Ch. 10: Money and Banking
Matching
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Identifying Key Terms
Match each term with the correct
statement below. a. | currency | b. | commodity money | c. | default | d. | Federal Deposit Insurance Corporation
(FDIC) | e. | Federal Reserve System | f. | fiat money | g. | interest | h. | money market mutual fund | i. | principal | j. | representative
money |
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1.
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money that has value because the government has ordered that it is an
acceptable means to pay debts
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2.
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the central banking system of the United States
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3.
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failure to pay back a loan
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4.
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the amount of money borrowed
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5.
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coins and paper bills used as money
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6.
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the price paid for the use of borrowed money
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7.
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objects that have value in themselves and that are also used as money
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8.
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money pooled from small investors and used to purchase government or corporate
bonds
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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9.
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Which of the following is an example of a barter system?
a. | Instead of paying rent, you clean the house for the owner. | b. | Instead of paying
cash for a computer, you use a credit card. | c. | Instead of paying the full amount for a car,
you pay 10 percent in cash and pay for the rest in monthly installments. | d. | Instead of paying
for a purchase in Mexico in pesos, you use dollars from the United
States. |
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10.
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Which of the following is an example of money as a unit of account?
a. | purchasing a toy for $8.99 | b. | lending a friend $25.00 | c. | opening a savings
account at a bank | d. | checking the price of a camera at several
stores before buying it at the lowest price |
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11.
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Which of the following is the main disadvantage of using shells as money instead
of coins?
a. | durability | c. | uniformity | b. | portability | d. | divisibility |
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12.
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Which of the following is an example of representative money?
a. | a fur coat | c. | gold earrings | b. | diamonds | d. | an IOU note |
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13.
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What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?
a. | to make sure that banks do not fail | b. | to make sure that customers do not lose money
if a bank fails | c. | to make sure that banks charge a fair amount of interest on loans | d. | to make sure that
the government has enough gold to cover its expenses |
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14.
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What did the Federalists believe about banking?
a. | They believed that the banking system already in existence was
sufficient. | b. | They believed an international banking system would be best. | c. | They believed that a
centralized banking system was necessary. | d. | They believed that state governments should own
and run the nation’s banks. |
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15.
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What occurred during the Free Banking Era?
a. | Currency varied widely from state to state. | b. | Repaying of loans
was not closely monitored. | c. | The Second Bank of the United States was
established. | d. | The dollar bill was introduced. |
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16.
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What were “greenbacks”?
a. | paper currency used by the Confederacy during the Civil War | b. | privately issued
currency used by the Union during the Civil War | c. | copper coins used by the Confederacy during the
Civil War | d. | commodity money used by the Union during the Civil
War |
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17.
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What is a mortgage used to purchase?
a. | car | c. | college tuition | b. | real estate | d. | business
expenses |
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18.
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Which of the following is NOT an example of a liquid asset?
a. | cash | c. | a certificate of deposit | b. | travelers’ checks | d. | a checking
account |
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Short Answer
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| Compound Interest | Start
of
year | Principal
amount | Interest
earned at
5% | Principal at
end of year | – | $100.00 | $5.00 | $105.00 | 1 | $105.00 | $5.25 | $110.25 | 2 | $110.25 | $5.51 | $115.76 | 3 | $115.76 | $5.79 | $121.55 | 4 | $121.55 | $6.08 | $127.63 | 5 | $127.63 | $6.38 | $134.01 | 6 | $134.01 | $6.70 | $140.71 | 7 | $140.71 | $7.04 | $147.75 | 8 | $147.75 | $7.39 | $155.14 | 9 | $155.14 | $7.76 | $162.90 | 10 | $162.90 | $8.14 | $171.04 | 11 | $171.04 | $8.55 | $179.59 | 12 | $179.59 | $8.98 | $188.57 | 13 | $188.57 | $9.43 | $198.00 | 14 | $198.00 | $9.90 | $207.90 | 15 | $207.90 | $10.39 | $218.29 | | | | |
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19.
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After 12 years, how much money would the $100.00 be worth?
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20.
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From looking at this chart, explain the concept of compound interest.
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21.
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If the interest rate on this account were 10 percent, how much money would you
have in the account at the end of the first year?
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22.
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If you added $50.00 to this account every year, what effect would it have on the
interest rate that you earned?
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Essay
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Critical Thinking
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23.
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Drawing Conclusions A $100 bill is just a specially designed and treated
piece of paper. Explain what makes it worth $100.
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24.
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Synthesizing Information Identify the three uses of money and give an
example of each.
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