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