Chapter 1 - Money And Banking

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Chapter 1 - Money And Banking - Quiz


Questions and Answers
  • 1. 

    Which of the following statements is false?

    • A.

      Money is a medium of exchange 

    • B.

      Money is a unit of account

    • C.

      Money is gold

    • D.

      Money is a store of value

    Correct Answer
    C. Money is gold
    Explanation
    The statement "Money is gold" is false because while gold has been historically used as a form of money, it is not the only form of money. Money can take various forms such as paper currency, coins, and digital currencies, and it is not limited to being backed by or made of gold.

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  • 2. 

    Monetary standards refer to?

    • A.

      Store of value.

    • B.

      Standard of deferred payment.

    • C.

      The type of standard money used in the monetary system of a country.

    • D.

      Silver and gold.

    Correct Answer
    C. The type of standard money used in the monetary system of a country.
    Explanation
    Monetary standards refer to the type of standard money used in the monetary system of a country. This means that monetary standards determine the form of money that is accepted and recognized as legal tender within a specific country. Different countries may have different monetary standards, such as the use of a specific currency or a combination of currencies. The monetary standard plays a crucial role in facilitating economic transactions and maintaining stability within the financial system.

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  • 3. 

    Gold standard is?

    • A.

      The monetary standard used in the US until 1933.

    • B.

      The monetary standard used in Great Britain from 1925-1931.

    • C.

      The standard consisting of a specified quantity of gold.

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    The gold standard refers to a monetary system in which the value of a country's currency is directly linked to a specified quantity of gold. It was used in the US until 1933 and in Great Britain from 1925-1931. Therefore, the correct answer is "All of the above" as it encompasses both the specific time periods and the general concept of a monetary standard based on gold.

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  • 4. 

    Standard money is another name for?

    • A.

      The basic money of a country

    • B.

      Unit of account

    • C.

      Unit of payment

    • D.

      Currency and coin

    Correct Answer
    A. The basic money of a country
    Explanation
    Standard money refers to the basic money of a country, which is the primary form of currency accepted as a medium of exchange. It is the legal tender issued and regulated by the government, such as banknotes and coins. This term is used to distinguish the official currency from other forms of money, such as digital or virtual currencies. Standard money serves as a unit of account and a unit of payment, enabling transactions and facilitating economic activities within a country.

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  • 5. 

    What type of cards enable consumers to charge purchases directly to their checking accounts without having to write checks?

    • A.

      Credit card

    • B.

      Debit card

    • C.

      Prepaid card

    • D.

      Both B & C

    Correct Answer
    D. Both B & C
    Explanation
    Both debit cards and prepaid cards enable consumers to charge purchases directly to their checking accounts without having to write checks. Debit cards are linked directly to a consumer's checking account and allow for purchases to be deducted directly from the account. Prepaid cards, on the other hand, are loaded with a specific amount of money and can be used for purchases until the balance is depleted. Therefore, both options allow for convenient and direct payment without the need for writing checks.

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  • 6. 

    One difference between M1 and M2 is that:

    • A.

      M1 is a first mortgage and M2 is a second mortgage.

    • B.

      M2 is M1 plus assets that are more liquid.

    • C.

      M2 includes savings deposits

    Correct Answer
    C. M2 includes savings deposits
    Explanation
    M2 includes savings deposits, which means that it includes the amount of money held in savings accounts. This is a key difference between M1 and M2 because M1 only includes the most liquid forms of money, such as physical currency and demand deposits. By including savings deposits, M2 expands the definition of money to include a broader range of assets that can be easily converted into cash. This distinction is important for understanding the different measures of money supply and their implications for the overall economy.

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  • 7. 

    Choose the best answer about token money

    • A.

      The value of the paper used to make the note is equal to the face value of the note

    • B.

      The value of the paper used to make the note is far less than the face value of the note

    • C.

      The value of the paper used to make the note is much more than the face value of the note

    Correct Answer
    B. The value of the paper used to make the note is far less than the face value of the note
    Explanation
    Token money refers to currency that has a face value that is greater than the intrinsic value of the material used to make it. In this case, the correct answer states that the value of the paper used to make the note is far less than the face value of the note. This means that the actual cost of producing the note is significantly lower than its stated value. This is done to facilitate transactions and provide a medium of exchange, as the value of the note is based on the trust and confidence of the people using it, rather than the actual worth of the material used.

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  • 8. 

    Choose the best answer:

    • A.

      M1 is included in M2, M3 and L. Thus only the portion of each measures that exceeds M1 can be called token money

    • B.

      M1 is included in M2, M3 and L. Thus only the portion of each measures that exceeds M1 can be called near-money

    • C.

      M1 is included in M2, M3 and L. Thus only the portion of each measures that exceeds M1 can be called fractional money

    Correct Answer
    B. M1 is included in M2, M3 and L. Thus only the portion of each measures that exceeds M1 can be called near-money
  • 9. 

