Economics -Ch13
What is a "fractional reserve" banking system?
A fractional reserve banking system only requires banks to hold a tiny fraction of all deposits in the form of reserves. This allows them to lend out the rest, which serves to expand the money supply and promote investment, jobs and economic growth.
Which of the following is NOT correct about a fractional reserve banking system?
A fractional reserve banking system requires that the full fraction (100%) of all deposits made at a bank be held safely in the form of cash or government securities in order to fulfill depositor's withdrawal demands.
Which of the following is NOT true?
All stock in reserve banks in the Federal Reserve System are owned by the Federal government and all profits accrue to the Treasury.
Which method of exchange requires a coincidence of wants, which means that each party in an exchange must possess something that is valued and desired by the other party?
Barter
Which of the following is NOT correct about barter?
Barter is the most efficient method of exchange. By its very nature, it fulfills the three major functions of money.
Which of the following is correct about "commodity money?"
Commodity money is money whose value comes from a commodity of which it is made. Examples are gold coins or silver coins.
What is the name of the interest rate charged on loans by the Fed to member banks?
Discount Rate
What type of money is not backed by gold and silver but rather is widely accepted because the government requires people to accept it as payment?
Fiat Money
Which of the following correct defines and describes "fiat money?"
Fiat money is not backed by gold or silver but rather has value only because the government decrees it to be legal tender.
This type of money is anything of intrinsic value that is accepted as money. Because it ties up otherwise valuable resources, it has a higher opportunity cost than standard money that has no intrinsic value.
Gold and Silver
Which of the following is the best example of "commodity money?"
In the past, the U.S. government used some forms of commodity money, such as gold and silver coins.
In what way is money a unit of account and a store of value?
It is a unit of account because it allows for dividing payments into smaller increments. It is a store of value in that it retains most, if not all, of its original value.
Which of the following is NOT a primary function of money?
Money fulfills most of the major psychological needs of consumers, investors and firms.
Which of the following is NOT true?
Only paper money meets the full definition of "ideal money".
Which of the following is the best example of "fiat money?"
Paper currency or cheap metal coins deemed as official tender by a government.
These are funds the Fed requires banks to hold to meet the day to day demands of customers. They consist of both cash at the member bank and funds held by the Fed.
Reserves
Which of the following would have the largest effect on reducing the money supply and limiting economic growth?
The FED setting the reserve rate at 100%.
Which of the following is NOT true?
The Federal Preservation Systemic can only affect the money supply by changing the appearance of federal reserve notes.
Which government body is tasked with regulating the money supply?
The Federal Reserve System
Which of the following correctly defines and describes the Federal Reserve?
The Federal Reserve is the central bank of the U.S. and its functions are to issue bank notes, extend loans to member banks, to clear checks, and to force member banks to hold reserves at a rate set by the Fed.
