Deck 15: Moneyand the Monetary System

Question 1

If money has intrinsic value, it has value:

A) unrelated to its use as money.
B) only as its use as money.
C) that determines how often people use it.
D) based on how often people use it for payment.

Answer 1

unrelated to its use as money.

Question 2

Assets that have intrinsic value:

A) retain a more steady value than assets without intrinsic value.
B) get traded more often than assets without intrinsic value.
C) generally have a lower value than other goods.
D) are not well-suited to being used as money.

Answer 2

retain a more steady value than assets without intrinsic value.

Question 3

We say that money is a store of value because it:

A) represents a certain amount of purchasing power held over time.
B) can be used to purchase goods and services.
C) holds a fixed value over time.
D) provides a standard unit of comparison.

Answer 3

represents a certain amount of purchasing power held over time.

Question 4

Barter is extremely inefficient because:

A) you have to find someone who both has what you want and wants what you have.
B) it is associated with very high transaction costs.
C) people and firms have to spend a lot of time looking for mutually agreeable trades.
D) All of these are true.

Question 5

Assets regularly used to purchase goods and services are called:

A) money.
B) consumption income.
C) disposable income.
D) fungible goods.

Question 6

We say that money is a unit of account because it:

A) represents a certain amount of purchasing power held over time.
B) can be used to purchase goods and services.
C) holds a fixed value over time.
D) provides a standard unit of comparison.

Question 7

Money can serve as a(n):

A) valuation tool.
B) medium of exchange.
C) alternative to credit.
D) completely fixed unit of measurement.

Question 8

When deciding what to use as money, one characteristic to look for is its:

A) stability of value.
B) physical shape.
C) intrinsic value.
D) exchange value.

Question 9

We say that money is a medium of exchange because it:

A) represents a certain amount of purchasing power held over time.
B) can be used to purchase goods and services.
C) holds a fixed value over time.
D) provides a standard unit of comparison.

Question 10

Why is providing a medium of exchange an important role of money?

A) It makes the economy much more efficient by reducing transaction costs.
B) It helps the government tax its citizens.
C) It allows consumers to more easily compare different transactions.
D) It provides a long-term place to store value.

Question 11

We use paper money instead of gold coins in the Unites States today because it:

A) is more convenient.
B) has no intrinsic value.
C) has a worth that is easier to control.
D) has a more stable value.

Question 12

Why aren't avocados a good source of money?

A) Avocados are not a good medium of exchange.
B) Avocados wouldn't store value for a long time.
C) Avocados have no common unit of account.
D) None of these are true.

Question 13

When deciding what to use as money, one characteristic to look for is its:

A) convenience.
B) exchange value.
C) intrinsic value.
D) physical shape.

Question 14

Money is:

A) the set of all assets regularly used to purchase goods and services.
B) the amount of currency in our economy.
C) controlled by the supply and demand of goods and services.
D) anything used to buy goods and services if it is not a good itself.

Question 15

Money has replaced the need to barter, which is:

A) changing the price of goods in response to inflation.
B) using a medium of exchange to purchase goods and services.
C) directly offering a good or service in exchange for some other good or service you want.
D) comparing different goods to create a standard unit of worth.

Question 16

Which of the following is a good with no intrinsic value?

A) Gold
B) Paper dollar bills
C) Cigarettes
D) Hershey chocolate

Question 17

Money can serve as a:

A) store of value.
B) valuation tool.
C) less efficient alternative to bartering.
D) completely fixed unit of measurement.

Question 18

Wide acceptance of money without intrinsic value comes largely from the fact that it:

A) has a stable value.
B) does not change value very often.
C) is hard to counterfeit.
D) can be used domestically and internationally.

Question 19

If a good with intrinsic value loses value as money, the good:

A) is still useful for other reasons.
B) loses its intrinsic value.
C) is no longer useful for other reasons.
D) tends to gain in intrinsic value.

Question 20

Which of the following is a good with intrinsic value?

A) Cigarettes
B) Fish
C) Gold
D) All of these goods have intrinsic value.

Question 21

If there were no fractional reserve banking:

A) the reserve ratio would be zero percent.
B) banks would not create money in the economy.
C) a very small amount of lending using deposits would occur.
D) account holders would not be able to withdraw their money in times of recession.

Question 22

Any amount that a bank chooses to keep on hand beyond what it is required to is called:

A) excess reserves.
B) excess deposits.
C) federal funds.
D) extra holdings.

Question 23

The amount that a bank is legally required to keep on hand is called the:

A) required reserves.
B) demand deposits.
C) federal funds.
D) reserve ratio.

Question 24

Commodity-backed money is:

A) any form of money that can be legally exchanged into a fixed amount of an underlying commodity.
B) money created by the sale of commodities.
C) money used for the exchange of large commodities.
D) any form of money that also has a role as a commodity.

Question 25

The smaller the reserve ratio, the:

A) less a bank can loan out.
B) smaller the money multiplier.
C) more the government is able to borrow.
D) more money is created in the economy.

Question 26

The amount of cash kept as reserves divided by the total amount of demand deposits is known as the:

A) reserve ratio.
B) demand deposit ratio.
C) demand-reserve ratio.
D) federal funds rate.

