Multiple Choice
Identify the choice that best completes the
statement or answers the question.
|
|
|
1.
|
What did the Federalists believe about banking?
a. | They believed that the banking system already in existence was
sufficient. | b. | They believed that state governments should own and run the nation’s
banks. | c. | They believed that a centralized banking system was necessary. | d. | They believed an
international banking system would be best. |
|
|
|
2.
|
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. | fractional reserve banking. | c. | the Federal Reserve
system. | b. | representative money. | d. | the gold standard. |
|
|
|
3.
|
You decide to open a savings account, and you notice a sign in your bank that
indicates deposits are FDIC insured. What protection does that give you?
a. | If the bank fails, your deposits are protected up to $100,000. | b. | Your deposits are
guaranteed a certain rate of interest if you have at least $100,000 in the bank. | c. | If you accidentally
injure someone, they cannot claim any of the first $100,000 of your bank deposits as
compensation. | d. | If you accidentally withdraw more money that you have in your account, you will not
have to pay a penalty. |
|
|
|
4.
|
What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?
a. | to make sure that the government has enough gold to cover its
expenses | b. | to make sure that banks charge a fair amount of interest on loans | c. | to make sure that
customers do not lose money if a bank fails | d. | to make sure that banks do not
fail |
|
|
|
5.
|
Which of the following is an example of money as a unit of account?
a. | lending a friend $25.00 | b. | checking the price of a camera at several
stores before buying it at the lowest price | c. | opening a savings account at a
bank | d. | purchasing a toy for $8.99 |
|
|
|
6.
|
What happens during a bank run?
a. | States charter more banks than needed. | b. | The government orders a bank to
close. | c. | More customers withdraw money than the bank has on hand. | d. | The price of gold
suddenly increases. |
|
|
|
7.
|
Which of the following statements is true?
a. | Money serves as a store of value. | c. | Money is a unit of
account. | b. | Money is a medium of exchange. | d. | all of the
above |
|
|
|
8.
|
In the 1800s, people in mining towns in the West often paid for goods with gold
nuggets or gold dust. What was the function of gold?
a. | It was used as fiat money. | c. | It was used as representative
money. | b. | It was used as a currency. | d. | It was used as part of a barter system. |
|
|
|
9.
|
Which of the following is NOT an example of M1 money?
a. | a checking account | c. | currency | b. | travelers’ checks | d. | a mutual fund |
|
|
|
10.
|
How did the United States government make the American public have confidence in
the nation’s currency in the 1870s?
a. | The government established the First Bank of the United States. | b. | The government
backed the currency with cotton. | c. | The government permitted state-chartered banks
to issue currency. | d. | The government adopted the gold
standard. |
|
|
|
11.
|
Which of the following was NOT a cause of the Savings and Loan crisis of the
1980s?
a. | bad loans | c. | the gold reserve act | b. | high interest rates | d. | deregulation of the
industry |
|
|
|
12.
|
What is a mortgage used to purchase?
a. | business expenses | c. | car | b. | college tuition | d. | real estate |
|
|
|
13.
|
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. | credit card. | c. | cashier’s check. | b. | money
order. | d. | check. |
|
|
|
14.
|
What condition is necessary for a fiat money system to work?
a. | Money owed must be paid on time. | b. | Customers with checking accounts cannot earn
interest on those accounts. | c. | Banks must hold sufficient gold to cover any
paper money they give out. | d. | The government must control the money
supply. |
|
|
|
15.
|
What were “greenbacks”?
a. | paper currency used by the Confederacy during the Civil War | b. | copper coins used by
the Confederacy during the Civil War | c. | commodity money used by the Union during the
Civil War | d. | privately issued currency used by the Union during the Civil
War |
|
|
|
16.
|
Which of the following is an example of representative money?
a. | a fur coat | c. | gold earrings | b. | an IOU note | d. | diamonds |
|
|
|
17.
|
Near money includes
a. | demand deposits and other checkable deposits. | b. | credit cards and
debit cards. | c. | traveler’s checks and deposits in checking accounts. | d. | deposits in savings
accounts and money market mutual funds. |
|
|
|
18.
|
Erin borrowed $18,000 to buy a car. Her loan will be paid off in 5 years. By the
time that she pays off the loan, she will have made $20,327 in payments. Why did she have to pay
$2,327 more than the price of the car?
