Deck 12: Money and the Banking System

Question 1

If you save $2,500 for a down payment on a new car,you are using money as

A)a store of value.
B)a unit of account.
C)a medium of exchange.
D)a standard of deferred payment.

Answer 1

a store of value.

Question 2

Money serves as a ________,which is another way of saying that money functions as a standard of value.

A)a medium of exchange.
B)unit of account
C)a store of value.
D)standard of deferred payment.

Answer 2

unit of account

Question 3

Without an accepted medium of exchange,people

A)have to specialize in one area of production.
B)have to rely on gold or silver in order to exchange goods and services.
C)have to resort to barter in order to exchange goods and services.
D)can efficiently obtain goods and services.

Answer 3

have to resort to barter in order to exchange goods and services.

Question 4

For something to serve as money,it must be

A)backed by the authority of the government.
B)generally accepted by buyers and sellers.
C)light,durable,and common.
D)convertible to gold.

Question 5

When you buy a hamburger for lunch,you are using money as a

A)store of value.
B)standard of deferred payment.
C)medium of exchange.
D)unit of accounting.

Question 6

As a result of money in an economy

A)people are greedier than in a barter economy.
B)stealing exists and people have to find ways to prevent theft.
C)transaction costs are higher than would be the case in a barter economy.
D)output and economic growth are greater than they would be in a barter economy.

Question 7

Which function of money allows people to specialize in areas in which they have a comparative advantage?

A)Medium of exchange
B)Unit of accounting
C)Store of value
D)Standard of deferred payment

Question 8

For something to serve as ________,it must be generally accepted by buyers and sellers.

A)banking authority
B)money
C)light,durable,and common
D)gold

Question 9

Anything people generally accept in exchange for goods and services is defined as

A)a person's net worth.
B)money
C)a byproduct of a barter economy.
D)barter.

Question 10

Cigarettes served as money in some prisoner of war camps during World War II.Given this,we would expect to observe

A)no one ever smoking a cigarette.
B)people usually resorting to barter rather than using cigarettes as money.
C)prices of other goods expressed in terms of cigarettes.
D)only government-issued cigarettes being accepted as money.

Question 11

Money serves as a unit of account,which is another way of saying that money functions as

A)a medium of exchange.
B)standard of value.
C)a store of value.
D)standard of deferred payment.

Question 12

A $5,000 price tag on a new car is an example of money as

A)a medium of exchange.
B)a unit of account.
C)a store of value.
D)a time deposit.

Question 13

Money is defined as

A)a person's net worth.
B)anything people generally accept in exchange for goods and services.
C)a byproduct of a barter economy.
D)any financial instrument that is backed by gold.

Question 14

As a ________,money is used to define prices of all other goods.

A)unit of account
B)medium of exchange
C)store of value
D)fiat money

Question 15

As a unit of account,money is used

A)to define prices of all other goods.
B)to pay off future debts.
C)to hold purchasing power over time.
D)to exchange for goods and services.

Question 16

In a barter system,we would expect to see

A)many different units of money.
B)money and goods exchanged for each other.
C)wide-spread financial institutions.
D)goods traded directly for other goods and services.

Question 17

The transactions approach to measuring money stresses the role of money as a

A)medium of exchange.
B)unit of accounting.
C)store of value.
D)standard of deferred payment.

Question 18

Define prices of all other goods in terms of money serves as

A)unit of account.
B)medium of exchange.
C)store of value
D)barter.

Question 19

If lenders refuse to state the debt in terms of dollars,then dollars are not a

A)medium of exchange.
B)unit of account.
C)store of value.
D)standard of deferred payment.

Question 20

Goods traded directly for other goods and services refers to

A)commodity money.
B)fiat money
C)wide-spread trade.
D)a barter system.

Question 21

An decrease in the ________ would induce people to hold a larger fraction of their wealth in the form of money.

