Deck 11: Saving, Investment, and the Financial System

Question 1

A type of money made from a substance that is also valuable is called:

A) fiat money.
B) economic money.
C) metallic money.
D) commodity money.

Answer 1

D

Question 2

If firms' product demand increases, then the demand for loanable funds will shift to the _____ and the real interest rate will _____.

A) right; increase
B) left; increase
C) right; decrease
D) left; decrease

Answer 2

A

Question 3

What are the two common measures of the money supply in use today?

A) M0 and M1
B) M1 and M2
C) M0 and M2
D) M2 and M3

Answer 3

B

Question 4

Which type of IRA uses after-tax money contributions, but has no tax upon withdrawal?

A) traditional IRA
B) Roth IRA
C) both traditional IRA and Roth IRA
D) neither traditional IRA nor Roth IRA

Question 5

Cash is counted in the money supply as a part of:

A) M1 only.
B) M2 only.
C) both M1 and M2.
D) neither M1 or M2.

Question 6

What is the price of a perpetuity bond with an annual interest payment of $50 if market interest rates are 10%?

A) $5
B) $500
C) $5,000
D) $50

Question 7

Which retirement plan does NOT involve individuals managing their accounts by choosing the preferred risk-level of invested assets?

A) employer-sponsored 401(k)
B) IRAs
C) 403(b) plans
D) employer-provided pension plans

Question 8

Which statement is NOT true about Social Security?

A) It is funded by a payroll tax that is paid by both employees and employers.
B) The minimum age to begin collecting benefits is 62.
C) Payroll taxes for Social Security are a percentage of income, with no income limit.
D) Social Security benefits people with longer life spans.

Question 9

Which of these has the highest liquidity?

A) cash
B) savings accounts
C) stocks
D) house

Question 10

Which of these is NOT part of the financial system?

A) commercial banks
B) bond market
C) stock market
D) digital market

Question 11

In the market for loanable funds, what can cause a rise in interest rates?

A) demand shifting right only
B) supply shifting right only
C) supply shifting left and demand shifting right
D) supply shifting right and demand shifting right

Question 12

When investors wish to increase their investment activities by using the market for loanable funds:

A) demand shifts left.
B) demand shifts right.
C) supply shifts left.
D) supply shifts right.

Question 13

Which source of short-term borrowing charges the highest average interest rates on unpaid balances?

A) ordinary credit cards
B) car loans for borrowers with good credit
C) home mortgage loans
D) student loans

Question 14

A bond's price and yield:

A) move in opposite directions.
B) move in the same direction.
C) must sum up to 1,000.
D) are usually equal in value.

Question 15

According to the trade-off between risk and return, which asset would likely have the highest average return on investment over a 20-year period?

A) a 20-year certificate of deposit issued by a bank
B) highly rated bonds issued by major corporations
C) shares of stock in social media companies
D) government savings bonds

Question 16

What function of money is BEST served by money that can last for hundreds of years?

A) medium of exchange
B) unit of account
C) store of value
D) keepsake of assets

Question 17

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield?

A) 1.05%
B) 5.26%
C) 9.5%
D) 95%

Question 18

In the market for loanable funds, savers are shown:

A) on a downward-sloping demand curve.
B) on an upward-sloping demand curve.
C) on a downward-sloping supply curve.
D) on an upward-sloping supply curve.

Question 19

If the government offers an incentive for individuals to save, the supply for loanable funds will shift to the _____ and the real interest rate will _____.

A) left; decrease
B) left; increase
C) right; decrease
D) right; increase

Question 20

With the power of compounding, a $500 deposit in a savings account that earns 3% interest per year will earn how much in total interest after 10 years?

A) less than 15%
B) between 15% and 30%
C) exactly 30%
D) more than 30%

Question 21

Which is NOT one of the three basic functions of money?

A) a means to collect taxes
B) a medium of exchange
C) a measure of value
D) a unit of account

Question 22

For defining money, _____ and also includes _____.

A) M1 includes M2; near money
B) M1 includes M2; narrow money
C) M2 includes M1; near money
D) M2 includes M1; narrow money

Question 23

Which of these is an example of money being used as a store of value?

A) A customer buys a burger, fries, and a medium diet cola for $6.95.
B) A restaurant's profits for the week of October 3 to October 10 are $1,250.
C) A customer receives $3.05 in change and returns the next day to make another purchase.
D) A restaurant sells a large ice cream sundae and charges the customer's debit card.

Question 24

M1 includes:

A) cash, savings deposits, demand deposits, money market deposit accounts, small-denomination time deposits, and shares in retail money market mutual funds.
B) cash, demand deposits, and small-denomination time deposits.
C) cash, demand deposits, and large-denomination time deposits.
D) cash, demand deposits, and other checkable deposits.

Question 25

Barter as a system tends to work only:

A) in small U.S. towns and villages.
B) in primitive economies with little product variety.
C) when agricultural products are exchanged.
D) among large, multinational corporations.

