Chapter 11

Question 1

state banks

Answer 1

banks that received their charter to operate from a state government

Question 2

legal tender

Answer 2

fiat currency that must be accepted in payment for debts

Question 3

United States notes

Answer 3

a new federal fiat currency that also had no gold or silver backing

Question 4

national banks

Answer 4

privately owned banks that received their opening charters from the federal gov’t

Question 5

National Bank notes/national currency

Answer 5

paper currency of uniform appearance that was backed by United States gov’t bonds

Question 6

gold certificates

Answer 6

paper currency backed by gold placed on deposit with the United States

Question 7

silver certificates

Answer 7

paper currency backed by silver dollars and bullion placed on reserve with the Treasury

Question 8

Treasury coin notes

Answer 8

paper currency issued by the Treasury that was redeemable in both gold and silver

Question 9

The Gold Standard

Answer 9

a monetary standard under which the basic currency is equal to, and can be exchanged for, a specific amount of gold

Question 10

Advantages of the Gold Standard (2)

Answer 10

• some people feel more secure about their money if they know it can be converted into gold
• it’s supposed to prevent the government from printing too much paper currency

Question 11

Disadvantages of the Gold Standard (4)

Answer 11

• the gold stock may not grow fast enough to support the economy
• people may suddenly decide to convert their currency into gold, thereby draining the government’s gold reserves
• price of gold is likely to change dramatically over time if it’s not fixed
• political risk of failure

Question 12

The Inconvertible Fiat Money Standard

Answer 12

a monetary standard under which the fiat money supply can’t be converted into gold or silver by its citizens

Question 13

Characteristics of Modern Money (4)

Answer 13

• portable
• durable
• divisible
• limited availability

Question 14

Federal Reserve notes

Answer 14

paper currency issued by the Fed that eventually replaced all other types of federal currency

Question 15

run on the bank

Answer 15

a rush by depositors to withdraw their funds from a bank before it failed

Question 16

commercial banks

Answer 16

banks that catered to the interests of business and commerce

Question 17

demand deposit accounts (DDAs)

Answer 17

accounts whose funds could be removed by simply writing a check without prior approval from the depository institution