Econ_U6_Money & Banking

What are the three functions of money?

• Production, distribution, consumption

• Saving, investing, spending

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

• Imports, exports, tariffs

What is commodity money?

• Money that is decreed by a government as legal tender

• • Objects that have value in themselves and are used as money

     

• Money that represents a precious metal

• Paper receipts for gold and silver

Which of the following best describes the function of money as a "unit of account"?

• It is used to exchange goods and services.

• It is accepted as a means to pay debts.

• It provides a way to compare the value of different items.

• It maintains its value over time.

Why is fiat money considered to have value?

• The government declares it as an acceptable means of payment.

• It is used in simple economies.

• It has intrinsic value.

• It is backed by a physical commodity like gold.

Imagine a situation where people trade goods directly for other goods without using money. What is this system called, and what is a disadvantage of this system compared to using money?

• This is called fiat money, and it's disadvantage is that it loses value during inflation.

• This is called representative money, and it's disadvantage is that it only works in simple economies.

• This is called commodity money, and it's disadvantage is that it is not portable.

• This is called barter, and it's disadvantage is the difficulty in determining the value of goods and services.

What is one of the functions of financial institutions?

• To control the stock market

• To regulate government spending

• • To store money  

• To print currency

What is the term for a banking system that keeps only a fraction of its funds on hand and lends out the remainder?

• Full reserve banking

• Central banking

• Investment banking

• • Fractional reserve banking  

How do banks primarily make a profit?

• By trading in the stock market

• From interest received from customers who have taken out loans

• By issuing credit cards

• By charging fees for storing money

What is the difference between M1 and M2?

• M1 includes savings deposits, while M2 only includes currency.

• M2 is money that people can gain access to easily and immediately, while M1 is near money.

• M1 consists of all the assets in M2 plus other assets that can be converted to cash fairly easily.

• M2 consists of all the assets in M1 plus several other assets that cannot be used as cash directly but can be converted to cash fairly easily.

Which of the following scenarios best illustrates the "making loans" function of a financial institution?

• A person deposits their paycheck into a checking account.

• A business uses a bank to store its revenue

• A family obtains a mortgage to purchase a home.

• A person opens a savings account to save for retirement.