a. | She had to pay principal of $2,327 for the privilege of borrowing the mortgage of
$18,000. | b. | She had to pay interest of $2,327 for the privilege of borrowing the principal of
$18,000. | c. | She had to pay interest of $2,327 for the privilege of borrowing the creditor of
$18,000. | d. | She had to pay a default of $2,327 for the privilege of borrowing the principal of
$18,000. |
|
|
|
19.
|
How did high interest rates affect savings and loans (S&Ls) in the
1980s?
a. | S&Ls lost money, because the earnings they made were not enough to pay off the
massive loans they had taken out from the Federal Reserve. | b. | S&Ls made money,
because they earned high interest on loans they made throughout the 1980s. | c. | S&Ls lost money,
because they had to pay high interest on current deposits, but received low returns from low-interest
loans they had made in the 1970s. | d. | S&Ls made money, because high interest
rates attracted more depositors, and S&Ls used their deposits to make more
loans. |
|
|
|
20.
|
Which of the following is NOT an example of a liquid asset?
a. | a checking account | c. | travelers’ checks | b. | cash | d. | a
certificate of deposit |
|
|
|
21.
|
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. | credit union | c. | savings bank | b. | finance company | d. | savings and loan
association |
|
|
|
22.
|
What is the largest source of income for banks?
a. | money deposited in savings accounts | b. | the interest they receive from
loans | c. | special accounts such as NOW accounts | d. | fees charged to customers for
accounts |
|
|
|
23.
|
Which of the following is the main disadvantage of using shells as money instead
of coins?
a. | uniformity | c. | divisibility | b. | portability | d. | durability |
|
|
|
24.
|
American leaders in the early United States wanted to establish a stable banking
system in order to
a. | provide competition for merchant lenders. | b. | allow individual
merchants to charge fees for loans and other services. | c. | promote international trade and economic
growth. | d. | help all Americans build wealth through savings
accounts. |
|
|
|
25.
|
Why is using coins as money easier than using gold bars?
a. | coins are more uniform | c. | coins are more portable | b. | coins are more
durable | d. | coins are more
limited in supply |
|
|
|
26.
|
What happens when you make a purchase using a credit card?
a. | The money is immediately deducted from your account. | b. | The amount of the
purchase is deducted from a prepaid account. | c. | The credit card issuer pays the
store. | d. | The place where you made the purchase receives the money within 24
hours. |
|
|
|
27.
|
Which of the following is an example of a barter system?
a. | Instead of paying the full amount for a car, you pay 10 percent in cash and pay for
the rest in monthly installments. | b. | Instead of paying cash for a computer, you use
a credit card. | c. | Instead of paying for a purchase in Mexico in pesos, you use dollars from the United
States. | d. | Instead of paying rent, you clean the house for the
owner. |
|
|
|
28.
|
In the 1990s, the Russian people lost confidence in the value of the ruble, and
many were no longer willing to sell goods and services in exchange for Russian currency. Which
characteristic of money did the Russian currency lack?
a. | limited supply | c. | acceptability | b. | uniformity | d. | durability |
|
|
|
29.
|
What occurred during the Free Banking Era?
a. | Currency varied widely from state to state. | b. | Repaying of loans
was not closely monitored. | c. | The Second Bank of the United States was
established. | d. | The dollar bill was introduced. |
|
|
|
30.
|
Penny is an artist, and John is a carpenter. Penny agrees to paint a portrait of
John’s family in exchange for a handmade table created by John. How did Penny and John pay for
the goods in their transaction?
a. | with money | c. | using a store of value | b. | through
bartering | d. | with
currency |
|
|
|
31.
|
Why is representative money more useful than commodity money?
a. | Representative money exists in unlimited supply, allowing many more people to make
use of it. | b. | Representative money can be used for other things besides currency. For example, gems
can be made into jewelry, and cotton can be made into clothing. | c. | Representative money
has value because the government has decreed that it is an acceptable means to pay debts. Commodity
money had value only to people who believed it had value. | d. | Representative money
is portable, durable, divisible, and acceptable. It can also be exchanged for something else of
value. |
|
|
|
32.
|
What is one reason why many people distrusted the banking system during the free
banking era of the first half of the 1800s?
a. | Many banks did not have enough gold or silver to back the paper money they
issued. | b. | Many banks refused to accept deposits from ordinary people, preferring instead to
have only wealthy customers. | c. | Many banks reported deposits to the Internal
Revenue Service, which would force depositors to pay taxes on the interest they
earned. | d. | Many banks used depositors’ money to make unwise overseas investments that
resulted in great losses. |
|