Question 1

Historically, which of the following goods have evolved into money?

Accepted Answer

All of these goods have been used as forms of money at different points in history, evolving into more standardized currencies over time. Gold has been used as a currency for thousands of years, salt was used as currency in some African societies, cattle has been used as currency in some cultures, and cocoa beans were used as currency in ancient Central America.

Question 2

M1 is comprised of currency held outside banks + traveler's checks + __________.

Accepted Answer

M1 includes currency held outside banks, traveler's checks, and checkable deposits. These components are all highly liquid, meaning they can be quickly and easily converted into cash for transactions.

Question 3

The first bankers were

Accepted Answer

Goldsmiths in medieval Europe began to store people's gold and valuables in their vaults as a secure place for safekeeping. They would then issue receipts for these deposits, which could be exchanged for the stored items upon presentation. Over time, people began to use these receipts as a means of payment, knowing that they could be easily redeemed for their stored valuables. This practice eventually led to the development of paper money and modern banking.

Question 4

Because money __________________, people are _________________ likely to specialize in their work in a money economy.

Accepted Answer

Money eliminates the double coincidence of wants, which means that individuals no longer have to engage in direct barter to obtain the goods and services they need. This, in turn, makes it easier for people to specialize in their work and trade with others for the goods and services they require, leading to a greater degree of specialization and division of labor in a money economy.

Question 5

If checkable deposits in Bank A total $300 million and the required reserve ratio is 10 percent, then required reserves at Bank A equal

Accepted Answer

The required reserves are calculated as the checkable deposits ($300 million) multiplied by the required reserve ratio (10 percent), which equals $30 million.

Question 6

Fractional reserve banking is a term used to describe a banking system whereby

Accepted Answer

Fractional reserve banking refers to a banking system where banks are only required to hold a fraction (usually a small fraction) of their deposit liabilities in reserve, while the remaining funds are free to be lent out to borrowers. This is what allows banks to create money through the lending process.

Question 7

A savings account functions as

Accepted Answer

A savings account functions as a store of value, meaning it holds and preserves wealth for future use. It is not a unit of account, which refers to a standard currency used to measure the value of goods and services, nor is it a medium of exchange, which is a means of facilitating transactions.

Question 8

According to the textbook, in the book version of The Wonderful Wizard of Oz, Dorothy's slippers are

Accepted Answer

In the book version of The Wonderful Wizard of Oz, Dorothy's slippers are silver. However, in the movie adaptation they were changed to ruby for the effect of the new Technicolor technology.

Question 9

Which of the following statements is true?

Accepted Answer

Savings deposits are included in M2 but not in M1. M1 consists of currency in circulation, demand deposits (checking accounts), and other checkable deposits, while M2 includes M1 plus savings deposits, time deposits under $100,000, and money market mutual funds.

Question 10

Required reserves are the amount of

Accepted Answer

Required reserves are the amount of reserves banks are required to hold against their deposits as mandated by the Federal Reserve.

Question 11

According to the textbook, The Wonderful Wizard of Oz is alleged to be a story about

Accepted Answer

The Wonderful Wizard of Oz is believed to be a political allegory for the presidential election of 1896, with the characters and plot representing various elements of the political debate between the free silver movement and the gold standard. The characters of Dorothy, the Tin Man, the Scarecrow, and the Cowardly Lion are said to represent the common people, industrial workers, farmers, and William Jennings Bryan, respectively. The Yellow Brick Road is thought to symbolize the gold standard, while the Emerald City is seen as representing Washington, D.C.

Question 12

The requirement of a "double coincidence of wants" is the chief __________ of the __________ exchange system.

Accepted Answer

The requirement of a "double coincidence of wants" means that two parties must both have what the other wants in order to make a transaction. This is a major disadvantage of the barter exchange system, as it can be difficult for parties to find each other and agree on terms of trade. In contrast, monetary exchange systems have the advantage of a universally accepted medium of exchange, which eliminates the need for a double coincidence of wants.

Question 13

In a barter economy, people are _________ to specialize in the production of one good or service, compared to in a money economy.

Accepted Answer

In a barter economy, the lack of a common medium of exchange (money) makes it difficult for individuals to specialize in the production of one good or service because they must find a direct match for their needs in the goods or services offered by others. This direct exchange requirement makes specialization less efficient and less likely compared to a money economy, where money facilitates trade and specialization by acting as a common medium of exchange.

Question 14

According to the textbook, L. Frank Baum, the author of The Wonderful Wizard of Oz, blamed ____________________ for the economic depression of 1893 and the related hardships faced by farmers and workers.

Accepted Answer

L. Frank Baum blamed the gold standard for the economic depression of 1893 and the related hardships faced by farmers and workers. This perspective is reflected in the allegorical elements of The Wonderful Wizard of Oz, where the yellow brick road and other symbols have been interpreted as commentary on the economic issues of the time, including the debate over gold versus silver standards.

Question 15

Total bank reserves equal

Accepted Answer

Total bank reserves include the deposits that banks hold at the Federal Reserve and any cash they have on hand in their vaults. Therefore, bank deposits at the Federal Reserve and vault cash equals total bank reserves.

Question 16

M2 is comprised of

Accepted Answer

M2 includes all the components of M1 (currency, checkable deposits, and traveler's checks) plus small-denomination time deposits, savings deposits, and retail money market mutual funds. Option A, B, and D are incorrect because they either exclude or include components that are not part of M2.

Question 17

Your neighbor has knowledge of economics and you would like her to share it with you. You own a car, a CD player and a new pair of running shoes. You wish to make a trade, but the neighbor does not want what you have. The problem can be stated as follows: You are not satisfying the

Accepted Answer

The problem can be stated as a lack of double coincidence of wants. This means that you desire something that your neighbor does not have, and vice versa. In order for a trade to occur, both parties need to want what the other has, and in this case, that is not the case.

Question 18

A "money market deposit account" is a(n)

Accepted Answer

A money market deposit account is an interest-earning account at a bank or thrift institution that usually has a minimum balance requirement. The other options do not accurately describe this type of account.

Question 19

A savings deposit is a type of

Accepted Answer

A savings deposit is a type of interest-earning account that allows funds to be withdrawn at any time without penalty. It is not a checkable account and does not offer check-writing services.

Question 20

In the history of banking, warehouse receipts refer to receipts

Accepted Answer

Warehouse receipts were originally used by goldsmiths to acknowledge that they held a customer's gold. The goldsmiths would then issue receipts that could be used to withdraw the gold from storage. This practice eventually evolved into modern banking and the use of paper currency.

Quiz 12: Money Banking and the Financial System