Economics Unit Four

Which term refers to the use of money?

• barter

• capitalist

• socialist

• financial

Which most accurately explains why fiat money has no value in itself?

• Fiat money is not a durable commodity.

• Fiat money has only a single use as a medium of exchange.

• Fiat money only has value as long as the free-market system exists.

• Fiat money is always a precious metal that only has value because of its beauty.

Which best describes why banks aren't allowed to loan out all of their deposits at once?

• If banks loaned out all of their deposits, it would be impossible to meet customers' demands for withdrawals.

• If banks loaned out all of their deposits, the government would be unable to calculate the bank's tax burden.

• If banks loaned out all of their deposits, there wouldn't be enough money left to provide new customers with loans.

• If banks loaned out all of their deposits, the money supply would grow much too slowly.

Which is the purpose of the Securities and Exchange Commission (SEC)?

• protect bank depositors against losing their money

• manage the growth of the U.S. economy

• prevent stock market fraud

• sue government bonds

Which accurately describes how raising the required reserve ratio reduces the money supply?

• When the required reserve ratio is raised, banks must raise interest rates so that fewer people can afford to take loans.

• When the required reserve ratio is raised, banks must loan out a smaller portion of their reserves, resulting in fewer loans.

• When the required reserve ratio is raised, banks have less incentive to give loans because they make less profit on these loans.

• When the required reserve ratio is raised, banks can loan out a larger portion of their reserves, leaving less of a supply on hand.

Which best explains why the money supply is increased when the Fed buys T-bonds on the open market?

• The purchase of bonds increases the demand both for bonds purchases and for money in general.

• The purchase of bonds reduces the available supply of bonds, which drives up bond prices.

• The purchase of bonds leads to a reduction in the discount rate, which provides banks with an incentive to loan more money.

• The purchase of bonds increases the amount of deposits in people's bank accounts, which enables banks to loan more money.

Which describes the most likely effect of the sale of a new batch of Treasury bonds?

• an increase in unemployment

• a reduction in the inflation rate

• an increase in the money supply

• a decrease in the money supply

Which accurately describes a businesswoman making an investment?

• she pays for a new car

• she buys a Treasury bond

• she sells her shares of a company's stock

• she exchanges her labor for wages

Which is a benefit of being a stockholder?

• may not get an increase in the amount of one's investment

• guaranteed a return on one's investment

• might receive dividends when the company makes a profit

• receives a seat on the board of directors

Which is traded in a stock market?

• foreign money

• unprocessed goods

• shares in corporations

• treasuries