Question 26

In the first century and a half of the United States' existence, paper money was backed by precious metals. Today, the U.S. dollar is no longer backed by gold or silver. The dollar today is:

A) commodity money.
B) fiat money.
C) pseudo-commodity money.
D) unbacked money.

Question 27

Which is an example of money being used as a unit of account?

A) A customer buys a burger, fries, and a medium diet cola for $6.95.
B) A restaurant's profits for the week of October 3 to October 10 are $1,250.
C) A customer receives $3.05 in change and returns the next day to make another purchase.
D) A restaurant sells a large ice cream sundae and charges the customer's debit card.

Question 28

The U.S. General Accounting Office (GAO) has concluded that _____ would help the introduction of a dollar coin be successful.

A) subsidizing businesses that accept bills to help them transfer over to coins
B) removing the dollar bill from circulation
C) choosing to place a well-known public figure on the coin
D) rounding prices to the nearest dollar

Question 29

All of the following are included in the definition of M2 EXCEPT:

A) coins.
B) large time deposits.
C) savings deposits.
D) demand deposits.

Question 30

If you are estimating the amount you plan to spend on a vacation, money is serving as a:

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

Question 31

Money used to purchase goods or services is functioning as a:

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

Question 32

Which of these is NOT a necessary characteristic for something to be accepted and used as money?

A) It is easily standardized.
B) It must have the words legal tender on it.
C) It is divisible.
D) It is generally accepted by society.

Question 33

Which of these represents the rank from the smallest to largest components of M1?

A) coins, banknotes, demand deposits
B) banknotes, coins, demand deposits
C) demand deposits, coins, banknotes
D) demand deposits, banknotes, coins

Question 34

Which of these is NOT a characteristic of good money?

A) Money is easily standardized.
B) Money must have historic value.
C) Money must be durable.
D) Money must be portable.

Question 35

Checking accounts are counted as part of:

A) M1 only.
B) M3 only.
C) M2 and M3.
D) M1 and M2.

Question 36

Fiat money:

A) was initially used by an automobile manufacturer.
B) is made out of commodities such as gold or silver.
C) does not necessarily have any intrinsic value but has been declared by a government to be money.
D) loses its value over time.

Question 37

M2 is _____ in dollar value than M1; it also contains _____ assets.

A) larger; less liquid
B) larger; more liquid
C) smaller; less liquid
D) smaller; more liquid

Question 38

All of the following are functions of money EXCEPT:

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

Question 39

Money:

A) is anything that is accepted in exchange for other goods and services or for payment of debt.
B) is anything that is backed by precious metal.
C) is currency.
D) has to have an intrinsic value.

Question 40

What are the primary functions of money?

A) unit of account, medium of exchange, store of value
B) unit of liquidity, medium of exchange, store of value
C) unit of exchange, medium of account, store of value
D) unit of account, medium of exchange, store of liquidity

Question 41

Money is employed as a _____ because it enables people to save the money they earn today and use it to buy goods and services later.

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

Question 42

Fiat money:

A) has a high intrinsic value.
B) is decreed by royalty.
C) is acceptable as money because the government has decreed it to be so.
D) is unacceptable as money.

Question 43

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true?

A) Both M1 and M2 were reduced by $5,000.
B) M1 went down by $5,000, but M2 was unchanged.
C) Neither M1 nor M2 changed because the transfer was done at the same bank.
D) M1 and M2 both rose by $5,000.

Question 44

If the government decrees that bottle tops will be treated as money, then a bottle top:

A) can still never be money because it has so little intrinsic value.
B) is called fiat money.
C) will not function well as a unit of account.
D) will serve well for international trade.

Question 45

The functions of money include:

A) a medium of exchange.
B) a unit of account.
C) a store of value.
D) a medium of exchange, a unit of account, and a store of value.

Question 46

Thelma grows carrots in her garden but she also needs a winter coat. John has an extra coat he does not need but would like to bake a carrot cake. The two find each other and make an exchange. This situation is called the:

A) double coincidence of wants.
B) unequal value exchange.
C) timely exchange.
D) coincidental exchange.

Question 47

M1 includes:

A) savings deposits.
B) banknotes and coins.
C) small-denomination time deposits.
D) money market deposit accounts.

Question 48

Which statement is correct?

A) M2 measures assets primarily used as a medium of exchange.
B) M2 includes M1.
C) M1 includes assets primarily used as a means of savings.
D) The Federal Reserve discontinued reporting on M1 and M2 because they provide little insight into the state of the economy.

Question 49

M1 is the most _____ of all assets because as a medium of exchange, it requires no conversion.

A) illiquid
B) insolvent
C) liquid
D) None of the answers is correct.

Question 50

Which of these is NOT one of the criteria for a commodity to serve as money?

