Economics Unit 4

In order to classify an item as money, it must be

• a medium of exchange, a durable commodity,

  and a part of the M1 money supply.

• a medium of exchange, a store of value, and a

  unit of account.

• divisible, portable, acceptable, scarce,

  durable, stable, and uniform.

• backed by either a gold or a silver standard.

Money that has intrinsic value is called

• representative money

• government-backed money

• fiat money

• commodity money

Using money during exchanges is superior to

bartering because money

• allows for the direct exchange of two goods.

• can be easily transported.

• increases the overall satisfaction of both the

  buyer and the seller.

• eliminates the need for a double coincidence

  of wants.

Salt probably would not work well as money

today because it is not

• divisible

• fungible

• scarce

• stable in value

If gas costs $3.19 per gallon, and not two Euros,

we can infer that the dollar is functioning as a

• store of value

• unit of account

• type of representative money

• type of commodity money

The reserve ratio is the fraction of

• bank deposits that must be held as bank

  reserves.

• currency in circulation held as bank reserves.

• checkable deposits held as currency in

  circulation.

• M1 money held as bank reserves.

Bank reserves are different than checkable

deposits because bank reserves are

• exclusively held by the Federal Reserve.

• available for withdrawal by depositors.

• held by banks.

• physical cash that is not immediately

  available for spending.

The FDIC has reduced the fear of bank runs

occurring in the United States by

• making bank runs illegal except under

  extreme circumstances.

• keeping the money multiplier at low levels.

• limiting the amount of money consumers

  demand as loans.

• insuring most deposits up to a value of

  $250,000.

Banks are able to create money by

• investing in business projects.

• loaning out their excess reserves.

• printing new money.

• taking out loans from the Federal Reserve.

If the money multiplier is 4, then the reserve

ratio is

• 4%

• 20%

• 25%

• 40%