits b Time deposits c Bonds d Stocks 12 Which of the following best describes the medium of exchange function of money? a Money is saved for the future. b Money is used to purchase goods and services. c Money is used to measure the value of products. d Money keeps its value over time.
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