Question 1

The most important function of money is that it is a method for storing wealth and delaying payments.

Accepted Answer

A medium of exchange is the most important function.

Question 2

The function of money that allows us to compute such statistics as GDP is the measure of value function.

Accepted Answer

The measure of value (or unit of account) function of money allows for the uniform assessment of the economic value of different goods and services, making it possible to compute aggregate economic statistics like GDP.

Question 3

M2 is a narrower measure of the money supply than M1.

Accepted Answer

M2 is broader and is made up of M1, savings accounts, small CDs, and money market funds.

Question 4

If an economy's money is not backed by anything tangible, such as gold or silver, it is on a paper money standard.

Accepted Answer

A paper money standard, also known as fiat money, is a currency that has no intrinsic value and is not backed by physical commodities like gold or silver. Its value is derived from the trust and confidence of the people who use it.

Question 5

Financial depository institutions, such as commercial banks, can increase and decrease the money supply.

Accepted Answer

Financial depository institutions like commercial banks can increase the money supply by lending out more money, which creates new money through the fractional reserve banking system. Conversely, they can decrease the money supply by reducing lending.

Question 6

The Dodd-Frank Act relaxes regulatory oversight over financial institutions.

Accepted Answer

The Act increases regulation of financial institutions.

Question 7

A subprime mortgage is limited to borrowers with high credit ratings, giving them access to low interest rate loans.

Accepted Answer

Subprime mortgages are for borrowers with low credit ratings.

Question 8

If a bank has assets of $20 million and deposits totaling $30 million, the bank's net worth is $50 million.

Accepted Answer

Net worth equals assets minus liabilities. Deposits are liabilities.

Question 9

The ease of converting an asset to its cash value or spendable funds is ___________.

Accepted Answer

The answer of The ease of converting an asset to...

Question 10

The United States has a dual banking system comprised of federally chartered banks called ______________ banks and state chartered banks called ________ banks.

Accepted Answer

The answer of The United States has a dual banking...

Question 11

The entity within the Federal Reserve System responsible for developing policies concerning money, banking, and other financial institutional practices is known as the
_________________________.

Accepted Answer

The answer of The entity within the Federal Reserve System...

Question 12

The institutions and markets that engage in some traditional banking services that are outside the regulated banking system, such as investment banks, mortgage companies, and money market mutual funds are referred to as _______ ________.

Accepted Answer

The answer of The institutions and markets that engage in...

Quiz 7: Money, Financial Institutions, and the Federal Reserve