Chapter 13 Flashcards
Which of the following factors make a barter system inefficient relative to a money system? a. Unanticipated inflation in the money system b. Gains from trade for buyers in barter transactions come at the expense of an equivalent loss from trade for sellers. c. Complete dependence on double coincidence of wants in a barter system. d. People in close-knit communities cannot trust the quality of the barter goods being exchanged.
Complete dependence on double coincidence of wants in a barter system.
What is the “medium of exchange” function of money? a. Money provides a unit for measurement of different goods and services. b. Money has the ability to hold value over time. c. Materials used to manufacture money are of medium grade or quality, so that people will not hoard money for its commodity value d. Money is widely accepted in exchange for goods and services
Money is widely accepted in exchange for goods and services
If a society were to use a widely accepted, easily measurable, but highly perishable food product as commodity money, then the ________ function of money would most likely fail. a. medium of exchange b. unit of account c. store of value d. transfer of value
store of value
Cattle served as money, first for the Romans, then for the Greeks.True False
FALSE
A problem with using commodities such as cattle as money is that they cannot be easily divided into fractions (such as pennies to a dollar), and they fail to retain their value very long once they are divided.True False
TRUE
Suppose that a large group of local merchants donate 10,000 “3-R Dollars” to local schools, a colorful local currency that the schools can spend at a wide variety of participating local stores as a perfect substitute for dollars, now or in the future. So, 3-R dollars meet the requirements of money.True False
TRUE
If a given unit of money is made of different commodities or different grades of commodity, then according to Gresham’s Law, people trade away the best money and hoard inferior money.True False
f
Commodity money includes such things as paper currency and travelers checks that have no commodity value in and of themselves, but which can be used to purchase commodities.True False
f
________ refers to the revenue earned from coinage by a sovereign government when the face value of the coinage exceeds the cost of producing the coinage. a. Treason b. Piracy c. Inflation d. Seignorage
Seignorage
Token money is money whose face value exceeds its cost of production.True False
TRUE
The word bank is derived from the Italian word banca, meaning “bench,” which was money changer’s table.True False
TRUE
in which of the following ways, banks began in Italy and England? a. Monarchs were the first bankers, lending out cash at zero interest to help the poor learn a craft and develop themselves intellectually. b. Churches were the first bankers, lending out cash to help the poor learn a craft and develop independence. c. Goldsmiths were the first bankers, and the paper receipts they issued for gold held on deposit became valued as money. d. Fishermen were the first bankers, and the paper receipts they issued for the fish they stored in the holds of their ships became valued as money.
Goldsmiths were the first bankers, and the paper receipts they issued for gold held on deposit became valued as money.
Which of the following correctly describes the system of fractional reserve banking? a. Banks keep a fraction of their loans with other banks to maintain the quality of their loan portfolio. b. Banks can loan out the entire deposits but a small fraction of their own profits must be kept as reserve in bank vaults. c. Banks reserves amount to only a fraction of funds on deposit with the bank. d. The federal government insures only a fraction of the deposits at most banks.
Banks reserves amount to only a fraction of funds on deposit with the bank.
Representative money refers to bank notes that exchange for a specific commodity, such as gold.True False
TRUE
What or who backs the value of fiat money? a. The power of the state b. Gold and silver owned by the large commercial banks c. Foreign exchange held by the central bank d. Gold and silver owned by general public.
The power of the state
The selling power of money is the rate at which it exchanges for goods and services.True False
f
If depositors lose confidence in their bank and immediately demand their money back, banks ________ pay all the depositors because ________ of their deposits are kept as cash reserve. a. would; all b. would not; all c. would; only a fraction d. would not; only a fraction
would not; only a fraction
Reserves are funds that banks use to satisfy the cash demands of their customers and the reserve requirements of the Fed.True False
f
Following the stock market crash of 1929 depositors demanded their money back, the Fed failed to act as the lender of last resort by lending banks money to repay depositors, and between 1930 and 1933 about one-third of all banks had failed.True False
TRUE
The U.S. government acts as a lender of last resort to commercial banks.True False
f
Which of the following board of governors are responsible for setting and implementing the nation’s monetary policy? a. The Board of Governors, which consists of five members appointed by the Fed and confirmed by the Senate. b. The Board of Governors, which consists of seven members appointed by the president and confirmed by the Senate. c. The Board of Governors, which consists of four members appointed by the Senate and confirmed by the Fed. d. The Board of Governors, which consists of three members appointed by the president and confirmed by the Fed.
The Board of Governors, which consists of seven members appointed by the president and confirmed by the Senate.
