Money and Banking: Key Concepts
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Questions and Answers

Which of the following is the MOST accurate description of e-money?

  • A government-issued bond used to finance public projects.
  • A digital representation of currency that can be used for transactions. (correct)
  • A physical form of currency like coins and banknotes.
  • A type of investment that provides a high rate of return.

Why is Bitcoin unlikely to become the money of the future, according to the text?

  • It is not accepted as a medium of exchange.
  • It does not perform well as a unit of account and store of value. (correct)
  • It does not require computing power to verify transactions.
  • It is controlled by a central bank.

Which of the following assets is included in the M1 monetary aggregate?

  • Currency (correct)
  • Small denomination time deposits
  • Savings deposits
  • Money market mutual fund shares

M2 includes all of the following EXCEPT:

<p>Corporate bonds (D)</p> Signup and view all the answers

Which of the following best explains why predictions of a cashless society have not yet come to fruition?

<p>Several factors work against the complete disappearance of paper money. (C)</p> Signup and view all the answers

What is the primary method by which Bitcoin is created?

<p>Mining through decentralized users verifying transactions (C)</p> Signup and view all the answers

If a person transfers $500 from their savings account to their checking account, what is the likely immediate impact on M1 and M2?

<p>M1 increases by $500, M2 stays the same. (A)</p> Signup and view all the answers

Which of the following is the most liquid asset?

<p>Currency (D)</p> Signup and view all the answers

Which of the following best illustrates money's function as a 'unit of account'?

<p>Comparing the price of a shirt to the price of a pair of shoes. (C)</p> Signup and view all the answers

What is the main problem that money solves that barter systems have?

<p>The requirement of finding a 'double coincidence of needs'. (A)</p> Signup and view all the answers

Which of the following is the LEAST important characteristic of something that functions as money?

<p>It must be backed by a precious metal. (D)</p> Signup and view all the answers

Why might holding money NOT be a good way to store great value during periods of high inflation?

<p>The purchasing power of money decreases. (A)</p> Signup and view all the answers

In an economy transitioning from commodity money to fiat money, what is the MOST critical step for the fiat money to be successful?

<p>The government must ensure the money is accepted for payment of debts. (C)</p> Signup and view all the answers

Which of these scenarios BEST exemplifies the use of money as a medium of exchange?

<p>A person receives their salary in a bank account and then uses a debit card to buy groceries. (B)</p> Signup and view all the answers

Which of the following payment methods relies on a direct instruction to a bank to transfer money from one account to another?

<p>Checks (B)</p> Signup and view all the answers

Which of the following is considered a store of value?

<p>Both B and C (A)</p> Signup and view all the answers

Flashcards

Money (Money Supply)

Anything generally accepted as payment for goods/services or debt repayment.

Wealth

Total collection of property pieces that store value.

Income

Flow of earnings per unit of time.

Medium of Exchange

Eliminates the need for 'double coincidence of needs', reducing transaction costs and promoting specialization.

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Unit of Account

Measures value in the economy and reduces transaction costs.

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Store of Value

Saves purchasing power over time, but loses value during inflation.

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Commodity Money

Valuable, standardized, and divisible commodities used as money (e.g., gold).

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Fiat Money

Paper money decreed by governments as legal tender.

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E-Money

Electronic money, including debit cards, stored-value cards (smart cards), and e-cash.

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Bitcoin

A digital currency created in 2009 through a decentralized process called 'mining'.

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M1

A measure of the most liquid assets in the money supply.

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Currency

Currency held by the public.

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Traveler's Checks

Checks used for payment when traveling.

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Demand Deposits

Funds held in checking accounts that can be withdrawn on demand.

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Other Checkable Deposits

Checking accounts that earn interest.

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M2

A broader measure of the money supply, including M1 plus less liquid assets.

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