A)unemployment rate
B)inflation rate
C)money supply
D)interest rate

Question 22

A highly liquid asset

A)has high transaction costs associated with its sale.
B)is highly leveraged.
C)generally has a very limited market for its resale.
D)can be disposed of easily without loss of value.

Question 23

An individual wanting the most liquid asset possible will hold

A)currency.
B)a savings account.
C)demand deposits at a bank.
D)Canadian government bonds.

Question 24

The yield that could have been earned if the asset was held in another form is commonly referred to as

A)the cost of printing money.
B)the cost which price decreases impose on money holders.
C)the yield which is paid to money holders by the Canadian government.
D)the cost of holding money.

Question 25

If an asset is described as something that is easily and readily converted into money without any loss in purchasing power,it is said to be

A)earning high interest.
B)highly liquid
C)losing face value.
D)holding value over time.

Question 26

The cost of holding money is best described as

A)the cost of printing money.
B)the cost which price decreases impose on money holders.
C)the yield which is paid to money holders by the Canadian government.
D)the yield that could have been earned if the asset was held in another form.

Question 27

An increase in the ________ would induce people to hold a smaller fraction of their wealth in the form of money.

A)unemployment rate
B)inflation rate
C)money supply
D)interest rate

Question 28

Camels have been used as money.Which function of money would this Type of money perform least well?

A)Medium of exchange
B)Unit of account
C)Store of value
D)Standard of deferred payment

Question 29

When an asset is described as being highly liquid,which one of the following characteristics does it possess?

A)It earns a high rate of interest,so its purchasing power is maintained when prices rise.
B)It is easily and readily converted into money without any loss in purchasing power.
C)The face value of the asset is somewhat less than its value when converted into currency.
D)The asset holds its value over time.

Question 30

Liquidity refers to

A)the ease with which an asset can be acquired or disposed of without incurring high transaction costs.
B)the expected return from an asset.
C)the amount of indebtedness held against an asset.
D)the net worth of the individual in question.

Question 31

Given the list of assets below,which is the most liquid?

A)$500 worth of General Motors common stock
B)$500 worth of General Motors bonds
C)a $500 traveler's cheque
D)a one-ounce gold coin

Question 32

The ________ to measuring money stresses the role of money as a store of value.

A)medium of exchange
B)unit of accounting
C)liquidity approach
D)standard of deferred payment

Question 33

The opportunity cost of holding money is measured by

A)a dollar.
B)the price of government bonds.
C)the interest yield that could have been earned by holding some other asset.
D)the liquidity of interest-bearing assets.

Question 34

Given the list of assets below,which is the least liquid?

A)$500 worth of General Motors common stock
B)$500 worth of General Motors bonds
C)a $500 traveler's cheque
D)a Renoir painting.

Question 35

The liquidity approach to measuring money stresses the role of money as a

A)medium of exchange.
B)unit of accounting.
C)store of value.
D)standard of deferred payment.

Question 36

A decrease in the interest rate would induce people to

A)sell shares of stock and buy bonds,but would have no effect on their desire to hold money.
B)get rid of all their money and buy stocks with it.
C)sell their least liquid assets and hold more money in case interest rates go up again.
D)hold a larger fraction of their wealth in the form of money.

Question 37

The ________ of holding money is measured by the interest yield that could have been earned by holding some other asset.

A)inflationary properties
B)necessity
C)opportunity cost
D)the liquidity

Question 38

An increase in the interest rate would induce people to

A)sell shares of stock and buy bonds,but would have no effect on their desire to hold money.
B)get rid of all their money and buy stocks with it.
C)sell their least liquid assets and hold more money in case interest rates go up again.
D)hold a smaller fraction of their wealth in the form of money.

Question 39

Assets that can be easily converted into money without loss of value are

A)transactions balances.
B)liquid.
C)currencies.
D)liabilities.

Question 40

Why do people often buy gold in times of war?

