Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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Which of the following is an example of a barter system?
a. | Instead of paying rent, you clean the house for the owner. | b. | Instead of paying
cash for a computer, you use a credit card. | c. | Instead of paying the full amount for a car,
you pay 10 percent in cash and pay for the rest in monthly installments. | d. | Instead of paying
for a purchase in Mexico in pesos, you use dollars from the United
States. |
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2.
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Which of the following is an example of money as a unit of account?
a. | purchasing a toy for $8.99 | b. | lending a friend $25.00 | c. | opening a savings
account at a bank | d. | checking the price of a camera at several
stores before buying it at the lowest price |
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3.
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Which of the following is the main disadvantage of using shells as money instead
of coins?
a. | durability | c. | uniformity | b. | portability | d. | divisibility |
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4.
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Which of the following is an example of representative money?
a. | a fur coat | c. | gold earrings | b. | diamonds | d. | an IOU note |
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5.
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What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?
a. | to make sure that banks do not fail | b. | to make sure that customers do not lose money
if a bank fails | c. | to make sure that banks charge a fair amount of interest on loans | d. | to make sure that
the government has enough gold to cover its expenses |
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6.
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What did the Federalists believe about banking?
a. | They believed that the banking system already in existence was
sufficient. | b. | They believed an international banking system would be best. | c. | They believed that a
centralized banking system was necessary. | d. | They believed that state governments should own
and run the nation’s banks. |
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7.
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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. |
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8.
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What were “greenbacks”?
a. | paper currency used by the Confederacy during the Civil War | b. | privately issued
currency used by the Union during the Civil War | c. | copper coins used by the Confederacy during the
Civil War | d. | commodity money used by the Union during the Civil
War |
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9.
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What is a mortgage used to purchase?
a. | car | c. | college tuition | b. | real estate | d. | business
expenses |
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10.
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Which of the following is NOT an example of a liquid asset?
a. | cash | c. | a certificate of deposit | b. | travelers’ checks | d. | a checking
account |
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11.
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Why is using coins as money easier than using gold bars?
a. | coins are more durable | c. | coins are more uniform | b. | coins are more
portable | d. | coins are more
limited in supply |
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12.
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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. |
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13.
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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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14.
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What happens when you make a purchase using a credit card?
a. | The credit card issuer pays the store. | b. | The money is immediately deducted from your
account. | c. | The amount of the purchase is deducted from a prepaid account. | d. | The place where you
made the purchase receives the money within 24 hours. |
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15.
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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 |
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16.
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Which of the following was NOT a cause of the Savings and Loan crisis of the
1980s?
a. | bad loans | c. | high interest rates | b. | the gold reserve act | d. | deregulation of the
industry |
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17.
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Which of the following is NOT an example of M1 money?
a. | currency | c. | travelers’ checks | b. | a mutual
fund | d. | a checking
account |
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18.
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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 |
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19.
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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. |
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20.
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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. |
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21.
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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. | using a store of value | c. | through bartering | b. | with money | d. | with currency |
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22.
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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 |
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23.
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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 part of a barter system. | c. | It was used as representative
money. | b. | It was used as a currency. | d. | It was used as fiat money. |
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24.
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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. | acceptability | c. | limited supply | b. | uniformity | d. | durability |
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25.
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Why is representative money more useful than commodity money?
a. | 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. | b. | 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. | c. | Representative money
exists in unlimited supply, allowing many more people to make use of it. | d. | Representative money
is portable, durable, divisible, and acceptable. It can also be exchanged for something else of
value. |
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26.
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American leaders in the early United States wanted to establish a stable banking
system in order to
a. | provide competition for merchant lenders. | b. | promote
international trade and economic growth. | c. | help all Americans build wealth through savings
accounts. | d. | allow individual merchants to charge fees for loans and other
services. |
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27.
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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 used depositors’ money to make
unwise overseas investments that resulted in great losses. | d. | Many banks reported
deposits to the Internal Revenue Service, which would force depositors to pay taxes on the interest
they earned. |
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28.
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How did the United States government make the American public have confidence in
the nation’s currency in the 1870s?
a. | The government backed the currency with cotton. | b. | The government
permitted state-chartered banks to issue currency. | c. | The government established the First Bank of
the United States. | d. | The government adopted the gold
standard. |
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29.
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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. | If you accidentally
injure someone, they cannot claim any of the first $100,000 of your bank deposits as
compensation. | c. | Your deposits are guaranteed a certain rate of interest if you have at least $100,000
in the bank. | d. | If you accidentally withdraw more money that you have in your account, you will not
have to pay a penalty. |
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30.
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How did high interest rates affect savings and loans (S&Ls) in the
1980s?
a. | S&Ls made money, because they earned high interest on loans they made throughout
the 1980s. | b. | 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. | 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. |
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31.
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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. |
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32.
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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 interest of $2,327 for the privilege of borrowing the principal of
$18,000. | b. | She had to pay principal of $2,327 for the privilege of borrowing the mortgage of
$18,000. | c. | She had to pay a default of $2,327 for the privilege of borrowing the principal of
$18,000. | d. | She had to pay interest of $2,327 for the privilege of borrowing the creditor of
$18,000. |
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Matching
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Identifying Key Terms
Match each term with the correct
statement below. a. | currency | b. | commodity money | c. | default | d. | Federal Deposit Insurance Corporation
(FDIC) | e. | Federal Reserve System | f. | fiat money | g. | interest | h. | money market mutual fund | i. | principal | j. | representative
money |
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33.
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money that has value because the government has ordered that it is an
acceptable means to pay debts
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34.
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the central banking system of the United States
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35.
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failure to pay back a loan
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36.
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the amount of money borrowed
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37.
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coins and paper bills used as money
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38.
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the price paid for the use of borrowed money
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39.
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objects that have value in themselves and that are also used as money
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40.
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money pooled from small investors and used to purchase government or corporate
bonds
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Identifying Key Terms
Match each term with the correct
statement below. a. | fractional reserve banking | b. | currency | c. | commodity money | d. | default | e. | Federal Deposit Insurance Corporation
(FDIC) | f. | Federal Reserve System | g. | interest | h. | mortgage | i. | principal | j. | representative
money |
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41.
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failure to pay back a loan
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42.
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the government agency that makes sure that customers’ money is safe if a
bank fails
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43.
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a specific type of loan that is used to buy real estate
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44.
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objects that have value in themselves and that are also used as money
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45.
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coins and paper bills used as money
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46.
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the price paid for the use of borrowed money
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47.
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a system that keeps only a fraction of funds on hand and lends out the
remainder
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48.
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objects that have value because the holder can exchange them for something else
of value
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