Economics Test
Littlejohn – Money and banking (Chapter 6)
Multiple choice (2 points each)
1. What type of money is something that can serve another purpose, like tobacco?
a) commodity b) fiat c) regal d) representative
2. What type of money is valuable because it is backed up by something of value, like gold?
a) commodity b) fiat c) regal d) representative
3. What type of money is money that is valuable because the government simply says it is?
a) commodity b) fiat c) regal d) representative
True or false
4. Early in America’s history there were many state banks printing many different types of currency.
5. Wildcat banks were banks that only loaned money to farmers.
6. In the early history of America, counterfeiting was easier because of all the varieties of money issued.
7. In early American history, there were some banks who did not keep enough gold on hand to back their currencies.
Multiple choice
8. What type of currency was printed in the 1860's to help fund the American Civil War?
a) Greenbacks b) Gold Certificates c) National Bank Notes d) Continental dollars
9. The Banking Acts of 1863 and 1864 gave the federal government the power to do all of the following EXCEPT . .
a)create a national currency
b)take America off the gold standard
c)charter banks
d)require banks to keep an adequate of gold and silver on hand
10. What is one advantage of being on the gold standard?
a)people feel secure about their money
b)it means that the government has no limit on the amount of money it can print
c)fluctuating gold prices help increase the value of our dollars
d)all of the above
11. What is one disadvantage of being on the gold standard?
a)it is hard to expand the money supply and the economy
b)it is hard to limit inflation
c)it can cause a country to have too much gold
d)all of the above
12. Which of the following is NOT true of the Federal Reserve System?
a)It was our first true central bank
b)It was created in 1913
c)It started because of the Great Depression
d)It created the Federal Reserve Notes that we use as currency
13. Which of the following is an accurate statement about the bank run that occurred during the Great Depression?
a)The bank run saw more banks being created and opened in America
b)The bank run occurred when people panicked and wanted to withdraw their money from banks
c)The bank run started when President Roosevelt shut down the banks to be better able to control the national debt
d)Only federal banks were affected by the bank run
14. Which of the following was created to insure money in banks?
a)BBB b) CCC c) FDIC d) MAC
15. Which financial institutions had a crisis during the 1970’s and 80’s due to deregulation?
a)corporate banks b) credit unions c) savings and loans d) stock brokers
16. In the 1990’s and 2000’s, banks got into trouble because. . .
a)they made many subprime loans
b)they made too many risky loans
c)they made an extreme amount of loans for houses
d)all of the above
17. Which of the following is true of the Federal Reserve?
a)It is owned by member banks who buy stock in it.
b)The president of the US appoints the chair of the Federal Reserve.
c)The Federal Reserve has 14 districts.
d)Both a and b
e)All of the above
18. What is the job of the Federal Open Market Committee?
a)They inspect member banks to guarantee stability in them.
b)It is the watchdog of the Fed and impeaches bank presidents who misuse their power.
c)It helps control the money supply in the United States.
d)Both a and b
e)All of the above
19. Which of the following is on the Federal Open Market Committee?
a)The 7 members of the Board of Governors
b)5 presidents of Federal Reserve District banks
c)A person appointed by the president of the United States
d)Both a and b
e)All of the above
20. Which of the following does the Federal Reserve monitor or regulate?
a)Bank holding companies
b)Bank mergers
c)International banks located in the US
d)All of the above
21. Which of the following does the Truth in Lending Act make lenders tell their customers?
a)The interest on loans that the lender has made to other customers.
b)The total amount of interest that the customer will pay.
c)The amount of the monthly payments made by the borrower.
d)The number of payments the borrower will make to pay off the loan.
True or False
22. The Federal Reserve enforces the Truth in Lending Act, also known as Regulation T.
23. A job of the Fed is to clear checks, which moves money from one bank account to another.
24. The Federal Reserve distributes coins and currency to banks across America.
25. Jane Belton is the chair of the Federal Reserve board.
26. The Federal Reserve wants to expand the money supply under a tight money policy.
27. An easy money policy would be adopted if the Federal Reserve wanted to lessen inflation.
28. If my credit card has an APR of 21%, that means I will be charged 2.1% interest on each monthly bill.
Matching
29. collaterala) money that is liquid and ready to spend, like bills and coins
30. M1b) money that is not liquid, like savings deposits
31. M2c) a loan to buy a house
32. mortgaged) credit that gets renewed as you pay it off
33. revolvinge) something of value that is used to secure a loan
Multiple choice
34. A disadvantage of a revolving credit account is that ...
a) it is illegal.
b) it is very difficult for borrowers to qualify for such an
account.
c) the balance must be paid off every month.
d) balances can rise quickly if only the minimum payment is
made each month.
35. Making purchases on credit
a) is never a good idea.
b) is a good idea if the benefits to the purchaser are greater
than the costs.
c) decreases the cost of the purchase to the borrower.
d) is a good idea if the purchaser has so many credit payments that he or she is unable to live comfortably.
36. Which of the following is the best use of credit?
a) You can’t buy everything you want on your current
income.
b) You can take advantage of a sale price that is lower than
the normal cost of the item plus your cost of credit.
c) You have a credit card with a low interest rate.
d) You want to purchase something now instead of having
to wait to use it.
Short answer (5 points each)
37. List and explain the three functions of money.
38. What are three of the five characteristics of money? Explain what they mean.
39. What is one problem of barter?
40. Explain the multiple arguments between Federalists and Antifederalists, when it came to establishing a Bank of the United States.
41. Give and explain 3 of the 5 “c’s” of credit.