A)They want the unit-of-account function of money and government currencies lack this function in times of war.
B)They want a store of value as well as a medium of exchange since it is uncertain what will happen to the value of local currencies or whether they will be accepted.
C)They think that gold will be a good investment in the future.
D)They want something that can be carried easily in case of flight.

Question 41

The ________ of money varies inversely with the price level.

A)law
B)purchasing power
C)standard of deferred payment
D)medium of exchange

Question 42

A fiduciary monetary standard exists when the value of a currency

A)is determined by law.
B)is convertible to a fixed quantity of gold.
C)depends upon the public's confidence that the currency can be exchanged for goods and services.
D)increases with inflation.

Question 43

In Canada,bank notes are properly referred to as

A)gold-standard currency.
B)paper currency.
C)depository tender.
D)near-money.

Question 44

Currency and ________ are money according to the definition of money that is known as M1.

A)demand deposits
B)stocks
C)savings deposits
D)Canada Savings Bonds

Question 45

Even when people know the purchasing power of the currency is declining they continue to use the currency because

A)they have no other choice.
B)its value is holding better than any other asset.
C)its value is still predictable.
D)it still has some intrinsic value.

Question 46

The money supply is

A)the rate at which the Bank of Canada prints currency.
B)limited to currency and coins.
C)the amount of money in circulation.
D)the rate at which the Bank of Canada creates money.

Question 47

A $10,000 price tag on a new car is an example of money as

A)a medium of exchange.
B)a unit of account.
C)a store of value.
D)a time deposit.

Question 48

Currency and chequable deposits are money according to the definition of money

A)that is known as M1+.
B)that uses the liquidity approach.
C)that includes an important near money.
D)that is known as M2+.

Question 49

The amount of money in circulation is referred to as

A)seignorage.
B)fiat money
C)the money supply
D)reserves.

Question 50

Money is still useful during times of inflation because

A)it still retains the characteristic of predictability of value.
B)more money can be made so people can still purchase the goods and services they want.
C)it is not a liquid asset.
D)its opportunity cost falls as inflation rises.

Question 51

The reason we are willing to accept money with no intrinsic value is that

A)paper currency may be exchanged for full-bodied money.
B)the money supply is backed by an equal amount of gold and silver.
C)we have a fiduciary monetary system in which currency has both acceptability and predictability of value.
D)the value of the money varies directly with changes in the price level.

Question 52

which of the following statements is TRUE of money during times of inflation.

A)Money still retains the characteristic of predictability of value.
B)Money can easily be made so people can still purchase the goods and services they want.
C)Money is no longer a liquid asset.
D)The opportunity cost of money falls as inflation rises.

Question 53

In Canada,paper currency is properly referred to as

A)gold-standard currency.
B)bank notes.
C)depository tender.
D)near-money.

Question 54

A ________ when the value of a currency depends upon the public's confidence that the currency can be exchanged for goods and services.

A)moral responsibility
B)a conversion to a fixed quantity of gold is necessary
C)fiduciary monetary standard exists
D)monetary union is necessary

Question 55

Money in a fiduciary monetary system is backed by

A)gold.
B)the public's confidence that the assets will continue to serve as money.
C)the intrinsic value of the materials used to make the assets that serve as money.
D)assets owned by the government that are intrinsically valuable.

Question 56

Transactions accounts in commercial banks and other financial institutions are classified as money because

A)they are not liabilities of the banks.
B)they sometimes earn an interest income for the depositor.
C)they are generally acceptable in the payment of debt.
D)banks hold currency in their vaults equal to the value of demand deposits.

Question 57

The significance of currency in the Canadian money supply has

A)increased in recent years.
B)decreased in recent years.
C)remained the same in recent years.
D)been made legal by the Depository Institutions Deregulation and Monetary Control Act of 1980.

Question 58

The purchasing power or value of money

A)is determined by law.
B)varies inversely with the price level.
C)depends on the value of gold.
D)varies inversely with the interest rate.

