ECON 110 Chapter Notes - Chapter 27: Fiat Money, Commercial Bank, Cheque Clearing

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Money is any generally accepted medium of exchange: this means anything widely accepted in a society, in exchange for goods and services. Money also acts as a store of value and as a unit of account. The money supply is measured by using different definitions for different purposes. Money is needed, or else goods would have to be exchanged by barter. The difficulty of a barter system is that it requires a double coincidence of wants. Barter: a system in which goods and services are traded directly for other goods and services: the use of money as a medium of exchange solves this problem. Money is a convenient means of storing purchasing power: goods may be sold for money and the money stored until needed for a future purchase. Money is also used for accounting: its use for such purposes does not rely on its physical presence ex.

Related Questions

QUESTION 46

When the Fed buys a U.S. bond in the open market

		its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.
		its action expands total reserves and the money supply.
		its action contracts total reserves and the money supply.
		total reserves increase by the amount of the purchase but the money supply stays the same.

1.11 points

QUESTION 47

When the Fed sells government securities,

		reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.
		reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.
		reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities.
		reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities.

1.11 points

QUESTION 48

The maximum potential money multiplier is equal to

		the reserve ratio.
		one minus the reserve ratio
		the inverse of the required reserve ratio.
		the number of dollars on reserve.

1.11 points

QUESTION 49

The potential money multiplier gives us

		the growth in the money supply when income increases.
		the growth in real national income when the money supply increases.
		the maximum potential change in the money supply due to a change in income.
		the maximum potential change in the money supply due to a change in reserves.

1.11 points

QUESTION 50

An increase in the reserve ratio

		increases the money multiplier.
		will cause banks to make more loans.
		has an expansionary effect on the money supply.
		has a contractionary effect on the money supply.

1.11 points

QUESTION 51

The Federal Deposit Insurance Corporation insures

		banks against lawsuits.
		the deposits held in member banks.
		the deposits held in the Fed.
		the federal funds market.

1.11 points

QUESTION 52

Bank runs are a possibility because

		in difficult times people want currency instead of demand deposits.
		the FDIC is inefficient.
		banks do not keep enough reserves to cover all their depository liabilities.
		bankers are often poor businesspeople.

1.11 points

QUESTION 53

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

		make riskier loans than they otherwise would.
		reject some loans that probably would be profitable.
		maintain excess reserves that are too great.
		be too conservative in their lending practices.

1.11 points

QUESTION 54

The Federal Deposit Insurance Corporation

		discourages banks from engaging in excessive risk taking.
		was established after the Panic of 1907.
		only insures deposits in money-center banks.
		increases the stability of the banking system by reducing the likelihood of bank runs.

1.11 points

QUESTION 55

What are the two features of money that distinguish it from all other goods in the economy?

		Money is government issued and it is redeemable for gold or silver.
		Money is part of every barter transaction and it is divisible.
		Money is accepted as a medium of exchange and it is the common unit of account used to express prices.
		Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.

1.11 points

QUESTION 56

Holding money to meet unplanned expenditures and emergencies is known as

		asset demand.
		precautionary demand.
		aggregate demand.
		transactions demand.

1.11 points

QUESTION 57

When people want to hold money to make regular planned expenditures, this is

		the transaction demand for money.
		the spending demand for money.
		the asset demand for money.
		the precautionary demand for money.

1.11 points

QUESTION 58

When interest rates rise, the transactions demand for money usually

		decreases.
		increases.
		decreases initially and then increases to the original position.
		does not change.

1.11 points

QUESTION 59

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

		increases, and the money demand curve shifts to the right.
		remains constant, and the money demand curve remains the same.
		decreases, and the money demand curve shifts to the left.
		increases, and the money demand curve shifts to the left.

1.11 points

QUESTION 60

One of the economic costs of holding currency is that

		it fulfills no precautionary role.
		it fulfills no transactions role.
		it earns no interest income.
		its real value always increases.

blacktrout920

1.Money must be ________ which includes the fact that it should ________. (I think it's B?)

A. in physical form; not be transferable using electronic means
B. generally accepted as a means of payment; be recognizable and divisible into small parts
C. whatever is used in a barter system; transferable across countries' borders
D. backed by gold; not decrease in value over time
E. accepted as a means of payment across countries' borders; not be fiat money

2.When goldsmiths issued receipts to gold owners, and those gold receipts circulated while gold stayed in the goldsmiths' safes,

(I think it's E)

A. the gold receipts were considered money because they were used as a means of payment.
B. an infant banking system developed in sixteenth century Europe.
C. money was invented.
D. fiat money was created.
E. Both A and B are correct.

3.Which of the following statements are correct?

Congress does not play a role in making monetary policy decisions.
The FMC meets eight times a year to make monetary policy decisions.
The President of the United States appoints members and the Chairman of the Board of governors but has little other formal authority over monetary policy.

A. ii only
B. ii and iii
C. i, ii, and iii
D. i and iii
E. i,and ii

4.If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make?

A. $200
B. $1,900
C. $1,800
D. $2,000
E. $2,200

5.In order to influence the interest rate, the Federal Reserve System can immediately adjust the

A. amount the government borrows.
B. taxes that citizens must pay.
C. reserves of the banking system.
D. inflation level.
E. unemployment rate.

6.The government collects tax revenue of $100 million and has $105 million in outlays. The budget balance is a

A. surplus of $105 million.
B. deficit of $5 million.
C. surplus of $100 million and a deficit of $105 million.
D. surplus of $5 million.
E. deficit of $105 million.

7.Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

(Might be B?)

A. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.
B. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
C. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.
D. Both equilibrium price and equilibrium quantity would increase.

8.The Consumer Price Index (CPI) measures the changes of the

A. prices paid by all businesses for a fixed market basket of production resources.
B. quantities of a fixed market basket of goods produced by businesses.
C. lowest prices paid by consumers for a fixed market basket of consumer goods and services.
D. prices paid by consumers and businesses for a fixed market basket of goods and services.
E. prices paid by consumers for a fixed market basket of consumer goods and services.

9.For which of the following individuals would the opportunity cost of going to college be highest?

(I think it's c)

A. a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball
B. a promising young mathematician who will command a high salary once she earns her college degree
C. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree
D. a student with average grades who has never held a job

ECON 110 Chapter Notes - Chapter 27: Fiat Money, Commercial Bank, Cheque Clearing

ECON 110 Full Course Notes

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