Unit 4 Review: Money, Money, Money

Which describes the type of exchange that does not use money?

• • financing

• • bartering

• • borrowing

• • purchasing

Which statement accurately describes the relationship between commodity money and fiat money?

• • Both commodity money and fiat money require a free-market system.

• • Fiat money only has value if commodity money is a precious metal such as gold.

• • Neither type of money can be used for any purpose other than as a medium of exchange.

• • Commodity money has value in itself while fiat money has value only because it is given value.

Which statement accurately describes the requirements banks must meet under a fractional reserve banking system?

• • Banks must get government approval for all loans.

• Banks reserve the right to raise interest rates at any time.

• • Banks must pay a specific fraction of their assets in taxes.

• • Banks must keep a specific percentage of deposits on hand.

Which is the purpose of the Federal Reserve Bank?

• • protect bank depositors against losing their money

• • manage the growth of the U.S. economy

• • prevent stock market fraud

• • issue government bonds

Which can the Fed accomplish by raising or lowering the required reserve ratio?

• • prevent a budget deficit

• • reduce housing prices

• • increase or decrease the money supply

• • ensure an equitable distribution of wealth

Which explains how Treasury bonds can have an effect on the size of the money supply?

• • The use of Treasury bonds to pay for government expenses leads to increased inflation.

• • The Federal Reserve Bank can buy and sell Treasury bonds to raise or lower bank deposits.

• • The existence of Treasury bonds increases competition among banks to offer low-interest loans.

• • The government can avoid running a budget deficit and reducing the money supply by issuing Treasury bonds.

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 describes someone's expected outcome from investing in the stock market?

• • making profit from savings

• • slowing the productive process

• • decreasing the money supply

• • raising his or her wage level

Which is a risk of being a stockholder?

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

• • can increase investment if the price of one’s stock goes up

• • might receive dividends when the company makes a profit

• • able to vote for members of the board of directors

Which is traded in a commodity market?

• • foreign money

• • unprocessed goods

• • shares in corporations

• • treasuries