Download Economics 353: Fall 2007 Exercise 3 - Money and Banking and more Study notes Economics in PDF only on Docsity! ANSWER OUTLINE ECONOMICS 353 L. Tesfatsion/Fall 2007 EXERCISE 3: 6 Questions (8 Points Total) DUE: Tues., Sept 18, 2007, 2:10pm **IMPORTANT REMINDER: LATE ASSIGNMENTS WILL NOT BE ACCEPTED – NO EXCEPTIONS** EXERCISE INSTRUCTIONS: • (1) Please fill in your name and student ID number on Side 1 of your bubble sheet and write 353 Exercise 3 in the top margin of Side 1. • (2) Use a number 2 pencil to mark your answers on Side 1 of the bubble sheet to the first five questions Q1 through Q5, below, which are in multiple choice format. • (3) The sixth question Q6 asks you to explore what happens to money deposited in local Ames banks or credit unions. Please put your name and student ID number at the top of your answer sheet for Q6 along with 353 Exercise 3 and separately hand in this answer-sheet sheet for Q6 in addition to your answer bubble sheet for questions Q1 through Q5. • (4) Each question Q1 through Q5 is worth 1 point, and Q6 is worth 3 points. Q1 (1 point). The organization responsible for the conduct of MONETARY POLICY in the United States is A. the executive branch (the President and his administration). B B. the Federal Reserve System. C. the Office of the Comptroller. D. the U.S. Treasury. E. the U.S. Congress. Q2 (1 Point). CHECKABLE DEPOSIT ACCOUNTS supplied by reputable U.S. commercial banks such as the First National Bank in Ames A. are legal tender in the U.S. B. are a generally accepted means of payment for goods and services and for repayment of debts in the U.S., by social custom. C. constitute part of M1, a commonly used measure of money in the U.S. D. All of the above. E E. Only B and C. 1 Q3 (1 Point). When compared to exchange systems that rely on money, DISADVANTAGES of the barter payment system include: A. lower transactions costs. B B. the discouragement of labor specialization (division of labor). C. the encouragement of labor specialization (division of labor). D. the requirement that double coincidence of wants be absent. E. both C and D. Q4 (1 Point). U.S. monetary policy makers worry about being able to accurately measure and control the money supply held in the private sector because A. changes in this money supply induced by taxes and expenditures can be used to exert control over the government budget deficit. B. changes in this money supply induced by printing press operations can be used to exert control over the inflation rate. C C. changes in this money supply induced through “open market operations” (bond sales to the private sector) can be used to exert control over interest rates. D. changes in this money supply induced through current account operations can be used to exert control over the balance of payments. Q5 (1 Point). Which of the following statements are TRUE: A. Initial estimates of the aggregate money measures M1, M2, and M3 are rarely revised, so they are reliable guides to short-run movements in the money supply. B. M3 is the most commonly used aggregate money measure in the U.S. because the financial instruments it contains are all highly liquid. C. M1, M2 and M3 always move closely together. D D. M1 is the narrowest of the three aggregate money measures M1, M2, and M3, in the sense that it consists of financial instruments that most closely satisfy the theoretical definition of money. E. All of the above. SEE THE FOLLOWING PAGE FOR Q6: WEB EXERCISE 2