Question 27

We know how many dollars banks create using the:

A) money multiplier.
B) federal funds rate.
C) demand deposit ratio.
D) interest rate.

Question 28

If the reserve ratio was 100 percent, then:

A) no lending would occur using deposits.
B) maximum lending would occur.
C) banks would create money in the economy.
D) banks would lend all of their deposits.

Question 29

The ratio of money created by the lending activities of the banking system to the money created by the government's central bank is called the:

A) money multiplier.
B) reserve ratio.
C) federal funds.
D) demand deposits.

Question 30

A larger money multiplier means:

A) the reserve ratio must be smaller.
B) a bank can loan out less.
C) less money is created in the economy.
D) private demand for loans will be higher.

Question 31

The money multiplier is approximated as being equal to:

A) one divided by the reserve ratio.
B) one divided by the federal funds.
C) demand deposits multiplied by the interest rate.
D) demand deposits multiplied by the reserve ratio.

Question 32

Which of the following would not make a good currency?

A) Platinum
B) Flowers
C) Cigarettes
D) Paper money

Question 33

In the United States, the dollar was commodity backed by:

A) gold.
B) silver.
C) oil.
D) diamonds.

Question 34

Funds held in bank accounts that can be withdrawn by depositors at any time without advance notice are:

A) demand deposits.
B) required reserves.
C) free funds.
D) flow funds.

Question 35

Banks create money in the economy by:

A) loaning out part of each deposit, which will be redeposited by someone else.
B) charging higher interest on loans than savings.
C) charging higher interest on savings than loans.
D) loaning out all of their deposits to borrowers.

Question 36

Under fractional reserve banking:

A) banks only need to keep a portion of each deposit on hand.
B) the money multiplier is equal to 1.
C) banks cannot create money in the economy.
D) lending would be curtailed to nearly zero.

Question 37

What is a major danger of fiat money?

A) Its value may not be stable if the government prints a lot more money.
B) There is often not enough of a resource to use it for money.
C) The value of fiat currency may stay locked in place and stifle the economy.
D) It can be costly to exchange money for the commodity that backs it.

Question 38

Banks earn money:

A) by lending funds and collecting interest on those loans.
B) through the accumulation of deposits.
C) by lending money to the government.
D) through government payments for regulation of the financial system.

Question 39

Modern banks in the United States keep reserves:

A) as commodity money only.
B) as deposits at the Federal Reserve.
C) as gold.
D) in accounts with other banks.

Question 40

Fiat money is:

A) any form of money that can be legally exchanged into a fixed amount of an underlying commodity.
B) money created by rule.
C) money used together with the barter of goods.
D) any form of money that trades goods with intrinsic value.

Question 41

What does a money multiplier of 10 represent?

A) Banks create 10 dollars in deposits from each original deposit of a dollar.
B) Banks create approximately 10 times the amount of cash in the economy.
C) The economy overall has 10 times the amount of deposits as existing cash.
D) All of these are true when the money multiplier is 10.

Question 42

The amount of money available in the economy:

A) is called the money supply.
B) is managed by the Federal Reserve.
C) varies depending on what is considered money.
D) All of these are true.

Question 43

If someone deposits $10,000 into a savings account and the amount of money in the economy increases by $40,000, what is the size of the reserve requirement?

A) 20 percent
B) 25 percent
C) 30 percent
D) 40 percent

Question 44

The monetary base:

A) is the least narrow definition of money.
B) includes cash.
C) cannot always be used immediately in transactions, but is accessible.
D) is not very liquid.

Question 45

Suppose a bank operates in a country with a 10 percent reserve requirement, and someone deposits $5,000 into a savings account. Including the deposit, how much money has been created in this economy?

A) $45,000
B) $5,500
C) $50,000
D) $9,500

Question 46

If the money multiplier is 2, the reserve ratio is:

A) 50 percent.
B) 5 percent.
C) 2 percent.
D) 20 percent.

Question 47

The M1 classification of money includes:

A) cash and checking account balances.
B) hard money and savings account balances.
C) cash and savings account balances.
D) cash, checking accounts, savings accounts, and other financial instruments where money is locked away for a specified period of time.

Question 48

If the reserve ratio is 20 percent, the money multiplier will be:

A) 20.
B) 5.
C) 10.
D) 2.

Question 49

The narrowest definition of money is:

A) the monetary base.
B) M1.
C) M2.
D) L.

Question 50

A bank run occurs when:

A) a large amount of loans held by a bank default at once.
B) a bank posts a strong series of financial statements.
C) a bank's reserves are not enough to satisfy all withdrawal demands.
D) All of these can cause a bank run.

Question 51

What must be true when people decide to hold some of their cash and not deposit it?

A) The money multiplier overestimates how much money will be created in the economy.
B) The money multiplier underestimates how much money will be created in the economy.
C) The reserve ratio is not fully functioning and should be raised.
D) The reserve ratio is working too well and should be lowered.

Question 52

The Fed classifies different types of money depending on their:

A) liquidity.
B) resale value.
C) commodity backing.
D) intrinsic value.

