Tackle the Test: Free-Response Questions

1. Question

   
   

   
   

   1. What does it mean for an asset to be “liquid”?

      
      
   
   

   2. Which of the assets listed below is the most liquid? Explain.

      
      

      A Federal Reserve note (dollar bill)

      
      

      A savings account deposit

      
      

      A house

      
      
   
   

   3. Which of the assets listed above is the least liquid? Explain.

      
      
   
   

   4. In which monetary aggregate(s) calculated by the Federal Reserve are checkable deposits included?

      
      
   
   

   Rubric for FRQ 1 (6 points)

   1 point: It can easily be converted into cash.

   1 point: A Federal Reserve note

   1 point: It is already cash.

   1 point: A house

   1 point: It takes time and resources to sell a house.

   1 point: M1 and M2 (They were part of M3 as well, but the Fed no longer uses this measure.)

2. Question

   
   

   
   

   1. The U.S. dollar derives its value from what? That is, what “backs” U.S. currency?

      
      
   
   

   2. What is the term used to describe the type of money used in the United States today?

      
      
   
   

   3. What two other types of money have been used in the past? Define each. (5 points)

      
      
   
   

   Rubric for FRQ 2 (5 points)

   1 point: U.S. currency is backed by its official status granted by the U.S. government.

   1 point: Fiat money

   1 point: Commodity money and commoditybacked money

   1 point: Commodity money is money that has intrinsic value in other uses.

   1 point: Commodity-backed money is money that has no intrinsic value but can be converted into valuable goods on demand.