Study Guide 6.1 and 6.3

What is the primary function of money as a medium of exchange?

• To measure the value of goods and services

• To allow goods and services to be traded without complications of the barter system

• To store purchasing power for future use

• To ensure money is backed by gold

What is a major problem with the barter system?

• Goods are too expensive

• It requires a double coincidence of wants

• Money has no value in barter systems

• Barter systems are always illegal

What is the primary difference between commodity money and fiat money?

• Commodity money has intrinsic value, while fiat money does not

• Fiat money is backed by gold, while commodity money is not

• Commodity money is always in digital form

• Fiat money cannot be used for trade

Which of the following is NOT a function of money?

• Medium of exchange

• Store of value

• Unit of account

• Increasing inflation

What is the role of the Federal Reserve?

• To print money and distribute it directly to citizens

• To regulate banks and stabilize the financial system

• To set all interest rates for banks

• To create new forms of digital currency

What is the Federal Open Market Committee (FOMC) responsible for?

• Printing money

• Managing the country’s tax policy

• Making decisions about the growth of the money supply and interest rates

• Setting prices for goods and services

What happens when the Federal Reserve decreases the reserve requirement?

• Banks hold more money and make fewer loans

• Banks hold less money and make more loans

• The money supply decreases

• Interest rates increase

If the Federal Reserve wants to increase the money supply, what should it do with the discount rate?

• Increase it

• Keep it the same

• Decrease it

• Eliminate it

Open Market Operations involve the buying and selling of what?

• Corporate stocks

• Foreign currency

• Government bonds (securities)

• Real estate

If the Federal Reserve sells government bonds, what happens to the money supply?

• It increases

• It decreases

• It remains the same

• It becomes digital currency