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The current study examined the effect of background music on different types of memory. One hypothesis is that background music modulates the listener’s internal mood and arousal, putting them at optimal levels to enhance memory performance. Another hypothesis is that background music establishes a “context” that, when reinstated, aids memory performance. To investigate the role of music-induced mood, arousal, and context on memory, we used background music that varied in mood and arousal to create different memory contexts: music present at study only, test only, and both study and test. We assessed how mood, arousal, and context affected performance on recall, recognition, and associative memory tasks. Participants recalled more words when they listened to low arousal music than high arousal music, regardless of mood or whether context was consistent between study and test. For recognition memory, participants also recognized more words when they listened to low arousal music than high arousal music, but only when the music was negative. For associative memory, no significant effects of mood, arousal, or context were found on recognition of previously studied word pairs. Finally, across all experiments, background music, compared with silence, did not significantly improve verbal memory performance. Thus, mood and arousal affected recall and recognition memory, but overall background music did not enhance memory.