Chapter 12 - Money & Banking Review

Changing from a barter economy to a money economy can reduce transaction costs.

• True

• False

Small-denomination time deposits are part of M2, but not part of M1.

• True

• Falsee

Required reserves are a set percentage of total reserves that must be held in cash in a bank's vault or in the bank’s reserve account at the Fed.

• True

• False

The Fed pays banks interest on bank deposits held on reserve at the Fed.

• True

• False

A financial system is a means of bringing together savers and borrowers.

• True

• False

Barter is

• the exchange of goods and services for goods and services without the use of money.

• the exchange of money for goods and then the exchange of those goods for money.

• the exchange of money for money, or the exchange of money for stocks and bonds.

• 1. any exchange, with or without the use of money, in which the participants negotiate (or barter) the price of the goods to be exchanged.

Which of the following illustrates a barter transaction?

• A bushel of oranges is traded for a bushel of apples.

• Someone buys a pizza for the special price of $4.

• Someone buys a house for $100,000.

• Someone buys a pizza for the special price of $4 & Someone buys a house for $100,000.

Transaction costs are best defined as the

• various costs of different goods and services.

• cost of one good in terms of another; that is, the price of apples in terms of oranges.

• costs involved in borrowing money from someone, that is, the interest that must be paid for the use of someone else's money.

• costs associated with the time and effort necessary to make an exchange.

Which of the following is a correct listing of money's functions?

• source of credit, value of transaction costs, unit of barter

• medium of barter, medium of exchange, medium of transactions

• unit of barter, unit of account, a unit of income

• store of value, store of exchange, measure of account

• store of value, medium of exchange, unit of account

Money's basic advantage as compared to barter is that

• everybody has money but not everyone has the opportunity to barter.

• a money system relies on a double coincidence of wants.

• money reduces transaction costs.

• money is the only medium you can use to store your wealth.