Econ 120 (Macro) - Chapter 13 Quiz Questions

Which of the following statements is true?

The subprime mortgage and global financial crisis of September 2008 resulted in mergers of big banks that were in financial trouble with healthier banks.

Which of the following is true of money market mutual fund?

It represents a claim on a collection of short-term interest earning assets.

Which of the following is the name of the entity, group, or organization that has the power to conduct key monetary policies by purchasing or selling U.S. government securities?

The Federal Open Market Committee (FOMC).

Which of the following factors makes a barter system inefficient relative to a monetary system?

There is complete dependence on double coincidence of wants in a barter system.

The purchasing power of money is:

the rate at which it exchanges for goods and services.

Suppose that a large group of local merchants donate to local schools 10,000 "3-R Dollars", 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. Which of the following is true in this case?"

3-R dollars meet the requirements of money.

Which of the following correctly describes the system of fractional reserve banking?

A bank's reserves amount to only a fraction of funds on deposit with the bank.

_____, originally introduced during the Great Depression to prevent bank panics, caused depositors to become complacent about the safety of their deposits.

Deposit Insurance

The _____ acts as the lender of last resort to commercial banks.

Federal Reserve

The ____ is the central bank and the monetary authority of the United States.

Federal Reserve System

Which of the following correctly explains how banks began in Italy and England?

Goldsmiths were the first bankers, and the written instructions to the goldsmiths to pay someone on behalf of someone else were the first checks.

_____ are funds that banks have on hand or on deposit with the Fed to satisfy the cash demands of their customers.

Reserves

What or who backs the value of fiat money?

The power of the state.

The _____ is a government program that invested in financial institutions and automakers to help stabilize markets.

Troubled Asset Relief Program

Any commodity that _____ throughout an economy is considered money.

acquires a high degree of acceptability as a medium of exchange

Deposit insurance led to:

an increase in risk-taking behavior in the banking system.

A problem with using commodities such as cattle as money is that they _____.

are likely to lose their value over time

If corn is used as a medium of exchange, people will tend to consume the high-quality corn and circulate the rest that is of low quality. To avoid this problem of decline in the quality of the medium of exchange as it is circulated, the ideal money should ____.

be of uniform quality

A _____ is a written order instructing the bank to pay someone from an amount deposited in the bank.

check

The quantity and the quality control issues associated with using gold and silver as money were addressed by _____.

coining

If used as money, energy bars would be considered an example of ____money.

commodity

During the 1970s, the Fed set a ceiling on interest rates that banks could pay depositors. However, a surge of inflation during this period resulted in:

depositors withdrawing their deposits and investing in higher-yielding alternatives.

The interest rate charged by the Reserve banks to member banks that are in need of reserves is known as the:

discount rate.

Token money is money whose _____.

face value exceeds its cost of production

The primary duty of the Board of Governors of the Fed is to:

formulate and execute the monetary policy of the country.

Diamonds are a good example of ideal money that _____.

is relatively easy to carry

The Federal Reserve System requires:

member banks to hold some specified fraction of their deposits as reserves.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) regulated that:

mortgage originators should verify the income and credit history of borrowers.

During the 19th century, the U.S. economy experienced a number of panic runs on banks because:

of depositors who wanted to withdraw their money at the same time.

Financial intermediaries earn profit by:

paying a lower interest rate to savers than they charge borrowers.

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.

store of value

People came to accept fiat money as a medium of exchange because:

they believed that others would accept it as well.

Gold coins are not a good example of ideal money because _____.

they have a high opportunity cost

Paper money that is in circulation in the United States is _____.

token money

Specialization by producers in the production of goods and services will result in an increase in _____ in a barter system.

transaction costs

The purchasing power of the dollar in the current year is measured by dividing:

100 by the price index for the current year.

Which of the following statements is true of bank notes?

Originally, bank notes were redeemed by the holders, and they received gold or silver by exchanging the bank notes.

A subprime mortgage is:

a mortgage for a borrower with a not-so-good credit rating.

A mortgage-backed security:

represents a claim on monthly payments made on several mortgages bundled together.

Money serves as a medium of exchange, a store of value, and a _____.

unit of account

_____ is an example of commodity money.

Corn

Which of the following statements is true of hyperinflation?

During hyperinflation, money does not serve as a reliable unit of account.

Which of the following correctly explains why money is used as a medium of exchange?

Exchanges under a monetary system do not depend on double coincidence of wants.

Which of the following represents one or more of the key goals and objectives of the Fed?

High levels of employment, economic growth, and stability in prices.

Which of the following is a function of the Fed?

Holding deposits of member banks.

Which of the following is a feature of ideal money?

It should maintain a relatively stable value over time and have a low opportunity cost.

Which of the following was one of the main causes of the failure of about one-third of the banks in the United States between 1930 and 1933?

The Fed failed to act as the lender of last resort.

In recent years, banks have been able to get around restrictions on interstate branching and the type of assets that they can own through the use of _____.

bank holding companies and mergers

Banks are unable to repay cash to all depositors at the same time because:

banks hold only a fraction of their deposits as cash reserves.

A _______ is an economic system in which goods and services are exchanged between two parties on the basis of a mutually perceived value, without using currency as a medium of exchange.

barter system

Open-market operation means buying and selling of _____ by the Fed in an effort to influence money supply.

government securities