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ECO 202 - Challenge 3 QUIZ solutions
1 — History of Money
When I use money to purchase a movie ticket, my dollars are acting as a
__________.
a.)
unit of account
medium of exchang
e
•b
.
Identify the various functions of money.
When store owners quote prices in terms of dollars, money is actin g as a
__________.
a.)
medium of exchange
b.)
unit of account
c.)
commodity
d.)
store of value
The double coincidence of wants challenge is faced when we ______ ____.
a.)
use gold as a unit of account
b.)
use money as a medium of exchange
c.)
attempt to barter to attain goods
d.)
establish gold as a commodity
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•)
c.)
2 — Gold Standard
Which of the following describes what happened to the gold trade as the use of
gold as currency became more standardized?
•a.)
Banks figured out that they could print more money than gold that they had in
their vaults.
•b.)
People began to write checks instead of actually transferring gold.
•c.)
Traders faced a double coincidence of wants.
•d.)
Certain commodities became accepted as forms of exchange.
What happened to the gold trade as the use of gold as currency became more
standardized?
a.)
store of value
d.)
bartering agreement
Which of the following is a reason for gold becoming a form of currency?
a.)
It contributes to inflation.
b.)
It is the most liquid form of money.
c.)
It has little practical value.
d.)
It is almost impossible to counterfeit.
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Americans lost faith in their currency and hoarded gold.
b.)
Gold held little practical value other than as jewelry.
•c.)
Banks printed paper money to represent a specific amount of gold in the vault.
•d.)
The dollar's convertibility was suspended.
3 — Fractional Gold Standard/Fiat Currency
Which of the following statements about fiat currency is true?
•a.)
Which of the following can be described as when a bank holds a p art of its gold
and loans out the rest?
a.)
Fractional reserve
b.)
Deposit account
c.)
Fiduciary money
d.)
Fiat currency
What is the central issue that causes bank runs and panics?
a.)
Banks withhold deposits from creditors.
b.)
Banks fail to pay interest to their depositors.
c.)
Banks do not loan out enough funds to stimulate the economy.
d.)
Banks print more money than they have gold in their vaults.
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Fiat currency has intrinsic value.
•b.)
Fiduciary currency has value based on the trust of the Federal Reserve.
•c.)
Fiat currency is not available in America today.
•d.)
Fiat currency is dependent on trust that it will be widely accepted.
4 — History of the Central Bank
Before a Central Bank was established in the United States, people known as
Which answer below explains why some might have favored the old banking
system?
•a.)
Prices were uncertain in trading over long distances.
•b.)
Currency traders could make a lot of money by exchanging it between cities.
•c.)
All of the account holders at a bank could create a run by asking to withdraw
their funds at the same time.
•d.)
The value of notes from unknown banks was unclear.
Some of the founding fathers were initially against a Central Bank because
__________ were able to buy and sell the monies from individu al states.
a.)
the Board of Governors
b.)
equity salesmen
c.)
federal funds traders
d.)
currency traders
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5 — Central Banks
Which of the following statements regarding central banks is true?
•a.)
Central banks require greater reliance on the gold standard.
•b.)
A central bank controls the locations and number of branches of state and
local banks.
•c.)
Central banks undermine international trade.
•d.)
A central bank has the sole authority with respect to money supply.
Which of the following statements regarding central banks is true?
•a.)
They are not required to maintain cash on hand.
•b.)
As the value of the currency becomes more certain, people rely more on
commodity standards.
•c.)
They are charged with the regulation of money supply and interest rates.
•d.)
A run could never happen at central banks.
__________.
a.)
the Continental currency had already been issued
b.)
they couldn't agree which branch of the government would
control a Central Bank
c.)
different states wanted their own currency
d.)
the control of the English bank over the colonies
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Which of the following describes a way that central banks strengthened the value
of currency?
•a.)
People deposited paper money instead of gold in banks.
•b.)
Over time, the banking system became less reliant on the gold standard.
•c.)
Banks lent out more money than is kept in reserves.
•d.)
Traders made a living by exchanging currency between cities.
6 — U.S. Central Bank: Federal Reserve
Which of the following statements is NOT true of the Federal Reserve?
•a.)
The Federal Reserve prevents panics by allowing private banks to hold
reserves at regional Federal Reserve banks.
•b.)
The Federal Reserve is independent from the Federal
Government.
How does the Federal Reserve prevent runs on banks?
a.)
It doesn't; Banks need to establish good reputations on their
own.
b.)
By printing more money if necessary
c.)
By acting as a lender of last resort to member banks
d.)
By guaranteeing people's deposits
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Which of the following statements about the Federal Reserve is true?
•a.)
The Federal Reserve is directly controlled by the government, as its members
are all elected politicians.
•b.)
The members of the Board of Governors of the Federal Reserve are appointed
for terms of 14 years.
•c.)
The Federal Reserve Board of Governors are elected by the general public.
•d.)
The Federal Reserve prints more money to prevent runs on banks
Challenge 3.2
c.)
The Federal Reserve was created to sustain long-term
economic health.
d.)
The Federal Reserve prints more money to prevent runs on
banks.
