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8 Cards in this Set
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Sam saved $30 per week to buy a new DVD player. He compared two different models: a Panasonic that cost $129.99 and a Sony model that cost $139.99. Sam ended up paying $139.99 in $5 bills for the Sony DVD player.
Correct Answer 1.1. Which choice represents the unit of account function of money? A. Sam purchased the Sony model. Your Answer B. The Panasonic model cost less than the Sony model. C. Sam should have purchased the Panasonic model. |
The unit of account function of money provides a consistent way of stating the price of different items. By pricing all goods in dollars, it is easy for Sam to compare the cost of the Sony and Panasonic DVD players.
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Sam saved $30 per week to buy a new DVD player. He compared two different models: a Panasonic that cost $129.99 and a Sony model that cost $139.99. Sam ended up paying $139.99 in $5 bills for the Sony DVD player.
Correct Answer 1.2. Which choice represents the medium of exchange function of money? A. Sam saved $30 per week. B. The Panasonic model cost less than the Sony model. Your Answer C. Sam paid $139.99 for the DVD player. |
The medium of exchange function of money provides a generally acceptable means of payment for goods and services. In this case, Sam pays $139.99 in exchange for the DVD player.
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Sam saved $30 per week to buy a new DVD player. He compared two different models: a Panasonic that cost $129.99 and a Sony model that cost $139.99. Sam ended up paying $139.99 in $5 bills for the Sony DVD player.
Correct Answer 1.3. Which of the following choices represents the store of wealth function of money? Your Answer A. Sam saved $30 per week. B. The Panasonic model cost less than the Sony model. C. Sam paid $139.99 for the DVD player. |
The store of wealth function of money provides a means of transferring purchasing power from one period to another. By saving some of his pay, Sam stores value to purchase the DVD player.
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Jackie has the following list of assets:
$145 in currency $1,200 in a savings account $500 in a checking account 40 shares of General Electric stock, which currently sells for $20 per share $1,000 in a money-market mutual fund $2,000 in a U.S. government bond that matures in five years Correct Answer 2.1. What is the dollar value of Jackie's assets that are considered part of M1? |
M1 consists of currency in circulation, traveler's checks, and checking accounts. Jackie has $145 in currency and $500 in her checking account, totaling $645.
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Jackie has the following list of assets:
$145 in currency $1,200 in a savings account $500 in a checking account 40 shares of General Electric stock, which currently sells for $20 per share $1,000 in a money-market mutual fund $2,000 in a U.S. government bond that matures in five years Incorrect Answer 2.2. What is the dollar value of Jackie's assets that are considered part of M2? |
M2 consists of everything in M1, plus savings deposits, small time deposits, and money-market mutual funds. The only items on the list that are not part of M2 are the value of the General Electric stock and the value of the government bonds. Totaling the other components ($145 + $1,200 + $500 + $1,000) yields $2,845.
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Use the information below to answer the following questions. All figures are from October 2005 and are expressed in billions of dollars.
Traveler's Checks $7.3 Savings Deposits $3,594.0 Small Time Deposits $950.5 Currency $716.2 Checking Accounts $644.1 Money-Market Mutual Funds $715.1 Source: Federal Reserve What is the value of M1 in October 2005? |
M1 includes the most liquid forms of money--that is, those forms of money that can be used immediately as a medium of exchange. These include currency in circulation, traveler's checks, and checking accounts. The sum of these components is $1,367.6 billion.
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Use the information below to answer the following questions. All figures are from October 2005 and are expressed in billions of dollars.
Traveler's Checks $7.3 Savings Deposits $3,594.0 Small Time Deposits $950.5 Currency $716.2 Checking Accounts $644.1 Money-Market Mutual Funds $715.1 Source: Federal Reserve What is the value of M2 in October 2005? |
M2 includes everything that is in M1, plus savings deposits, small time deposits, and money-market mutual funds. Adding these to the value of M1 yields the value of M2, or $6,627.2 billion.
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Suppose the T-account below represents the balance sheet for United Bank--the only commercial bank in the country. The Fed, the country's central bank, regulates United Bank. Assume people hold no cash.
Assets Liabilities Cash (reserves) $16 billion Demand deposits $80 billion Loans $60 billion Net worth $10 billion Treasury bonds $6 billion Property $12 billion Total Assets $90 billion Total Liabilities and Net Worth $90 billion Suppose United Bank is fully loaned up--that is, it does not currently hold any excess reserves. In this case, what is the reserve requirement? |
United Bank has $80 billion in demand deposits and $16 billion in cash reserves. United Bank holds no excess reserves, so all reserves it holds must be required. The required reserve ratio is 20% ($16 billion / $80 billion = 0.20).
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