Name: 
 

ECON UNIT-4 MONEY, BANKING AND FINANCE


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

 1. 
Which of the following correctly defines money as a unit of account?
a.
It determines whether a good has value.
b.
It is determined to be legal by the person in possession of it.
c.
It provides a means for comparing the values of goods and services.
d.
It does not retain its value when saved instead of spent.
 

 2. 
One of the six characteristics economists use to judge how well an item serves as currency is divisibility. What does this concept mean?
a.
Currency must be divided into equal parts.
b.
Money must be indestructible and portable.
c.
Any two units of currency must be uniform.
d.
Money must be easily divided into smaller denominations.
 

 3. 
What is the difference between commodity money and representative money?
a.
Commodity money consists of objects used as money that contain their own value, but representative money is a specific group of the commodity objects.
b.
Commodity money consists of objects that have value in and of themselves, but representative money makes use of objects because the holder can exchange them for something else of value.
c.
Representative money allows objects to be exchanged for something else, but commodity money has value because the government decreed it is an acceptable means to pay debts.
d.
Representative money consists of objects that have value in and of themselves, but commodity money makes use of objects because the holder can exchange them for something else of value.
 

 4. 
Which of the following is an important power given to the federal government by the National Banking Acts of 1863 and 1864?
a.
the power to charter banks
b.
the power to create separate currencies for the North and the South
c.
the power to create a gold standard
d.
the power to test for counterfeit money
 

 5. 
How did the Federal Reserve System improve the banking industry in the twentieth century?
a.
It created a reserve of money that all banks would use for loans.
b.
It created a branch of government to monitor the banking system.
c.
It served as a decision-making body to regulate the federal banks.
d.
It served as a central bank with the power to lend to other banks in time of need.
 
 
Compound Interest
Start of
year
Principal
amount
Interest
earned at 5%
Principal at
end of year
–
$100.00
$5.00
$105.00
1
$105.00
$5.25
$110.25
2
$110.25
$5.51
$115.76
3
$115.76
$5.79
$121.55
4
$121.55
$6.08
$127.63
5
$127.63
$6.38
$134.01
6
$134.01
$6.70
$140.71
7
$140.71
$7.04
$147.75
8
$147.75
$7.39
$155.14
9
$155.14
$7.76
$162.90
10
$162.90
$8.14
$171.04
11
$171.04
$8.55
$179.59
12
$179.59
$8.98
$188.57
13
$188.57
$9.43
$198.00
14
$198.00
$9.90
$207.90
15
$207.90
$10.39
$218.29
 

 6. 
According to the table, how many years does it take for the depositor to gain approximately one fourth of the original deposit in interest?
a.
3
c.
5
b.
4
d.
6
 

 7. 
What type of financial service offered at commercial banks, savings and loan associations, and credit unions is also offered at financial companies?
a.
investments
c.
installment loans
b.
checking accounts
d.
savings plans
 

 8. 
Which of the following happens when you use your debit card at a machine designed to read it?
a.
Your card sends a message to your bank to transfer money from your checking account directly into the store’s bank account.
b.
Your bank receives notice that funds need to be withdrawn from your checking or savings account at the end of the business day.
c.
Your bank immediately pays the funds required to the store and then invoices you for the amount on your next bank statement.
d.
Your bank confirms that money is available in your account and then adds this amount to an electronic transfer of funds that it wires to the store each week.
 

 9. 
How does investing contribute to a free enterprise system?
a.
Investing places large amounts of money in one corporation or business, allowing it to gain power over competition.
b.
Investing gives more money to businesses to expand and grow, creating new jobs and better products.
c.
Investing keeps investment corporations from becoming a part of the free enterprise system, which would create an imbalance.
d.
Investing distributes money evenly so that enterprises can compete equally in the marketplace.
 

 10. 
Which of the following is a financial intermediary?
a.
the Federal Reserve system
c.
a saver
b.
a borrower
d.
a bank
 

 11. 
Why should you consider liquidity, not just return, when making savings and investment decisions?
a.
You should consider the rate of return in relation to the GNP.
b.
You should consider how fast the market is changing at any given moment.
c.
You should consider whether you will need ready access to your funds.
d.
You should consider a company’s portfolio as a whole and not just look at a single investment.
 

 12. 
Which type of bond carries the LEAST amount of risk?
a.
treasury bonds, because they are backed by the U.S. government
b.
corporate bonds, because they are exempt from federal taxes
c.
municipal bonds, because they are backed by state and local taxes
d.
international bonds, because they are backed by foreign currencies
 

 13. 
Which of the following are benefits of money market mutual funds?
a.
They cost little, and the investor chooses the term of maturity.
b.
Intermediaries buy short-term financial assets, and investors receive higher interest.
c.
Investors have easy access to their money, and they are covered by FDIC insurance.
d.
The funds are covered by FDIC insurance, and they are available for various fixed amounts of time.
 

 14. 
Liquidity is important to John. If he wants to make certain that he can resell his financial assets, in which market classification must he participate?
a.
primary market
c.
capital market
b.
secondary market
d.
money market
 

 15. 
How do investors usually act during a bear market?
a.
Investors buy stock in expectation of higher profits because the stock market falls for a period of time.
b.
Investors sell stock in expectation of lower profits because the stock market rises for a period of time.
c.
Investors buy stock in expectation of higher profits because the stock market rises for a period of time.
d.
Investors sell stock in expectation of lower profits because the stock market falls for a period of time.
 

 16. 
Why might someone consider the Standard & Poor’s 500 (S & P 500) a better measurement of stock performance than the Dow Jones Industrial Average?
a.
The S & P 500 reports stock performance daily, and the Dow reports weekly.
b.
The Dow reports on 30 stocks and the S & P 500 tracks 500 stocks as a measure of overall stock performance.
c.
The S & P 500 predicted the Great Crash of 1929, and the Dow predicted a rising bull market.
d.
The Dow specializes in the stocks of a single industry, and the S & P 500 reports on the stocks of a variety of industries.
 

 17. 
What is the money an investor receives above and beyond the money initially invested called?
a.
savings
c.
return
b.
liquidity
d.
investment
 

 18. 
The Securities and Exchange Commission is
a.
an independent agency that advises the government about financial markets.
b.
a government agency that sells treasury bonds and other United States financial obligations.
c.
a government agency that regulates financial markets and investment companies.
d.
a privately owned investment corporation that sells bonds and other investments.
 

 19. 
What is the gold standard?
a.
A system that uses actual gold coins as a country’s money.
b.
A system in which a country’s money is backed with gold.
c.
A currency system in which each dollar is worth 1/20 of a pound of gold.
d.
A money system in which the paper currency is good in more than one country.
 



 
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