Term
True or False?
Money requires a double coincidence of wants. |
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Definition
FALSE.
Barter requires a double coincidence of wants, but money does not. |
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Term
True or False?
The existence of money facilitates specialization based on comparative advantage. |
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Definition
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Term
The statement "I paid $200 to Menards for my new fireplace" best represents money's function as a
1. medium of exchange.
2. unit of account.
3. store of value.
4. standard of deferred payment. |
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Definition
1. medium of exchange
Money serves as a medium of exchange when sellers accept it in exchange for goods or
services. |
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Term
The statement "I just put $500 in my savings account to use to buy holiday gifts in December" best
represents money's function as a
1. medium of exchange.
2. unit of account.
3. store of value.
4. standard of deferred payment. |
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Definition
3. store of value
Money serves as a store of value when it transfers purchasing power from the present to
the future. |
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Term
True or False?
Typically, stocks are more liquid than art. |
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Definition
TRUE.
Stocks are usually easier to sell and, thereby, convert into money than art. |
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Term
True or False?
Typically, fine jewelry is a better store of value than money. |
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Definition
TRUE.
Fine jewelry usually appreciates in value over time, while money loses value over time due
to inflation. |
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Term
True or False?
When inmates of the federal prison system use pouches of fish as money, those pouches of fish are
commodity money, but when you use dollar bills as money, those dollar bills are fiat money. |
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Definition
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Term
True or False?
Paper money and coins held by households, firms, and banks are included in M1, but paper money and
coins held by the government are not included in M1. |
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Definition
FALSE.
Paper money and coins held by households and firms (i.e., in circulation) are included in
M1, but paper money and coins held by banks and the government (i.e., not in circulation) are not
included in M1. |
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Term
True or False?
The credit limits on active credit card accounts are included in the M1 measure of the money supply. |
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Definition
FALSE.
Credit cards are not included in the money supply. |
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Term
True or False?
In the U.S., the required reserve ratio is 10% of checking account deposits above $11.5 million. |
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Definition
FALSE.
In the U.S., the required reserve ratio is 0% of checking account deposit up to $11.5
million, 3% of checking account deposits between $11.5 million and $71.0 million, and 10% of
checking account deposits above $71.0 million. |
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Term
True or False?
In a fractional reserve banking system, banks create wealth when they loan out their excess reserves. |
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Definition
FALSE.
In a fractional reserve banking system, banks create money when they loan out their
excess reserves, but they do not create wealth because loans are debt. |
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Term
Quinn deposits $2000 into her checking account at Wrexington State Bank. The required reserve ratio
is 40%. As a result of Quinn's deposit, Wrexington State Bank can make a maximum loan of |
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Definition
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Term
Quinn deposits $500 into her checking account at Wrexington State Bank. The required reserve ratio is
40%, and Wrexington State Bank does not hold excess reserves. As a result of Quinn's deposit, the change
in total checking account deposits will be |
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Definition
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Term
If Wrexington State Bank has $20,000 in deposits and $5000 in reserves and the required reserve ratio
is 10%, then Wrexington State Bank's excess reserves are equal to |
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Definition
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Term
True or False?
If the required reserve ratio is 20% and banks are holding high amounts of excess reserves, then the
actual deposit multiplier is less than 5. |
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Definition
TRUE.
The simple deposit multiplier = (1/RR) = (1/0.2) = 5, but if banks hold excess reserves,
then the actual deposit multiplier is less than the simple deposit multiplier. |
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