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Commerce and BusinessbackBusinessbackPrinciples of EconomicsbackEconomicsbackPractice Set 2495back

Money And Banking

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Question 1
Free
Multiple Choice

Money is commonly defined as

Choose correct answer/s
A

a generally accepted medium of exchange.

B

gold.

C

foreign-exchange reserves.

D

paper currency.

E

the Canadian dollar.

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Question 2
Free
Multiple Choice

In order to be considered "money," paper currency must be

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A

convertible into a precious metal.

B

impossible to counterfeit.

C

issued by a chartered bank.

D

issued by a government agency.

E

generally acceptable as a medium of exchange.

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Question 3
Free
Multiple Choice

Doug is saving money in order to purchase a new snowboard next winter.This represents using money as

Choose correct answer/s
A

a medium of exchange.

B

a store of value.

C

a unit of account.

D

a medium of deferred payment.

E

method of barter.

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Question 4
Free
Multiple Choice

Other things being equal,a rise in the price level will

Choose correct answer/s
A

increase the value of money.

B

decrease the purchasing power of money.

C

stabilize the value of money.

D

increase the purchasing power of money.

E

have no effect on the value of money.

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Question 5
Free
Multiple Choice

Other things being equal,the purchasing power of money is

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A

inversely related to the level of aggregate demand.

B

inversely related to the price level.

C

directly related to the price level.

D

directly related with the cost of living.

E

directly related to the level of aggregate demand.

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Question 6
Multiple Choice

When you are estimating your monthly income and expenses,money is being used as

Choose correct answer/s
A
a medium of exchange.
B
a store of value.
C
a unit of account.
D
a standard unit of deferred payment.
E
a money substitute.
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Question 7
Multiple Choice

Doug compares the unit price of chocolate bars in order to get the "best buy." This represents using money as

Choose correct answer/s
A
a medium of exchange.
B
a store of value.
C
a unit of account.
D
a unit of deferred payment.
E
a money substitute.
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Question 8
Multiple Choice

The major advantage of using money rather than barter is that

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A
in the barter system there is no way to express values of commodities.
B
money is the only convenient way to store one's wealth.
C
money has more value than real goods.
D
money stays where you put it,whereas a cow often has to be fenced in.
E
the use of money significantly reduces transactions costs.
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Question 9
Multiple Choice

The biggest disadvantage of a barter system compared to one that uses money is that

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A
it is difficult to find goods to trade in a barter system that satisfy the needs of society.
B
a standardized unit of account cannot exist in a barter system.
C
all commodities are difficult to transport and therefore inefficient for exchange.
D
each trade requires a double coincidence of wants.
E
commodities are difficult to use as a store of value.
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Question 10
Multiple Choice

Which of the following is an example of the use of money as a medium of exchange?

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A
Dave keeps $250 in his drawer for a "rainy day."
B
Mike gets a friend to give him a beer today in return for promising to give the friend two beer when Mike gets paid at the end of the month.
C
Judy lends her car to a friend who signs a promissory note that she will pay Judy $10 a day for the use of the car after she returns the car to Judy.
D
Barry pays $275 with his bank debit card for tickets for an NHL play-off game.
E
ABC Investments Inc.enters in its account books that it owes Nallai $20 for his last month's investment income.
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Question 11
Multiple Choice

If a majority of Canadian households and businesses refused to accept Canadian dollars in exchange for goods and services,the value of the Canadian dollar would

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A
fall.
B
rise since less would be in circulation.
C
stay constant since the value does not depend on its acceptability by people.
D
stay constant since its value is determined only by the Bank of Canada.
E
stay constant since its value is determined only by the Government of Canada.
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Question 12
Multiple Choice

The use of money in an economy does which of the following?

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A
creates the necessity for a double coincidence of wants
B
solves the problem of inflation
C
creates a problem of trading a portion of indivisible commodities such as a ship
D
promote specialization and the division of labour
E
promotes the use of barter
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Question 13
Multiple Choice

When metal coins,such as gold and silver,were used as money,a technique which helped to prevent the reduction of their value through clipping was

Choose correct answer/s
A
basing.
B
re-minting.
C
milling.
D
debasement.
E
sweating.
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Question 14
Multiple Choice

Historically,when gold and silver coins were used as money,their debasement resulted in

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A
deflation.
B
an increase in the supply of money.
C
an increase in the amount of gold bullion.
D
an increase in the desire to store wealth by holding coins.
E
a decrease in the money supply.
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Question 15
Multiple Choice

Gresham's law predicts that

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A
good money drives out bad money.
B
debased money will circulate with undebased money.
C
undebased money will be driven from circulation.
D
debased money will be driven from circulation.
E
money is neutral in the long run.
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Question 16
Multiple Choice

Which of the following is consistent with the predictions of Gresham's law?

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A
An increase in the money supply will be followed by inflation.
B
The increased circulation of U.S.coins in Canada during periods when the Canadian dollar is worth significantly less than the U.S.dollar.
C
Debasement of a metallic money will be followed by inflation.
D
Increases in the money supply led to the hyperinflation of the 1920s in Germany.
E
The disappearance of U.S.coins circulating in Canada during periods when the Canadian dollar is worth less than the U.S.dollar.
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Question 17
Multiple Choice

Suppose you come into possession of two "silver" dollars,one minted in the 1950s which contains a lot of silver,the other minted in the 2000s which contains no silver at all.The legal exchange rate between the coins is fixed at one for one.According to Gresham's law,the 1950s silver dollar

Choose correct answer/s
A
is considered "bad" money.
B
will drive out of circulation the 1990s silver dollar.
C
is more likely to be used as a medium of exchange.
D
is less likely to be used as a medium of exchange.
E
is less likely to be used as a store of value because it will appear old fashioned.
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Question 18
Multiple Choice

Which of the following was the most important initial step in the evolution of paper currency?

Choose correct answer/s
A
the acceptance of bank notes
B
the acceptance of goldsmiths' receipts
C
the acceptance of metallic coins
D
the issuance of currency by governments
E
the use of the Gold Standard
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Question 19
Multiple Choice

Suppose an economy has two types of money - gold and silver coins - that are both legal tender but have different non-monetary values.Gresham's law has come into effect when

Choose correct answer/s
A
people refuse to use the coins of lesser value.
B
the value of the coins is in the same ratio as their non-monetary values.
C
the lower-valued coin is taken out of circulation.
D
the higher-valued coin is taken out of circulation.
E
people use the higher-valued coins for exchange and the lower-valued for savings.
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Question 20
Multiple Choice

What do we mean in our current banking system when we say that a currency is "fractionally backed"?

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A
Banks have many more claims outstanding against them than they have reserves available to pay those claims.
B
The currency is partially backed by the nation's supply of gold.
C
A bank's currency is fractionally backed by its supply of gold.
D
All paper currency is convertible to gold.
E
Banks maintain a fixed fraction of their outstanding deposits as cash deposits with the central bank.
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