Chapter 10 Study Set – Flashcards
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The fact that money can withstand the wear and teat that comes from being used over and over again is a measure of its
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Durability
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Divisibility means that money can be easily divided into
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Smaller units of value
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The difference between representative money and fiat money
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Representative money can be converted into gold or silver; fiat money cannot
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Two units of the same type of money must be the same in terms of what they will buy, which is the principle of
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uniformity
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Why is portability an important characteristic of money?
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if we could not carry money with us, it would be hard to use
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Which type of money has no value of its own but is valuable because it can be exchanged for something else of value?
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Representative
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Why would commodity money be hard to use in most societies?
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It is often not portable, durable or divisible
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In the early years of the United States, the Federalists favored
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A centralized banking system
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During the Free Banking Era, banking in the United States was dominated by which of the following?
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state-chartered banks
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As part of the nation's recovery from the Great Depression of the 1930's the banking system was reformed in which of the following ways?
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The banking system was taken off the gold standard
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What is one important disadvantage of the gold standard?
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it can slow economic growth by limiting the amount of money in circulation
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What is one banking reform the government made during the Great Depression?
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The government created the Federal Deposit Insurance Corporation
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What was one cause of the Savings and loan crisis in the 1980s?
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losses from risky loans
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What is a credit union?
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A cooperative lending institution for a particular group
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How does a bank make most of its profit on its business?
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By paying out less in interest on deposits than it earns in interest on loans
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Why are funds in checking accounts called demand deposits?
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They are available whenever the account holder wants them
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What is an important characteristic of the M1 money supply?
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liquidity
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What is fractional reserve banking?
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Banks keep some money on hand and lend out the rest
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What is the largest source of income for banks?
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interest it receives on loans to customers
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Which of the following has contributed to a recent banking crisis?
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sub-prime mortgages
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Which of the following is an example of money as a unit of account?
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Comparing camera prices at different stores before buying one
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The main purpose of the FDIC is to make sure that
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customers do not lose money if a bank fails
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What happens during a bank run?
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Customers withdraw more money than the bank has on hand
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What condition is necessary for a fiat money system to work?
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The government must control the money supply
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In the 1800's people in mining towns in the west often paid for goods with gold nuggets or gold dust. What was the function of gold?
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it was used as currency
