Deck 12: Money and the Banking System

Question 1

A bank run involves a large inflow of money into commercial banks.

Answer 1

False

Question 2

When you pay for some purchase with a check,cash must be transferred to another account to pay for the check.

Answer 2

False

Question 3

The composition of M2 as of April 2010 includes saving deposits at savings banks and credit unions.

Answer 3

True

Question 4

When people trade goods for money,money is being used as a medium of exchange.

Question 5

The lion's share of purchases and transactions in the U.S.economy are made with coins and paper money.

Question 6

Barter transactions involve a double coincidence of wants.

Question 7

The U.S.government will probably return soon to a system of paper money backed by gold.

Question 8

Barter transactions typically take place between two individuals with the same goods to supply.

Question 9

The main advantage of money market deposit accounts over traditional checking accounts is the ease of check writing.

Question 10

Gold and silver have historically been the most common form of commodity money.

Question 11

In September 2007 the British bank Northern Rock which specialized in home mortgages experienced a noteworthy bank run.

Question 12

Most observers nowadays see monetary policy as much less important than fiscal policy.

Question 13

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

Question 14

On the Micronesian island of Yap,it is easier to make purchases with stone wheel currency than it is to make purchases with paper currency including the U.S.dollar.

Question 15

The new $20 bills were designed with features to make counterfeiting more difficult.

Question 16

Money that is backed solely by a government decree is referred to as fiat money.

Question 17

The only major disadvantage of paper money is that it is hard to divide into smaller denominations.

Question 18

The amount of money held in checking accounts is significantly greater than money in the form of currency.

Question 19

When prices for goods and services are quoted in money terms,this is an example of money being used as a store of value.

Question 20

Inflation increases the use of money as a store of value.

Question 21

Most banks in the United States are owned by the government and operate as nonprofit institutions.

Question 22

E-cash cards are considered a major portion of the modern money supply.

Question 23

Fractional reserve banking has three crucial features: bank profitability,bank discretion over the money supply,and bank exposure to runs.

Question 24

Bank runs are "contagious" in that they often spread to other banks.

Question 25

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

Question 26

Net worth increases in the same proportion as liabilities increase.

Question 27

To a bank,an asset is an obligation that it owes to someone else.

Question 28

The money multiplier process is based on the principle of fractional reserve banking.

Question 29

A banker motivated by profit maximization may make decisions that destabilize the banking system.

Question 30

If you have a checking account at Citibank,the account is a liability of the bank.

Question 31

The value of the deposit multiplier is 1 divided by the required reserve ratio.

Question 32

Fractional reserve banking began as a result of the search for additional profits.

Question 33

Liquidity refers to the ability of an asset to hold its value in periods of inflation.

Question 34

The value of the deposit multiplier is increased if individuals hold all their money in cash.

Question 35

Unlike recent events in England,the United States has no recent history of bank failures.

Question 36

Banks in the United States may create new money equal to their amount of required reserves.

Question 37

Due to the private nature of bank ownership,there is often a difference between bankers' goals and macroeconomic objectives.

Question 38

Banks try to keep their excess reserves at a maximum in order to maximize profits.

Question 39

Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.

Question 40

Most bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).

Question 41

Agraria sends wheat to Cyberia in exchange for computers and technology goods.This is an example of

A) unidirectional trade.
B) joint venture.
C) barter.
D) monetary exchange.

Question 42

In order for barter trades to occur,there must be a

A) singularity of interests.
B) bargaining intermediary.
C) double coincidence of wants.
D) sufficient supply of cash.

Question 43

During the 2007-2009 financial crisis,the U.S.government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.

Question 44

Bankers' business decisions effect the money supply because bankers

A) are respected men and women.
B) have the ability to create money.
C) use a special accounting system developed by the Federal Reserve Board.
D) All of the above are correct.

Question 45

The most common form of trading goods for goods is

A) bilateral trade.
B) government commodity distribution.
C) status-based trades.
D) barter.
E) payments in kind.

Question 46

Which of the following is an example of money serving as a medium of exchange?

A) Richard puts money into a piggy bank.
B) Ellen deposits cash into a money market account.
C) Sean puts a new $20 bill into his currency collection.
D) Marian buys a carbo-loaded drink before a marathon.

Question 47

Bank failures in the U.S.

A) occurred frequently through the 1960s and declined since then.
B) occurred infrequently through the 1960s and have become more common since then.
C) occurred frequently through the 1930s, declined after that time, and became more common in 2008.
D) occurred infrequently through the 1930s, increased after that time, and became less common in 2008.

Question 48

Barter is a system of

A) trade without the use of money.
B) trading one good for another.
C) the double coincidence of wants.
D) All of the above are correct.

Question 49

A bank run involves a large flow of money

A) into bank depositors' accounts.
B) into checking and savings accounts.
C) out of depositors' accounts.
D) out of individuals' cash reserves into money market funds.

Question 50

Money's principal function is to serve as a

A) standard for making loans.
B) standard for credit reporting.
C) medium of exchange.
D) method for storing wealth.

Question 51

In a market system,the most dangerous types of bankruptcies involve

A) industrial monopolies.
B) multinational firms.
C) employment agencies.
D) financial institutions.

