Question 1

Which of the following best describes the unit of account function of money?

Accepted Answer

A)   Money makes the relative values of goods and services more easily known. 
B)   Money must be made of something valuable. 
C)   Money can be used to save up purchasing power. 
D)   Money is more easily counted than goods.

Question 2

As the number of goods and services increases, how is barter affected?

Accepted Answer

A)   Barter becomes easier because the chance of there being a double coincidence of wants increases. 
B)   Barter becomes harder because the chance of there being a double coincidence of wants increases. 
C)   Barter becomes easier because the chance of there being a double coincidence of wants decreases. 
D)   Barter becomes harder because the chance of there being a double coincidence of wants decreases.

Question 3

Who is famous for his observation that bad money drives out good money?

Accepted Answer

A)   Adam Smith 
B)   François Quesnay 
C)   Thomas Gresham 
D)   John Maynard Keynes

Question 4

Suppose different forms of commodity money, such as $1 coins in both gold and silver, are circulating simultaneously.What does Gresham's law state will happen?

Accepted Answer

A)   The form with the more intrinsic value will disappear from circulation. 
B)   The form with the lesser intrinsic value will disappear from circulation. 
C)   The government will eventually have to withdraw both forms from circulation. 
D)   The resultant disruption in the money markets will cause inflation.

Question 5

What are Bank of Canada notes?

Accepted Answer

A)   token money 
B)   commodity money 
C)   money backed by gold 
D)   fiat money

Question 6

In which system is it difficult to keep track of the relative values of goods and services?

Accepted Answer

A)   in a barter system 
B)   in a price system 
C)   in a self-sufficient system 
D)   in a monetary exchange system

Question 7

During the first few years of this century in the United States, how did the availability of subprime mortgages initially affect the demand for houses?

Accepted Answer

A)   The demand for houses increased. 
B)   The demand for houses decreased. 
C)   The demand for houses stayed the same. 
D)   The demand for houses was NOT affected by subprime mortgages.

Question 8

Which type of money has the lowest opportunity cost?

Accepted Answer

A)   gold coins 
B)   commodity money 
C)   token coins 
D)   fiat money

Question 9

What does the term seigniorage refer to?

Accepted Answer

A)   the conversion of paper money to a valuable commodity 
B)   clipping 
C)   the revenue earned from the power to coin money 
D)   fiat money

Question 10

Why are people less concerned about the safety of the money they have deposited in banks than about the interest earned by their deposits?

Accepted Answer

A)   because of open market operations 
B)   because banks have reserves on hand 
C)   because of inflation 
D)   because of Canadian Deposit Insurance

Question 11

Which of the following is NOT a depository institution?

Accepted Answer

A)   a chartered bank 
B)   a caisses populaire 
C)   a pension fund 
D)   a trust and mortgage loan company

Question 12

Why does fiat money have value?

Accepted Answer

A)   because people accept it 
B)   because it has intrinsic worth 
C)   because it is backed by commodity reserves 
D)   because of its metallic content

Question 13

Which of the following is NOT a goal of the Bank of Canada?

Accepted Answer

A)   a high level of employment 
B)   stability in interest rates 
C)   high prices to encourage production 
D)   stability in prices

Question 14

Which function of money facilitates commitments to make or receive future payments?

Accepted Answer

A)   money as a unit of account 
B)   money as a store of value 
C)   money as a medium of exchange 
D)   money as a form of barter

Question 15

Which of the following is most critical for the maintenance of an efficient, productive economy?

Accepted Answer

A)   Money is backed by gold or silver. 
B)   The supply of money is unlimited and unregulated. 
C)   The monetary system functions properly. 
D)   A well-organized barter system exists.

Question 16

Which of the following is associated with the problem of hyperinflation?

Accepted Answer

A)   Money is in short supply. 
B)   The value of money rises dramatically. 
C)   People look for alternatives to using money. 
D)   People start to hold onto money for long periods of time.

Question 17

Which of the following is an important function of chartered banks?

Accepted Answer

A)   to print new currency 
B)   to issue fiat money 
C)   to mint coins 
D)   to make loans

Question 18

Why were coins minted with serrated edges?

Accepted Answer

A)   to make it obvious that they were made of cheap alloys 
B)   so that cheaper metals did NOT have to be used 
C)   to allow words to be printed on the border 
D)   to prevent the coins from being clipped

Question 19

Which law established the Bank of Canada?

Accepted Answer

A)   the Free Banking Act 
B)   the National Banking Act 
C)   the Banking Act 
D)   the Bank of Canada Act

Question 20

Which of the following is one problem with fiat money, as compared to commodity money?

Accepted Answer

A)   More resources are used to create fiat money than to create commodity money. 
B)   Frequently too little fiat money is available relative to commodity money. 
C)   The potential for inflation is greater with fiat money than with commodity money. 
D)   Fiat money is less divisible than commodity money.

Exam 13: Money and the Financial System

During the first few years of this century in the United States, how did the availability of subprime mortgages initially affect the demand for houses?

Correct AnswerverifiedShow Answer

Which law established the Bank of Canada?

Correct AnswerverifiedShow Answer

Which of the following is an important function of chartered banks?

Correct AnswerverifiedShow Answer

In which system is it difficult to keep track of the relative values of goods and services?

Correct AnswerverifiedShow Answer

Suppose different forms of commodity money, such as $1 coins in both gold and silver, are circulating simultaneously.What does Gresham's law state will happen?

Correct AnswerverifiedShow Answer

Which function of money facilitates commitments to make or receive future payments?

Correct AnswerverifiedShow Answer

What does the term seigniorage refer to?

Correct AnswerverifiedShow Answer

Why were coins minted with serrated edges?

Correct AnswerverifiedShow Answer

Which of the following is NOT a goal of the Bank of Canada?

Correct AnswerverifiedShow Answer

Which type of money has the lowest opportunity cost?

Correct AnswerverifiedShow Answer

Which of the following is one problem with fiat money, as compared to commodity money?

Correct AnswerverifiedShow Answer

Which of the following best describes the unit of account function of money?

Correct AnswerverifiedShow Answer

Which of the following is most critical for the maintenance of an efficient, productive economy?

Correct AnswerverifiedShow Answer

Why does fiat money have value?

Correct AnswerverifiedShow Answer

Why are people less concerned about the safety of the money they have deposited in banks than about the interest earned by their deposits?

Correct AnswerverifiedShow Answer

Who is famous for his observation that bad money drives out good money?

Correct AnswerverifiedShow Answer

As the number of goods and services increases, how is barter affected?

Correct AnswerverifiedShow Answer

Which of the following is NOT a depository institution?

Correct AnswerverifiedShow Answer

Which of the following is associated with the problem of hyperinflation?

Correct AnswerverifiedShow Answer

What are Bank of Canada notes?

Correct AnswerverifiedShow Answer

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