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
