# Econ 1040- chapter 6

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 To say money is socially defined means that: whatever performs the functions of money extremely well is considered to be money. Money functions as: all of these. Answers: a store of value. a unit of account. a medium of exchange. all of these. If you are estimating your total expenses for school next semester, you are using money primarily as: a unit of account. If you place a part of your summer earnings in a savings account, you are using money primarily as a: store of value. If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: a medium of exchange. When economists say that money serves as a medium of exchange, they mean that it is: a monetary unit for measuring and comparing the relative values of goods. When economists say that money serves as a unit of account, they mean that it is: a monetary unit for measuring and comparing the relative values of goods. When economists say that money serves as a store of value, they mean that it is: a way to keep wealth in a readily spendable form for future use. In the United States, the money supply (M1) is comprised of: coins, paper currency, and checkable deposits. Which of the following is not part of the M2 money supply? large-denominated time deposits The difference between M1 and M2 is that: the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances. Refer to the above information. Money supply M1 for this economy is: 130 Refer to the above information. Money supply M2 for this economy is: 480 Refer to the above information. The value of the "near-monies" that are part of M2 is: 350 Which of the following does not explain what backs the money supply in the United States? It is back by gold. The purchasing power of money and the price level vary: inversely. During periods of rapid inflation, money may cease to work as a medium of exchange: because people and businesses will not want to accept it in transactions. The basic policy-making body in the U.S. banking system is the: Board of Governors of the Federal Reserve. The Federal Reserve System was created in: 1913 In the U.S. economy the money supply is controlled by the: Federal reserve system As it relates to Federal Reserve activities, the acronym FOMC describes the: Federal Open Market Committee The Federal Open Market Committee (FOMC) is made up of: the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis. The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the: Federal open market com Which one of the following is true about the U.S. Federal Reserve System? There are 12 regional Federal Reserve Banks. The members of the Federal Reserve Board: are appointed for 14-year terms. An important routine function of the Federal Reserve Bank is to: provide facilities by which commercial banks and thrift institutions may collect checks. The seven members of the Board of Governors of the Federal Reserve System are: appointed by the President with the confirmation of the Senate To say that the Federal Reserve Banks are quasi-public banks means that: they are privately owned, but managed in the public interest. Which of the following is the basic economic policy function of the Federal Reserve Banks? controlling the supply of money Research for industrially advanced countries indicates that: the more independent the central bank, the lower the average annual rate of inflation. "Subprime mortgage loans" refer to high-interest rate loans to home buyers with above average credit risk. What are "mortgage-backed securities?" Bonds backed by mortgage payments In the financial industry, "securitization" refers to: bundling groups of loans, bonds, mortgages, and other financial debts into new securities. Collateralized default swaps: insured holders of loan-backed securities in case they underlying loans were not repaid. Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008? Prior to the rise in defaults banks had become lax in their lending practices, resulting in a number of bad loans. TARP, created in 2008, stands for: Troubled Asset Relief Program Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of: Moral hazard The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008 increased by moral hazard problem by limiting losses from bad financial decisions. New York Life, Prudential, and Hartford, are all primarily: insurance companies Wells Fargo, J.P. Morgan Chase, and Citibank, are all primarily: Commercial banks

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