Money and Inflation Quiz

What is the primary function of money as a medium of exchange?

• It stores value over time

• It serves as a generally accepted payment for goods and services

• It measures the worth of items

• It prevents inflation from occurring

Which of the following best defines inflation?

• A decrease in the average price level over time

• The total amount of money in circulation

• A general, sustained increase in the price level

• The value of currency compared to gold

What is the main tool the Federal Reserve uses to control money supply?

• Printing new currency

• Setting tax rates

• Managing gold reserves

• Open market operations

What happens when the Federal Reserve buys government securities?

• The money supply decreases

• Bank reserves decrease

• Interest rates increase

• Bank reserves increase

What is fiat money?

• Money that is backed by precious metals

• Money backed by the good faith and credit of the country

• Money that can only be used internationally

• Money that is used exclusively by banks

How long do Federal Reserve Board members serve?

• 4 years

• 8 years

• 14 years

• 6 years

What causes significant sustained inflation?

• Decreases in government spending

• Increases in the money supply

• Reduction in bank lending

• Higher interest rates

What characteristic of money means it must be difficult to duplicate?

• Durable

• Portable

• Scarce

• Stable

Which entity is responsible for producing U.S. currency and coins?

• Federal Reserve

• U.S. Department of Treasury

What happens to the money supply when loans are paid off?

• It remains the same

• It increases slightly

• It contracts

• It doubles