Chapter 10 Section Reviews

Question 1

What term implies that a merchant must accept in the payment of debts whatever the government declares to be money?

Answer 1

Legal Tender

Question 2

What three functions does money serve?

Answer 2

A means of payment for goods and services

A measure of value

A means of storing purchasing power.

Question 3

What characteristics should an effective monetary system possess?

Answer 3

Convenience

Portability

Divisibility

Durability

Stability

Question 4

What are the three kinds of money that can circulate in an economy?

Answer 4

Commodity Money

Representative money

Fiat Money

Question 5

Name the two measures of the money supply discussed in your book and list what each includes

Answer 5

M-1 - Comprises paper currency, coins, traveler’s checks, and checking accounts.

M-2 - Comprises variety of savings accounts and M-1

Question 6

What does it mean to say that the United States has a dual banking system?

Answer 6

There are banks regulated by state charters and banks regulated by national charters.

Question 7

What are the three functions of commercial banks?

Answer 7

Accepting deposits

Extending loans.

Providing miscellaneous services

Question 8

Which type of thrift usually originates with a group of people who have something in common (usually employment)?

Answer 8

Credit Union

Question 9

Give an example of a contractual saving institution

Answer 9

insurance companies

pension funds

Question 10

Name an advantage and a disadvantage of the traditional money used on the Yap Islands

Answer 10

Advantages: very easily identifiable and hard to steal

Disadvantage: Lack of portability, convenience, divisibility

Question 11

How does money act as a store of purchasing power?

Answer 11

By keeping it face value, money can be received and exchanged for something at one time and for something comparable value at a later time.

Question 12

Which characteristic of money do you consider most important and why?

Answer 12

• Answers will vary
  
  • Convenience
  • Portability
  • Divisibility
  • Durability
  • Stability

Question 13

Are today’s U.S. coins full-bodied or token coins? Explain your answer

Answer 13

They are token coins because the metal in them is of less value than their face value.

Question 14

What is the name given to unbacked money when it is issued by governmental decree?

Answer 14

Fiat Money

Question 15

What two factors keep a fiat monetary system functioning?

Answer 15

Faith that others will accept the money, we have accepted,

limited quantity of that money

Question 16

What type of money does the United States currently use?

Answer 16

Fiat Money

Question 17

Why can commercial banks also be referred to as full-service banks? Give examples in your answer

Answer 17

• They offer a wide range of services to their customers.
• Examples: They offer
  
  • Checking and savings accounts
  • Personal and saving loans
  • Getting debit and credit cards
  • Making investments.

Question 18

For what economic position was Milton Friedman a leading spokesman, and what did that position see as the principal cause for inflation?

Answer 18

He advocated the monetarist approach and the money supply.