EXAM 1-CHAPTERS 5&6 QUESTIONS WITH v v v v
CORRECT ANSWERS 2025
v v v
Characteristics that enable an item to serve well as money include each of the following, v v v v v v v v v v v v v v
except - correct answer-abundant
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In addition to the chairman of the Board of Governors, the FOMC consists of - correct answer-
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Six other members of the Board of Governors, four rotating bank presidents and the
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vpresident of t he New York Federal Reserve v v v v v v v
The FOMC - correct answer-
v v v v
meets eight times a year to decide on how to conduct open market operations that influence
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vthe money supply and interest rates
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When the Fed sells government securities in the open market, the money supply
v v becaus v v v v v v v v v v v v
e
v v - correct answer- v v v
decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease
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When the Fed buys government securities in the open market, the money supply
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ve v . - correct answer- v v v
increases; banks gain liquidity, they make more loans and checking account deposits increase
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Which of the following is true for the European Central Bank (ECB)? - correct answer-
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A) it is housed in Frankfurt, Germany
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B) each member countryʹs central bank has similar functions to the Federal Reserve Banks
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C) its executive board meets more often than the FOMC
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D) all of the v v
v above** and v
it is a more decentralized system than the Federal Reserve
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Current Federal Reserve policy focuses on interest rates, rather than on monetary aggregates,
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vbeca use - correct answer- v v v v
monetary aggregates do not provide clear or consistent signals to guide policymakers
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, M1 differs from M2 because
v . - correct answer-
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A) M1 does not include savings deposits and M2 does
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B) M2 includes components that are less liquid than any component of M1
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C) M1 is included in M2 but M2 has more components
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D) all of the above**
v v v
Financial innovations such as direct deposit of paychecks, electronic payment of bills, and
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vautomate d teller machines (ATMs) have likely - correct answer-reduced the size of M1
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vrelative to M2 v v
Which of these transactions results in an increase in M2? - correct
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answer- depositing a bank loan of $400 into your savings account
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As of 2010 the outstanding U.S. currency is $872 billion, which implies that the typical U.S.
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vcitizen holds $2,800 in cash. Is this an accurate inference? Why? - correct answer-
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No; because criminals and foreigners hold large sums of dollars, so the average citizen holds
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vfar les s.
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The principal reason(s) that so much U.S. currency is held outside the U.S is (are) - correct
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vanswer- many people around the world trust the U.S. dollar more than any other currency
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The velocity of money - correct answer-
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A) times the money supply should equal total income according to the equation of exchange
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B) provides the link between the money supply and nominal income
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C) represents the average number of times a dollar turns over through the year
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D) all of the above**
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The equation of exchange
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A) states that the quantity of money multiplied by velocity must equal nominal income in a
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vgiven year v
B) shows that real GDP must equal real money balances times the number of times a dollar
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vturns over in a year
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C) describes a relationship that is true by definition v v v v v v v
D) all of the above**
v v v
CORRECT ANSWERS 2025
v v v
Characteristics that enable an item to serve well as money include each of the following, v v v v v v v v v v v v v v
except - correct answer-abundant
v v v v
In addition to the chairman of the Board of Governors, the FOMC consists of - correct answer-
v v v v v v v v v v v v v v v v
Six other members of the Board of Governors, four rotating bank presidents and the
v v v v v v v v v v v v v
vpresident of t he New York Federal Reserve v v v v v v v
The FOMC - correct answer-
v v v v
meets eight times a year to decide on how to conduct open market operations that influence
v v v v v v v v v v v v v v v
vthe money supply and interest rates
v v v v v
When the Fed sells government securities in the open market, the money supply
v v becaus v v v v v v v v v v v v
e
v v - correct answer- v v v
decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease
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When the Fed buys government securities in the open market, the money supply
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ve v . - correct answer- v v v
increases; banks gain liquidity, they make more loans and checking account deposits increase
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Which of the following is true for the European Central Bank (ECB)? - correct answer-
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A) it is housed in Frankfurt, Germany
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B) each member countryʹs central bank has similar functions to the Federal Reserve Banks
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C) its executive board meets more often than the FOMC
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D) all of the v v
v above** and v
it is a more decentralized system than the Federal Reserve
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Current Federal Reserve policy focuses on interest rates, rather than on monetary aggregates,
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vbeca use - correct answer- v v v v
monetary aggregates do not provide clear or consistent signals to guide policymakers
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, M1 differs from M2 because
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A) M1 does not include savings deposits and M2 does
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B) M2 includes components that are less liquid than any component of M1
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C) M1 is included in M2 but M2 has more components
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D) all of the above**
v v v
Financial innovations such as direct deposit of paychecks, electronic payment of bills, and
v v v v v v v v v v v v
vautomate d teller machines (ATMs) have likely - correct answer-reduced the size of M1
v v v v v v v v v v v v v
vrelative to M2 v v
Which of these transactions results in an increase in M2? - correct
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answer- depositing a bank loan of $400 into your savings account
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As of 2010 the outstanding U.S. currency is $872 billion, which implies that the typical U.S.
v v v v v v v v v v v v v v v
vcitizen holds $2,800 in cash. Is this an accurate inference? Why? - correct answer-
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No; because criminals and foreigners hold large sums of dollars, so the average citizen holds
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vfar les s.
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The principal reason(s) that so much U.S. currency is held outside the U.S is (are) - correct
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vanswer- many people around the world trust the U.S. dollar more than any other currency
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The velocity of money - correct answer-
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A) times the money supply should equal total income according to the equation of exchange
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B) provides the link between the money supply and nominal income
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C) represents the average number of times a dollar turns over through the year
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D) all of the above**
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The equation of exchange
v . - correct answer- v v v v v
A) states that the quantity of money multiplied by velocity must equal nominal income in a
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vgiven year v
B) shows that real GDP must equal real money balances times the number of times a dollar
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vturns over in a year
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C) describes a relationship that is true by definition v v v v v v v
D) all of the above**
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