Question 53

Liquidity refers to how:

A) easy an asset is to convert immediately to cash without losing value.
B) quickly the same dollar changes hands in the economy.
C) quickly the average household spends its disposable income.
D) easy money converts to assets in an economy.

Question 54

If the money multiplier is 4, the reserve ratio is:

A) 25 percent.
B) 2.5 percent.
C) 5 percent.
D) 4 percent.

Question 55

Suppose a bank operates in a country with a 20 percent reserve requirement, and someone deposits $4,000 into a savings account. Including the deposit, how much money has been created in this economy?

A) $20,000
B) $3,200
C) $4,800
D) $9,500

Question 56

The money supply is the amount of money:

A) available in the economy.
B) available for banks to lend.
C) that banks keep on hand beyond the reserve requirement.
D) None of these are true.

Question 57

Companies periodically report their assets, liabilities, and owner's equity using a(n):

A) shareholder report.
B) profit loss statement.
C) balance sheet.
D) accounting statement.

Question 58

What must be true when banks hold excess reserves?

A) The money multiplier overestimates how much money will be created in the economy.
B) The money multiplier underestimates how much money will be created in the economy.
C) The reserve ratio is not fully functioning and should be raised.
D) The reserve ratio is working too well and should be lowered.

Question 59

The M2 classification of money includes:

A) cash and checking account balances.
B) hard money and savings account balances.
C) cash, checking account, and savings account balances.
D) cash, checking accounts, savings accounts, and other financial instruments where money is locked away for a specified period of time.

Question 60

If the reserve ratio is 5 percent, the money multiplier will be:

A) 20.
B) 5.
C) 10.
D) 2.

Question 61

The Federal Reserve System has twelve:

A) regional banks.
B) members on its Board of Governors.
C) member banks.
D) basic functions.

Question 62

Which money measure is helpful for understanding liquidity in the economy?

A) Monetary base
B) M1
C) M2
D) M3

Question 63

The money multiplier:

A) was relatively stable until 2008, when it dropped dramatically.
B) was relatively stable until 2008, when it rose dramatically.
C) has historically followed the business cycle.
D) runs contrary to the business cycle.

Question 64

Your savings account balance would be counted in which measure of money?

A) M1
B) M2
C) The monetary base
D) Both M1 and M2

Question 65

The chair of the Federal Reserve System:

A) is approved by the House of Representatives and the Senate.
B) serves a four-year term.
C) acts independently from the Board of Governors to maintain objectivity.
D) All of these are true.

Question 66

An essential function of a central bank is to:

A) manage the money supply.
B) collect taxes.
C) issue debt.
D) control and monitor government budgets.

Question 67

What is the essential function of any central bank? I. Managing the money supply
II. Acting as a lender of last resort
III. Overseeing major business transactions
IV. Preventing the formulation of monopolies
V. Collecting taxes

A) I and II only
B) I and III only
C) I, II, III, and IV
D) I, II, III, IV, and V

Question 68

Comparing _______ can give us some sense of what the money multiplier is.

A) the monetary base to M2
B) the monetary base to M1
C) M1 to M2
D) the monetary base to fiat money

Question 69

One of the main roles of a central bank is:

A) managing the nation's money demand.
B) coordinating the banking system to ensure a sound economy.
C) accepting deposits from households and other private individuals.
D) funding federal government spending.

Question 70

In the United States, the central bank is the:

A) Federal Reserve.
B) Congressional Budgeting Office.
C) Treasury.
D) National Bank of the United States.

Question 71

The institution ultimately responsible for managing the nation's money supply and coordinating the banking system to ensure a sound economy is called a:

A) central bank.
B) national bank.
C) public banking system.
D) peoples' bank.

Question 72

Your checking account balance would be counted in which measure of money?

A) M1
B) M2
C) The monetary base
D) Both M1 and M2

Question 73

Central banks:

A) exist in almost every major nation.
B) are common only in industrialized nations.
C) do not play a major role in the money creation process.
D) became less useful after the Great Depression proved their ability to fail.

Question 74

The Federal Reserve System consists of:

A) twelve regional banks and a 7-member Board of Governors.
B) a twelve-member Board of Governors and 7 regional banks.
C) twelve regional banks and 7 member banks.
D) twelve member banks and 7 regional banks.

Question 75

A certificate of deposit would be counted in which measure of money?

A) M1
B) M2
C) The monetary base
D) Both M1 and M2

Question 76

If we wanted to consider all the money that had been "multiplied" in the economy, we would use:

A) the monetary base.
B) M1.
C) M2.
D) None of these would be used.

Question 77

Which measure of money would be used to look at savings in the economy?

A) The monetary base
B) M1
C) M2
D) Reserves

Question 78

The cash you have in your wallet would be counted in which measure of money?

A) The monetary base
B) M1
C) M2
D) The monetary base, M1, and M2

Question 79

Which measure of money would be used to look at spending in the economy?

A) The monetary base
B) M1
C) M2
D) Reserves

Question 80

One of the main roles of a central bank is:

A) managing the nation's money supply.
B) coordinating the relationship between the banking system and federal government.
C) ensuring that banks provide enough loans.
D) monitoring federal spending.