Which of the following is the name of the entity, group, or organization that has the power to conduct key monetary policy by purchasing or selling U.S. government securities? a. The President of the United States b. The Open Market Subcommittee of the Congress of the United States c. CEO’s of large commercial banks, with non-binding recommendations by the Fed d. The Federal Reserve Open Market Committee
The Federal Reserve Open Market Committee
Open-market operation means buying and selling of ________ by the ________ in an effort to influence money supply. a. equity shares; president b. government securities; Fed c. mutual fund; government d. commodities; public
government securities; Fed
Which of the following represents one or more of the key goals and objectives of the Fed? a. Promotion of low-priced foreign imports b. Restoration of scarce and depletable natural resource stocks c. Promotion of U.S. corporate interests overseas d. High levels of employment, economic growth, and stability in prices
High levels of employment, economic growth, and stability in prices
Reserve requirement norms, originally introduced during the Great Depression to prevent bank panics, caused depositors to become restless about the safety of their deposits.True False
f
Subprime mortgage is a mortgage for a borrower with a good credit rating.True False
f
Troubled Asset Relief Program is a government program that invested in financial institutions and automakers to help stabilize markets.True False
TRUE
Many bank failures, ranging from the savings and loan crisis in the U.S. to bank failures in Japan, stem in part from collapsing real estate prices and defaults on real estate loans.True False
TRUE
The subprime mortgage and global financial crisis of September 2008, resulted in mergers of big banks with healthier banks.True False
TRUE
Money fulfills which of the following functions? a. a medium of exchange b. a unit of account c. a store of value d. all of the above are functions of money
all of the above are functions of money
Which of the following is not a property of ideal of money? a. Durable b. Portable c. Divisible d. Diversified quality
Diversified quality
Token money is money that can be used for change for other money.True False
FALSE
Gradually people came to accept what kind of money because they believed that others would accept it also? a. gold b. fiat money c. silver d. commodities
fiat money
Which of the following are not financial intermediaries? a. banks b. mortgage companies c. finance companies d. check cashing companies
check cashing companies
_______ are funds that banks have on hand or on deposit with the Fed to promote banking safety, to facilitate interbank transfers of funds, to satisfy the cash demands of their customers and to comply with Federal Reserve regulations. a. reserves b. token money c. checks d. none of the above
reserves
Which of the following groups are a part of the board of governors of the Federal Reserve? a. Federal Open Market Operations b. Commercial Banks Presidents Council c. Federal Advisory Committee d. Both A and C are parts of the board of governors of the Federal Reserve
Both A and C are parts of the board of governors of the Federal Reserve
Which of the following is not one of the frequently mentioned goals of the Fed? a. economic growth b. interest rate stability c. financial market stability d. price inflation
price inflation
What year did bank failures peak in the United States? a. 1985 b. 1989 c. 2007 d. 2009
1989
39 Subprime mortgages are mortgages given to borrowers with excellent credit.True False
f
A bank’s additional offices that carry out banking operations
bank branches
A corporation that owns banks
bank holding company
Originally, pieces of paper promising a specific amount of gold or silver to anyone who presented them to issuing banks for redemption; today, Federal Reserve notes are mere paper money
bank notes
A written order instructing the bank to pay someone from an amount deposited
check
Depository institutions that historically made short-term loans primarily to businesses
commercial banks
Anything that serves both as money and as a commodity; money that has intrinsic value such as gold or silver coins
commodity money
Commercial banks and thrift institutions; financial institutions that accept deposits from the public
depository institutions
Sweeping regulatory changes aimed at preventing another financial crisis
Dodd-Frank Wall Street Reform and Consumer Protection Act
Two traders are willing to exchange their products directly
double coincidence of wants
The 12-member group that makes decisions about open-market operations— purchases and sales of U.S. government securities by the Fed that affect the money supply and interest rates; consists of the seven Board governors plus five of the 12 presidents of the Reserve banks
Federal Open Market Committee (FOMC)
The central bank and monetary authority of the United States
Federal Reserve System, or the Fed
Money not redeemable for any commodity; its status as money is conferred initially by government decree but eventually by common experience
fiat money
Institutions such as banks, mortgage companies, and finance companies, that serve as go-betweens, borrowing from people who have saved to make loans to others
financial intermediaries
Bank reserves amount to only a fraction of funds on deposit with the bank
fractional reserve banking system
U.S. currency that constitutes a valid and legal offer of payment of debt
legal tender
Anything that facilitates trade by being generally accepted by all parties in payment for goods or services
medium of exchange
Anything that is generally accepted in exchange for goods and services
money
A collection of short-term interest-earning assets purchased with funds collected from many shareholders
money market mutual fund
A claim on payments made on the many mortgages bundled into this financial instrument
mortgage-backed security
Purchases and sales of government securities by the Fed in an effort to influence the money supply
open-market operations
Funds that banks use to satisfy the cash demands of their customers and the reserve requirements of the Fed; reserves consist of cash held by banks plus deposits at the Fed
reserves
Anything that retains its purchasing power over time
store of value
Mortgage for a borrower with a not-so-good credit rating
subprime mortgage
Savings banks and credit unions; depository institutions that historically lent money to households
thrift institutions, or thrifts
Money whose face value exceeds its cost of production
token money
A financial institution had become so large and so interconnected with other financial institutions that its failure would be a disaster for the wider economy; its collapse had to be prevented even if that required a bailout
too big to fail
Government program that invested in financial institutions and automakers to help stabilize markets; in October 2008 budgeted at $700 billion but expected to cost much less
Troubled Asset Relief Program, or TARP
A common unit for measuring the value of each good or service
unit of account
