Question 1

Which of the following is not a function of money?

Accepted Answer

A)  to act as a medium of exchange
B)  to act as a unit of account
C)  to act as a store of value
D)  to facilitate trade
E)  to provide a double coincidence of wants

Question 2

In order for something to be used as money, it must be

Accepted Answer

A)  issued by the government
B)  issued by banks
C)  declared to be money
D)  generally acceptable
E)  made of something valuable

Question 3

In a barter system,

Accepted Answer

A)  an individual offers one good or service to get another good or service
B)  an individual offers money to get a good or service
C)  an individual offers a good or service to get money
D)  different kinds of money are exchanged for each other
E)  individuals are self-sufficient

Question 4

Prior to the 1970s, bankers were happy with interest-rate ceilings because those ceilings

Accepted Answer

A)  eliminated interest-rate competition among banks
B)  guaranteed them high profits
C)  guaranteed them a minimum profit
D)  enabled them to expand into other lines of commerce
E)  allowed them to hold corporate stock

Question 5

The greater the degree of specialization in the economy,

Accepted Answer

A)  the easier it is to discover a double coincidence of wants
B)  the more feasible a barter system is
C)  the less likely it is that monetary exchange will develop
D)  the harder it is to negotiate an exchange rate between all pairs of goods
E)  the more likely it is that individual consumers are self-sufficient

Question 6

If two kinds of money are circulating at the same time,

Accepted Answer

A)  one of them must be commodity money
B)  one of them must be fiat money
C)  one of them must be paper money
D)  the poorer quality one will be offered by purchasers of goods and the better one will be hoarded
E)  the better quality one will be offered by purchasers of goods and the poorer one will be hoarded

Question 7

Federal Reserve notes are

Accepted Answer

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

Question 8

The most effective mechanism for reducing runs on banks is

Accepted Answer

A)  the discount rate
B)  deposit insurance
C)  the reserve requirement
D)  open market operations
E)  the Federal Reserve note

Question 9

The greater the number of different goods available in an economy,

Accepted Answer

A)  the less likely it is that a double coincidence of wants will exist, and the less likely it is that monetary exchange will develop
B)  the less likely it is that a double coincidence of wants will exist, and the more likely it is that monetary exchange will develop
C)  the more likely it is that a double coincidence of wants will exist, and the less likely it is that monetary exchange will develop
D)  the more likely it is that a double coincidence of wants will exist, and the more likely it is that monetary exchange will develop
E)  the more likely it is that individuals are producing only goods they want to consume

Question 10

Some financial institutions are known as financial intermediaries because they serve as go-betweens that link

Accepted Answer

A)  the government and taxpayers through IRAs
B)  savers and borrowers
C)  employers and employees
D)  firms and the government
E)  firms and consumers

Question 11

Goldsmiths are considered to be the forerunners of modern banks because they

Accepted Answer

A)  had safes to keep gold secure
B)  issued gold coins
C)  created money by lending out gold reserves
D)  created legal tender
E)  verified the quality of money

Question 12

A subprime mortgage is

Accepted Answer

A)  a mortgage in which the borrower gets an interest rate below the prime rate
B)  a mortgage in which the interest rate is adjustable
C)  a mortgage for which the home is valued below its true market value
D)  a mortgage in which the borrower has a poor credit rating
E)  a mortgage for a home that was in foreclosure

Question 13

The value of money is determined by

Accepted Answer

A)  people's belief that it is worth something
B)  the amount of precious metal that the government holds to back the money
C)  the money's market value as a commodity
D)  the rate of interest, which is the price paid to borrow money
E)  its ability to function as a unit of account

Question 14

In the 1970s, U.S. consumers transferred their deposits from accounts in banks and thrifts to money market mutual funds because money market mutual funds

Accepted Answer

A)  were more liquid
B)  were less risky
C)  paid higher interest rates
D)  were guaranteed for a larger amount
E)  were more liquid and paid higher interest rates

Question 15

The reserve ratio is the ratio of

Accepted Answer

A)  Federal Reserve member banks to nonmember banks
B)  Federal Reserve nonmember banks to member banks
C)  Federal Reserve member banks to all U.S. banks
D)  Federal Reserve nonmember banks to all U.S. banks
E)  a bank's reserves to its total deposits

Question 16

The Board of Governors consists of

Accepted Answer

A)  seven elected members
B)  seven members appointed by the president
C)  a representative from each of the 12 district banks
D)  12 elected members
E)  12 members appointed by the president

Question 17

A lender of last resort is a financial institution that is willing and able to lend to

Accepted Answer

A)  individuals who have other debts outstanding
B)  individuals who do not have a positive net worth
C)  banks that are not members of the Federal Reserve System
D)  fractional reserve system banks experiencing runs on their deposits
E)  Federal Reserve System member banks experiencing runs on their deposits

Question 18

A mortgage-backed security is hundreds of mortgages bundled together which represents a claim on the monthly payments made on those mortgages.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following did not contribute to the thousands of U.S. bank failures in the 1930s?

Accepted Answer

A)  Businesses failed, so loans were not repaid.
B)  As the public grew concerned about the safety of its deposits, people withdrew more of their cash from banks.
C)  Banks sold more securities.
D)  The value of banks' assets declined.
E)  The Fed loaned too many reserves to member banks.

Question 20

The earliest type of exchange involved

Accepted Answer

A)  coins
B)  barter
C)  commodity money
D)  fiduciary money
E)  fiat money

Exam 14: Money and the Financial System

The most effective mechanism for reducing runs on banks is

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A mortgage-backed security is hundreds of mortgages bundled together which represents a claim on the monthly payments made on those mortgages.

Correct AnswerverifiedShow Answer

A lender of last resort is a financial institution that is willing and able to lend to

Correct AnswerverifiedShow Answer

The Board of Governors consists of

Correct AnswerverifiedShow Answer

In order for something to be used as money, it must be

Correct AnswerverifiedShow Answer

The greater the degree of specialization in the economy,

Correct AnswerverifiedShow Answer

Some financial institutions are known as financial intermediaries because they serve as go-betweens that link

Correct AnswerverifiedShow Answer

The value of money is determined by

Correct AnswerverifiedShow Answer

Which of the following did not contribute to the thousands of U.S. bank failures in the 1930s?

Correct AnswerverifiedShow Answer

Goldsmiths are considered to be the forerunners of modern banks because they

Correct AnswerverifiedShow Answer

In the 1970s, U.S. consumers transferred their deposits from accounts in banks and thrifts to money market mutual funds because money market mutual funds

Correct AnswerverifiedShow Answer

A subprime mortgage is

Correct AnswerverifiedShow Answer

Prior to the 1970s, bankers were happy with interest-rate ceilings because those ceilings

Correct AnswerverifiedShow Answer

The earliest type of exchange involved

Correct AnswerverifiedShow Answer

The reserve ratio is the ratio of

Correct AnswerverifiedShow Answer

In a barter system,

Correct AnswerverifiedShow Answer

Which of the following is not a function of money?

Correct AnswerverifiedShow Answer

Federal Reserve notes are

Correct AnswerverifiedShow Answer

If two kinds of money are circulating at the same time,

Correct AnswerverifiedShow Answer

The greater the number of different goods available in an economy,

Correct AnswerverifiedShow Answer

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