Question 1

Goldsmiths are considered to be the forerunners of modern banks because they

Accepted Answer

Goldsmiths created money by lending out their gold reserves, which is a key function of modern banks. While they may have also had safes to keep gold secure and issued gold coins, these activities are not unique to banks and do not necessarily make them forerunners of modern banks. Creating legal tender and verifying the quality of money are functions typically performed by governments, not banks.

Question 2

Under a fractional reserve banking system,banks may lend out only a fraction of their reserves.

Accepted Answer

This is the fundamental concept of fractional reserve banking, where banks keep only a fraction of deposits as reserves and lend out the rest. The fraction varies from country to country and is set by the central bank.

Question 3

The original bankers were

Accepted Answer

The original bankers were goldsmiths who began storing and lending out other people's gold and precious items. They would issue receipts as proof of deposit, which was the precursor to modern-day banknotes.

Question 4

Under a fractional reserve banking system,

Accepted Answer

Under a fractional reserve banking system, banks are only required to hold a fraction of their deposits in reserves, which means that bank reserves represent only a fraction of bank deposits. This allows banks to create money by lending out more than they actually have in reserves, which can lead to an expansion of the money supply.

Question 5

Seigniorage is

Accepted Answer

Seigniorage refers to the difference between the face value of a currency and the cost of producing it. It is essentially the revenue earned by a government or central bank from coining money.

Question 6

Coins were minted with serrated edges

Accepted Answer

Serrated or reeded edges were introduced to prevent the practice of clipping, which was the act of shaving off a small amount of precious metal from the edges of coins. By making the edges serrated, any attempt to clip the edges would be immediately apparent, making fraudulent behavior much more difficult.

Question 7

The first checks were probably notes written to a goldsmith asking him to transfer ownership of some designated amount of gold from the writer of the note to its bearer.

Accepted Answer

This is believed to be the origins of checks, as goldsmiths were trusted individuals who could securely transfer and hold valuable items such as gold.

Question 8

Under a fractional reserve banking system,banks may lend out a multiple of their reserves.

Accepted Answer

The answer of Under a fractional reserve banking system,banks may...

Question 9

Who is famous for his observation that bad money drives out good money?

Accepted Answer

Thomas Gresham is famous for his observation that bad money drives out good money, also known as Gresham's Law. He made this observation during the reign of King Henry VIII, when currency debasement was a common practice.

Question 10

Gresham's Law states that when different forms of commodity money circulate simultaneously (e.g.,$1 gold coins and $1 silver coins),

Accepted Answer

Gresham's Law posits that "bad money drives out good," meaning that when two forms of commodity money are in circulation, the one with higher intrinsic value will be hoarded or melted down, leaving the less valuable one in circulation.

Question 11

If the cost of producing coins is lower than the face value of the coins,then the government receives revenue called

Accepted Answer

Seigniorage is the difference between the face value of a coin or a banknote and its production cost. So, if the cost of producing coins is lower than the face value of the coins, then the government receives revenue called seigniorage. Producing token coins does not relate to this situation, as token money is a type of currency whose face value exceeds its cost of production but only by a small amount, and it is not produced by the government. Fiat money is a currency that is not backed by any commodity or asset, and producing it is not related to the situation mentioned in the question. Seignior coins do not exist.

Question 12

The term seigniorage refers to

Accepted Answer

Seigniorage refers to the revenue earned by the government from the power to coin money. It is essentially the difference between the cost of producing a currency and its face value. For example, if it costs the government 5 cents to produce a coin that has a face value of $1, then the government earns a seigniorage of 95 cents on each coin.

Question 13

The reserve ratio is the ratio of

Accepted Answer

The reserve ratio refers to the percentage of deposits that a bank is required to hold in reserve and is calculated as a bank's reserves divided by its total deposits. Choices A, B, C, and D are all incorrect because they do not accurately describe the reserve ratio.

Question 14

The currency of Camelot is the noble.King Arthur orders the minting of a five-noble gold coin,but it costs only four nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

Accepted Answer

The answer of The currency of Camelot is the noble.King...

Question 15

A government receives seigniorage whenever it

Accepted Answer

Seigniorage is the difference between the face value of a currency and the cost of producing it. When a government mints coins with a higher face value than the cost of producing them, it earns seigniorage revenue. Therefore, option E is the correct choice. Options A, B, C, and D are incorrect because they do not involve producing money with a face value greater than the cost of production.

Question 16

Which of the following have,at one time or another,been part of the U.S.money supply?

Accepted Answer

The answer of Which of the following have,at one time...

Question 17

The currency of Camelot is the noble.King Arthur orders the minting of a five-noble gold coin,but it costs only four nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

Accepted Answer

King Arthur profits when he spends these coins because it costs him only four nobles to produce a coin that is worth five nobles, resulting in a profit of one noble per coin.

Question 18

To make sure they can accommodate withdrawal requests at any time,banks must keep a dollar on reserve in the bank vault for each dollar of deposits.

Accepted Answer

Banks are only required to keep a fraction of deposits on reserve, known as the reserve ratio. This fraction is determined by the central bank and can vary depending on economic conditions.

Question 19

The currency of Camelot is the noble.King Arthur orders the minting of a ten-noble gold coin,but it costs only seven nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

Accepted Answer

The government earns seigniorage, which is the difference between the face value of the coin (ten nobles) and the cost to produce it (seven nobles), every time it spends new coins.

Question 20

Whatever functions as money must be

Accepted Answer

A key characteristic of money is that it must be limited in supply. If money were not limited, it would lose its value and purchasing power. The other choices are not necessary for something to function as money. Money does not have to be authorized by the government, accepted for deposit by banks, backed by precious metals, or completely indestructible.

Quiz 14: Money and the Financial System

Goldsmiths are considered to be the forerunners of modern banks because they

Under a fractional reserve banking system,banks may lend out only a fraction of their reserves.

The original bankers were

Under a fractional reserve banking system,

Seigniorage is

Coins were minted with serrated edges

The first checks were probably notes written to a goldsmith asking him to transfer ownership of some designated amount of gold from the writer of the note to its bearer.

Under a fractional reserve banking system,banks may lend out a multiple of their reserves.

Who is famous for his observation that bad money drives out good money?

Gresham's Law states that when different forms of commodity money circulate simultaneously (e.g.,$1 gold coins and $1 silver coins) ,

If the cost of producing coins is lower than the face value of the coins,then the government receives revenue called

The term seigniorage refers to

The reserve ratio is the ratio of

The currency of Camelot is the noble.King Arthur orders the minting of a five-noble gold coin,but it costs only four nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

A government receives seigniorage whenever it

Which of the following have,at one time or another,been part of the U.S.money supply?

The currency of Camelot is the noble.King Arthur orders the minting of a five-noble gold coin,but it costs only four nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

To make sure they can accommodate withdrawal requests at any time,banks must keep a dollar on reserve in the bank vault for each dollar of deposits.

The currency of Camelot is the noble.King Arthur orders the minting of a ten-noble gold coin,but it costs only seven nobles to mine and process the amount of gold in the coin.Which of the following statements is true?

Whatever functions as money must be