Eco Unit 4 Review

1. What function of money is being used when prices for goods and services are stated in terms of money?

• store of value
  

• unit of account

• medium of exchange

• standard of deferred payment

Money that has value simply because the government says it does is called —

• credit
  

• currency

• fiat money

• representative money

Commodity money can best be described as —

• trade goods or services between two people without the exchange of money

  
  

• currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves

• a form of money which has an intrinsic value, meaning it is worth something in its own right rather than simply being a token of financial value

• money that consists of a token or certificate that can be exchanged for a specific good, such as gold, silver, or potentially water, oil, or food

 One of the disadvantages of operating a barter system is that trading is

• taking place without currency
  

• carried out in very large markets

• limited by availability and demand

• conducted without consumer protections

Which of the following statements is NOT true of the Federal Reserve System?

• The Federal Reserve System was created by the Federal Reserve Act of 1913.

• The Federal Reserve System is divided into 12 district banks.

• The Federal Reserve System makes a profit by making loans to member banks

• The Federal Reserve System’s board of governors is appointed by the president of the United States.

The federal government uses monetary policy to

• adjust interest rates based on currency supply

• guarantee access to consumer credit.

• determine tax rates on income.

• expand free trade to international markets.

Open market operations, the discount rate, and reserve requirements are used by the Federal Reserve to most directly affect the

• amount of taxes collected

• minimum wages of workers

• cost of doing business overseas

• supply of money in the economy

 In order to require banks to hold more money as opposed to lending it, the Federal Reserve can

• decrease the discount rate

• decrease the federal funds rate

• suspend the federal funds rate target

• increase the reserve requirement

Why did abandoning the gold standard result in a decline in the value of the U.S. dollar?

• People began hording dollar bills so the value would decline.

• More currency was able to be printed thus reducing its value.

• Americans did not want to use fiat currency so the value declined.

• Businesses preferred to be paid with gold thus dollars were less valued.

The Federal Reserve Board would attempt to enact an expansionary monetary policy by

• increasing government spending.

• increasing the currency in circulation.

• reducing aggregate demand

• trying to generate a budget surplus.