Question 52

Which of the following was a result of the Dodd-Frank Act?

A) restricted bank activities
B) established a new consumer protection agency
C) tougher regulations for banks
D) All of the above

Question 53

In addition to fiscal policy,the other main tool used to affect aggregate demand is

A) trade policy.
B) industrial policy.
C) planning policy.
D) monetary policy.

Question 54

If depositors become worried about the safety of their deposit accounts,they may trigger a

A) deposit surplus.
B) bank run.
C) fiscal policy crisis.
D) required reserve increase.

Question 55

The primary benefit of a monetary system of exchange compared to a barter system is the increased

A) ability to record transactions.
B) time necessary to find trading partners.
C) time devoted to shopping.
D) efficiency in arranging transactions.

Question 56

Nowadays,most observers believe that monetary policy

A) is less important than fiscal policy.
B) is more important than fiscal policy.
C) and fiscal policy are equally important.
D) and fiscal policy are both unimportant.

Question 57

One advantage of a money system compared to a barter system is that

A) barter never works.
B) money creates the need for banks.
C) money is more efficient.
D) everyone has money.

Question 58

Which of the following are reasons that banks are so heavily regulated?

A) Governments are concerned about the safety of deposits.
B) The industry is a principal determinant of aggregate demand.
C) Bank failures are contagious.
D) All of the above are correct.

Question 59

The banking industry is heavily regulated because

A) banking is a monopoly industry.
B) most banks are owned by government agencies.
C) bankers do what is best for their stockholders, not necessarily what is best for the economy.
D) All of the above are correct.

Question 60

The "efficiency of the payments mechanism" refers to

A) the ease and speed of exchanging money for goods and services.
B) how fast member banks replenish required reserves.
C) how fast banks pay interest on deposit accounts.
D) how fast countries pay off foreign debts.

Question 61

Fiat money is

A) always backed by gold or silver.
B) useful in buying Italian cars.
C) only backed by government decree.
D) not as liquid as precious metals.

Question 62

If fears of a terrorist attack are widespread and people lose faith in money,the economy could revert to a system of

A) cash and checks.
B) double-entry bookkeeping.
C) barter.
D) financial intermediaries.

Question 63

Money is almost always used to quote prices.This illustrates the function of money as a

A) medium of exchange.
B) store of value.
C) unit of account.
D) commodity value.

Question 64

The primary feature of money is that it serves as

A) barter value.
B) a medium of exchange.
C) intrinsic value.
D) commodity value.

Question 65

A major problem with a commodity money is that,to be useful,money must be

A) divisible.
B) storable.
C) portable.
D) All of the above are correct.

Question 66

In a monetary system,people will exchange a good for

A) another good.
B) a service.
C) money.
D) gold or other precious metals.

Question 67

Agraria uses bushels of wheat to quote prices.In this case,bushels of wheat act as a

A) medium of exchange.
B) store of value.
C) commodity value.
D) unit of account.

Question 68

____ is an object in use as a medium of exchange,but which also has a substantial value in alternative uses.

A) IOU
B) A commodity money
C) Fiat money
D) Deposit certificate

Question 69

One inconvenience of commodity money is the need for

A) money to be divisible.
B) uniform quality.
C) portability.
D) All of the above are correct.

Question 70

One reason why gold and silver have served as money is that they

A) are easy to produce.
B) are easy to duplicate.
C) are durable.
D) All of the above are correct.

Question 71

The one disadvantage of paper money is that it is easier to

A) duplicate and counterfeit.
B) carry.
C) divide.
D) store and use at a later time.

Question 72

Which of the following assets is most liquid?

A) short-term government bonds
B) savings accounts
C) checking accounts
D) currency and coins

Question 73

Although a variety of commodities have been used as money,the most commonly used have been

A) stones and cattle.
B) shells and beads.
C) gold and silver.
D) cigarettes and candy bars.

Question 74

Currently in the United States,money is backed by

A) silver in the IMF vaults.
B) Federal Reserve notes in banks.
C) gold in Fort Knox.
D) everyone's willingness to accept it.

Question 75

In comparison to commodity money,paper money

A) is not portable.
B) has no intrinsic value.
C) is not divisible.
D) cannot be stored.
E) All of the above are correct.

Question 76

Liquidity refers to the

A) rapidity with which money flows through the economy.
B) ease with which an asset can be converted into cash.
C) ease with which banks move funds from checking to savings accounts.
D) All of the above are correct.

Question 77

Fiat money is money

A) backed by land.
B) backed by gold or silver.
C) that can be converted to gold or silver.
D) because a government says it is.

Question 78

The concept of money as a "unit of account" involves the use of money to

A) speed transactions.
B) reduce shopping time.
C) protect against inflation.
D) quote prices.

Question 79

Money is an imperfect store of value when

A) the rate of inflation is high.
B) the unemployment rate is high.
C) gold prices are falling.
D) businesses are failing due to bankruptcy.

Question 80

Paper money in the United States is

A) backed by gold in Fort Knox.
B) partially backed by gold and silver.
C) entirely fiat money.
D) fully convertible into gold at fixed prices.