    Which is it possible to make bank deposits and withdrawals without talking to a teller or any other person, and without having to write a check or withdrawal slip?

    • A.

      Credit card

    • B.

      Debit card

    • C.

      ATM

    Correct Answer
    C. ATM
    Explanation
    An ATM (Automated Teller Machine) allows individuals to make bank deposits and withdrawals without the need to interact with a teller or any other person. It eliminates the need to write a check or withdrawal slip as transactions can be completed electronically using a debit card.

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  • 10. 

    Which one is not used as commodity money?

    • A.

      Gold

    • B.

      Paper money

    • C.

      Copper

    Correct Answer
    B. Paper money
    Explanation
    Paper money is not used as commodity money because it does not have intrinsic value. Commodity money is a type of currency that has value based on the material it is made of, such as gold or copper. Paper money, on the other hand, is a form of fiat money, which derives its value from government regulation or law. It is not backed by a physical commodity and its value is based on trust in the government issuing it.

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  • 11. 

    What type of money is considered as a means of payment?

    • A.

      Token money

    • B.

      Commodity money

    Correct Answer
    A. Token money
    Explanation
    Token money is considered as a means of payment. Token money refers to coins or currency that are used as a substitute for real money. It has no intrinsic value and its worth is determined by the authority that issues it. Token money is widely accepted as a form of payment and can be used to purchase goods and services. It is convenient and easily transferable, making it an effective means of payment in various transactions.

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  • 12. 

    The value of commodity money is  … the value of the material contained in it

    • A.

      About higher than

    • B.

      About lower than

    • C.

      About equal to

    Correct Answer
    C. About equal to
    Explanation
    Commodity money derives its value from the material it is made of, such as gold or silver. The value of the material is directly linked to the value of the commodity money. Therefore, the value of commodity money is about equal to the value of the material contained in it.

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  • 13. 

    Which is not included in monetary base?

    • A.

      Currency

    • B.

      Saving deposit

    • C.

      Reserve deposits

    Correct Answer
    B. Saving deposit
    Explanation
    The monetary base consists of currency (physical cash) and reserve deposits held by commercial banks at the central bank. Saving deposits, on the other hand, are not included in the monetary base as they represent funds held by individuals and are not directly controlled by the central bank. Saving deposits are part of the broader money supply, which includes various types of deposits and other financial instruments.

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  • 14. 

    Why are traveler’s checks considered form of money?

    • A.

      Anyone can buy them

    • B.

      They are widely accepted in payment for goods and services

    • C.

      They are easy to use

    • D.

      They can be replaced if stolen or lost

    Correct Answer
    B. They are widely accepted in payment for goods and services
    Explanation
    Traveler's checks are considered a form of money because they are widely accepted in payment for goods and services. This means that they can be used as a medium of exchange to purchase items or pay for services in various locations. The fact that they are widely accepted increases their liquidity and usefulness as a form of currency. Additionally, traveler's checks can be easily replaced if they are stolen or lost, which adds to their convenience and reliability as a form of money.

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  • 15. 

    Money Supply (M1) includes:

    • A.

      Currency, savings deposits, traveler's checks.

    • B.

      Demand deposits, currency, traveler's checks.

    • C.

      Currency, demand deposits, traveler's checks, and other checkable deposits.

    • D.

      Demand deposits, traveler's checks, money market mutual funds.

    Correct Answer
    C. Currency, demand deposits, traveler's checks, and other checkable deposits.
    Explanation
    M1 is a measure of the money supply that includes the most liquid forms of money. Currency refers to physical cash in circulation, demand deposits are funds held in checking accounts that can be withdrawn on demand, traveler's checks are pre-paid checks that can be used as cash, and other checkable deposits are accounts that can be easily converted to cash through writing checks or using a debit card. This answer choice includes all of these components, making it the correct option for M1.

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  • 16. 

    Which of the following is not included in M1?

    • A.

      Coins

    • B.

      Paper money

    • C.

      Credit cards

    • D.

      Transaction accounts

    Correct Answer
    C. Credit cards
    Explanation
    M1 refers to the money supply that includes currency in circulation, demand deposits (transaction accounts), and traveler's checks. Credit cards are not included in M1 because they do not represent actual money in circulation. Instead, they are a form of borrowing and a means of accessing credit. While credit cards can be used for transactions, they do not directly represent physical currency or demand deposits. Therefore, credit cards are not included in the M1 money supply measure.

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  • 17. 

    An increase in the demand for money in the economy could result from:

    • A.

      A recession.

    • B.

      A higher price level.

    • C.

      Higher interest rates.

    • D.

      A decrease in the supply of money.

    Correct Answer
    B. A higher price level.
    Explanation
    An increase in the demand for money in the economy could result from a higher price level. When prices rise, individuals and businesses require more money to purchase the same amount of goods and services. This increased demand for money is driven by the need to maintain purchasing power and cover the higher costs. As a result, people hold onto more money, leading to an increase in the overall demand for money in the economy.

