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New_Ch. 10

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
Which of the following statements is true?
a.
Money is a medium of exchange.
c.
Money serves as a store of value.
b.
Money is a unit of account.
d.
all of the above
 

 2. 
Which of the following is NOT an example of M1 money?
a.
currency
c.
travelers’ checks
b.
a mutual fund
d.
a checking account
 

 3. 
What is the largest source of income for banks?
a.
the interest they receive from loans
b.
fees charged to customers for accounts
c.
money deposited in savings accounts
d.
special accounts such as NOW accounts
 

 4. 
When you pay for a new CD with a debit card, you authorize the transfer of money from your account to the music store’s account. In other words, a payment by debit card is the electronic form of a payment by
a.
money order.
c.
check.
b.
credit card.
d.
cashier’s check.
 

 5. 
You need a new computer, and you will need a loan in order to buy one. Which lender is most likely to charge you the highest interest rate on your loan?
a.
savings and loan association
c.
credit union
b.
savings bank
d.
finance company
 

 6. 
Maria makes a deposit of $10,000 into her Smalltown Bank savings account. Smalltown Bank holds 20% of her deposit, then lends the remaining $8,000 to Ben to buy a new car. This practice of retaining only a portion of deposits on hand is called
a.
the gold standard.
c.
the Federal Reserve system.
b.
fractional reserve banking.
d.
representative money.
 

 7. 
Which of the following is an example of representative money?
a.
a fur coat
c.
gold earrings
b.
diamonds
d.
an IOU note
 

 8. 
What happens during a bank run?
a.
The government orders a bank to close.
b.
States charter more banks than needed.
c.
The price of gold suddenly increases.
d.
More customers withdraw money than the bank has on hand.
 

 9. 
What condition is necessary for a fiat money system to work?
a.
Money owed must be paid on time.
b.
The government must control the money supply.
c.
Banks must hold sufficient gold to cover any paper money they give out.
d.
Customers with checking accounts cannot earn interest on those accounts.
 



 
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