Question 1

Barter trade requires:&#10;A) A well-functioning form of money&#10;B) Many buyers and sellers&#10;C) A well-developed financial system&#10;D) A double coincidence of wants

Accepted Answer

Barter trade requires a double coincidence of wants, meaning each party has something the other wants and is willing to trade for it. This is because, in a barter system, goods or services are directly exchanged without the use of money.

Question 2

Which of the following ensures customers can make cash withdrawals from the banks:&#10;A) Low interest rates&#10;B) Minimum reserve requirements&#10;C) A large number of banks&#10;D) Deposit insurance

Accepted Answer

Minimum reserve requirements ensure that banks retain a certain amount of cash on hand or in a central bank to meet customer withdrawals, thus directly impacting customers' ability to withdraw cash.

Question 3

Banks receive ___ and issue ____&#10;A) Deposits; Bonds&#10;B) Revenue; Loans&#10;C) Financing; Credit&#10;D) Deposits; Loans

Accepted Answer

Banks receive deposits from customers and issue loans to borrowers.

Question 4

Which of the following is not an example of asymmetric information:&#10;A) An investor is not aware of which shares of stock are good quality and which are bad&#10;B) Investors purchase shares with low prices since they do not know if higher priced stocks are better&#10;C) The receipient of a bank loan invests in new capital after having shared their plans with the bank&#10;D) The recipient of a bank loan spends all of the money on a fleet of corporate Rolls Royces

Accepted Answer

Asymmetric information refers to situations where one party has more or better information than the other. In choice C, the recipient of a bank loan investing in new capital after sharing their plans with the bank does not illustrate asymmetric information because both parties have the same information regarding the use of the loan.

Question 5

The fractional reserve lending theory of money creation states that loans are made primarily based on:&#10;A) Interest rates&#10;B) Riskiness of business projects&#10;C) Credit scores&#10;D) Deposits

Accepted Answer

The fractional reserve lending theory posits that banks create money by lending out a portion of their deposits, keeping only a fraction as reserves.

Question 6

The credit creation theory of money says that deposits and reserves ___ banks' lending activities&#10;A) Raise&#10;B) Lower&#10;C) Constrain&#10;D) Do not impact

Accepted Answer

The answer of The credit creation theory of money says...

Question 7

Which of the following does not constrain banks' lending activities&#10;A) Customer demand for loans&#10;B) Profitability of potential loans&#10;C) Customer repayment of loans&#10;D) Monetary policy

Accepted Answer

The answer of Which of the following does not constrain...

Question 8

Central banks can raise the pool of reserves in the banking system by:&#10;A) Selling government securities&#10;B) Purchasing government securities&#10;C) Buying and selling government securities in equal amounts&#10;D) Raising minimum reserve requirements

Accepted Answer

Central banks can increase the pool of reserves in the banking system by purchasing government securities. This action injects money into the banking system, increasing the amount of reserves banks have available to lend.

Deck 4: The Truth Behind Money Creation