A) The commodity must be durable.
B) The commodity must be accepted by many people as money.
C) The commodity must be issued as currency or coin.
D) The commodity must be standardized.

Question 51

The use of money as a medium of exchange helps reduce the inefficiencies inherent in:

A) unstable commodity values.
B) an inflationary period.
C) a time of political uncertainty.
D) a barter economy.

Question 52

Currently, _____ is equal to roughly $2.5 trillion, and it is the most liquid part of the money supply.

A) M1
B) M2
C) M3
D) M4

Question 53

An economist notices that M1 is rapidly rising. One conclusion she might draw is that:

A) depositors want to save for the long term.
B) interest rates on savings accounts are rising.
C) consumers are preparing to make more purchases.
D) banks are discouraging their customers from borrowing and spending.

Question 54

Money is used as a _____ because it provides a yardstick for measuring and comparing the values of a wide variety of goods and services.

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

Question 55

Liquidity refers to:

A) how fast money can be transferred from one account to another account.
B) how quickly, easily, and reliably an asset can be converted into a medium of exchange.
C) how easily cash can be transported across national borders.
D) how fast money travels throughout the economy.

Question 56

Which of the following is included in M1?

A) savings deposits
B) large-denomination certificates of deposit
C) demand deposits
D) deposits in money market accounts

Question 57

M2 includes:

A) savings deposits.
B) currency.
C) small-denomination time deposits.
D) savings deposits, currency, and small-denomination time deposits.

Question 58

Which of the following is the LEAST liquid?

A) money in a savings account
B) a Picasso painting
C) a U.S. Treasury bond
D) $100 in cash

Question 59

When money is used to measure and compare the value of goods and services, it is used as a:

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

Question 60

Money is considered a _____ because it is generally accepted as payment for goods and services.

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

Question 61

Which of these assets is the LEAST liquid?

A) money
B) gold
C) silver
D) a farm

Question 62

The unit of account function of money:

A) requires a double coincidence of wants, as in barter.
B) eliminates the need to value every item in terms of every other item.
C) is the most important function of money.
D) refers to the value of money over time.

Question 63

Sasha buys a pair of shoes for $200. She pays for them with 200 one-dollar bills. The dollar bills, in this case, are functioning as a:

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

Question 64

How many prices must a consumer know in a barter economy that produces exactly 20 goods?

A) 20
B) 40
C) 95
D) 190

Question 65

Barter:

A) works as well as money in all cases.
B) satisfies the double coincidence of wants if an exchange takes place.
C) serves as store of value in primitive societies.
D) is any exchange, with or without the presence of money, in which the participants negotiate the terms of trade.

Question 66

Which of these items is NOT a function of money?

A) a medium of exchange
B) a unit of account
C) a method of making change
D) a store of value

Question 67

The medium of exchange function of money allows an economy to avoid the problem of:

A) lack of a double coincidence of wants.
B) unemployment.
C) loss of purchasing power during a period of high inflation.
D) rising interest rates.

Question 68

The direct exchange of goods and services is called:

A) barter.
B) a medium of exchange.
C) GDP.
D) a stock exchange.

Question 69

Which of the following assets is MOST liquid?

A) a house
B) a U.S. savings bond
C) money
D) land

Question 70

If Jack Sparrow buries a chest of gold on a deserted island and plans to come back for it later, then the gold is functioning as a:

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

Question 71

Which statement concerning the function of money is incorrect?

A) Money gives us a yardstick for measuring the values of goods and services.
B) Money helps us avoid the problem of lack of a double coincidence of wants.
C) Money helps us save time in purchasing goods and services.
D) Money does not lose value when inflation occurs.

Question 72

Serving as a _____ is a function of money that gives us a yardstick by which we can measure and compare the values of a wide variety of goods and services.

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

Question 73

Another term for a unit of account is:

A) a bank account.
B) a savings account.
C) a measure of value.
D) a store of value.

Question 74

If Jack Sparrow uses a chest of pieces of eight to buy a ship, then the gold is functioning as a:

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

Question 75

Which of the following assets is MOST liquid?

A) a house
B) a Picasso painting
C) a corporate bond
D) money

Question 76

If mangos were widely accepted for purposes of exchange:

A) mangos would be money.
B) mangos would lose value.
C) people would not work for mangos.
D) mango plantations would decrease in value.

Question 77

Which list correctly names money's functions?

A) a unit of account, a store of value, a medium of exchange
B) barter, a double coincidence of wants, a unit of account
C) transaction costs, a medium of exchange, a unit of account
D) liquidity, barter, a medium of exchange

Question 78

Successful barter in a primitive economy necessitates:

A) a double coincidence of wants.
B) a low interest rate.
C) an increasing money supply.
D) a fixed supply of money.

Question 79

Which one of these items is NOT a function of money?

A) a store of value
B) a unit of account
C) a double coincidence of wants
D) a medium of exchange

Question 80

The most important function of money is:

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