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  • 18. 

    Which following answer is not a type of money supply?

    • A.

      Fractional currency

    • B.

      Paper money

    • C.

      Checks

    • D.

      All of them

    Correct Answer
    D. All of them
    Explanation
    The correct answer is "All of them." This means that all the options listed (fractional currency, paper money, and checks) are types of money supply.

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  • 19. 

    Traveler’s check is:

    • A.

      Often difficult to use their personal checks in place they are not known.

    • B.

      Widely accepted as payment in many countries.

    • C.

      A written order directing a bank to pay a specified sum from one person’s account to another person or to a business.

    Correct Answer
    B. Widely accepted as payment in many countries.
    Explanation
    Traveler's checks are widely accepted as payment in many countries. This means that they can be used as a form of payment in various locations around the world. Unlike personal checks, which may not be accepted in places where the individual is not known, traveler's checks are more universally recognized and can be easily exchanged for local currency or used for purchases. This makes them a convenient and reliable option for travelers who need a secure and widely accepted form of payment during their trips.

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  • 20. 

    Standard money is another name for currency and coin. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Standard money is not another name for currency and coin. Currency and coin refer specifically to physical forms of money, while standard money refers to the generally accepted medium of exchange in a particular country or region, which can include not only currency and coin but also digital forms of money such as bank deposits. Therefore, the correct answer is false.

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  • 21. 

    Money is any medium of exchange that is widely accepted in payment for goods and services and in settlement of debts. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because money is indeed a widely accepted medium of exchange for goods and services, as well as a means to settle debts. Money serves as a common unit of value that allows for the efficient exchange of goods and services in an economy. It is widely accepted by individuals, businesses, and governments as a form of payment, making it an essential tool for economic transactions.

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  • 22. 

    When you buy something but do not pay for it immediately , your payment is expressed in tém of money to be paid in the future. In case, money functions are a standard of deferred payment. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because when you buy something but do not pay for it immediately, your payment is expressed in terms of money to be paid in the future. This is known as a standard of deferred payment, where the payment is postponed to a later date.

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  • 23. 

    Gold standard coin is the monetary standard used in Great Britain  from 1925 -1931. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because the gold standard coin was not used in Great Britain from 1925-1931. The gold standard was actually abandoned in Britain in 1931 due to economic difficulties. Therefore, the correct answer is false.

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  • 24. 

    Standard money is the basic money of the government , into which other form of money may not be converted. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Standard money is not the basic money of the government into which other forms of money may not be converted. This statement is false because standard money refers to a specific form of money that is widely accepted and used as a medium of exchange, but it can still be converted into other forms of money such as digital currency or foreign currency.

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  • 25. 

    Monetary standard of a nation refer to the type of standard money used in the monetary system. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that the monetary standard of a nation does indeed refer to the type of standard money used in the monetary system. This standard money is typically issued and regulated by the government or central bank of a country and serves as the basis for all financial transactions and economic activities within that nation. It provides stability and uniformity to the monetary system, facilitating trade and economic growth. Therefore, the statement "Monetary standard of a nation refer to the type of standard money used in the monetary system" is true.

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  • 26. 

    Gold, silver or diamond has been chiefly used as standard money. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Gold, silver, and diamond have not been chiefly used as standard money. Historically, gold and silver have been widely used as currency due to their scarcity and durability. However, diamonds have not been used as standard money because their value is not as universally recognized and they are not easily divisible or transportable. Therefore, the correct answer is false.

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  • 27. 

    The principal types of gold standard are the gold coin standard. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true. The principal types of gold standard include the gold coin standard. This means that the value of a country's currency is directly linked to a fixed amount of gold. Under this system, the currency can be exchanged for its equivalent value in gold coins. This type of gold standard was commonly used in the past to ensure stability in international trade and to maintain the value of currencies.

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  • 28. 

    M0 has the lowest liquidity, and M3 has the highest one. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because M3 has the highest liquidity, not the lowest. M0 refers to the narrowest definition of money supply, which includes only physical currency and demand deposits. On the other hand, M3 is a broader measure that includes M0 as well as other types of deposits, such as time deposits and savings deposits. Therefore, M3 has a higher level of liquidity compared to M0.

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  • 29. 

    M1 includes coins, currency, demand deposits and other checkable deposits. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The given statement is true. M1 includes various forms of money such as coins, currency (paper money), demand deposits (funds held in checking accounts), and other checkable deposits. These are all considered part of the money supply that is readily available for transactions and can be easily accessed by individuals and businesses.

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  • 30. 

    M2 is always double M1. True or false?

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement "M2 is always double M1" is false. It implies that the value of M2 is always two times the value of M1, which is not necessarily true. The values of M1 and M2 can be any numbers and are not necessarily related by a factor of two. Therefore, the correct answer is false.

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