Question 59

Even when a particular monetary asset is not performing one of the functions of money well,people still use the asset because

A)it is still easier than relying on barter.
B)they have no choice.
C)once an asset is defined as money it is always money.
D)people expect money will come back at a later date.

Question 60

The best measure of money is

A)coins and currency.
B)the one based on the transactions approach.
C)the one based on the liquidity approach.
D)something economists have never agreed on.

Question 61

Chequable deposit account balances in chartered banks are

A)counted in M2.
B)considered a near money.
C)considered credit,but not money.
D)counted in M1+.

Question 62

When we examine the Canadian money supply,the largest component of M1+ is

A)coins minted by the treasury.
B)chequable deposits.
C)certificates of deposit.
D)Bank of Canada notes.

Question 63

Chequable deposit account balances in chartered banks are

A)counted in the calculation of the money supply.
B)considered a near money.
C)considered credit,but not money.
D)only a small component of the money supply.

Question 64

When we examine the Canadian money supply,________ represent he largest component of M1+.

A)coins minted by the treasury
B)chequable deposits
C)certificates of deposit
D)Bank of Canada notes

Question 65

A nonpersonal notice deposit is

A)a liability to a commercial bank.
B)an asset to a commercial bank.
C)a liability to the household or firm that has the account.
D)an asset for the Bank of Canada.

Question 66

Credit cards

A)are not a part of the money supply because they are not a deferred standard of payment,store of value,or unit of account.
B)are a part of M1 but not of M2.
C)are a part of the money supply because they are used to purchase goods and services.
D)are a part of M2 but not a part of M1.

Question 67

Small-denomination savings deposits are

A)considered part of M2+ money.
B)included in the definition of both M1+ and M2+.
C)included in the definition of M1+,but not in M2+.
D)included in the definition of demand deposits.

Question 68

Savings deposits are included in

A)M1+ only.
B)M2+ only.
C)M1 and M2.
D)savings balances only.

Question 69

When you use a debit card to purchase a pair of jeans,you are

A)creating a 30-day loan from your bank to the seller.
B)creating a 30-day loan from the seller to your bank.
C)giving your bank an instruction to transfer money directly from your bank account to the stores bank account.
D)creating an overnight repurchase agreement between your bank and the store.

Question 70

When we examine the Canadian money supply,the largest component of ________ is M1+.

A)coins minted by the treasury
B)chequable deposits
C)certificates of deposit
D)Bank of Canada notes

Question 71

Transactions accounts include

A)credit cards.
B)certificates of deposit.
C)lines of credit.
D)chequing accounts.

Question 72

When we examine the Canadian money supply,chequable deposits represent the largest component of ________.

A)M1+
B)M2
C)M2+
D)near monies

Question 73

The use of credit cards

A)will eventually eliminate the use of money.
B)represents a loan of money to the user.
C)is a use of "near money."
D)is an example of using money as a store of value.

Question 74

Which of the following is an example of M2+ money?

A)a credit card
B)savings deposits
C)coins
D)chequing accounts

Question 75

Which of the following is TRUE of M2+?

A)It is larger than M1+.
B)It excludes savings deposits.
C)It does not include the most highly liquid components of the money supply.
D)It is less than M1+.

Question 76

________ account balances in chartered banks are counted in M1+.

A)Chequable deposit
B)Saving deposit
C)American dollar
D)Stock market

Question 77

All chequable deposits are included in

A)M1 only.
B)M2 only.
C)M1 and M2.
D)savings balances only.

Question 78

Which of the following is an example of M1+ money?

A)a credit card
B)savings deposits
C)coins
D)chequing accounts

Question 79

Savings deposits are

A)a liability to a commercial bank.
B)an asset to a commercial bank.
C)a liability to the household or firm that has the account.
D)an asset for the Bank of Canada.

Question 80

Which of the following is an example of M2++ money?

A)a credit card
B)savings deposit at a foreign bank
C)Canada Savings Bonds
D)demand deposits