EconomicsMonetary Economics
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Money and Banking System Quiz

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#1

Which of the following is NOT a function of money in an economy?

Unit of labor
Explanation

Money doesn't represent labor.

#2

What does GDP stand for?

Gross Domestic Product
Explanation

It measures a nation's economic activity.

#3

Which of the following is NOT a component of the fractional reserve banking system?

Interest Rate
Explanation

Interest rates are set externally.

#4

What is the main function of the Federal Reserve System in the United States?

To manage monetary policy
Explanation

It regulates the money supply.

#5

What is the term for the interest rate at which the Federal Reserve lends to commercial banks?

Discount rate
Explanation

It's a tool of monetary policy.

#6

What is the primary function of a central bank?

All of the above
Explanation

It encompasses various monetary functions.

#7

What is the name of the process through which banks create money when they lend out deposits?

Fractional reserve banking
Explanation

It involves lending beyond reserves.

#8

Which of the following is NOT a characteristic of fiat money?

Intrinsically valuable
Explanation

It lacks inherent value.

#9

Which of the following is a characteristic of commodity money?

It has intrinsic value
Explanation

Its value is inherent in the commodity.

#10

What is the term for the total amount of money in circulation in an economy at a specific time?

M3 money supply
Explanation

It includes physical and digital currency.

#11

What is the term for a situation where the inflation rate is higher than the nominal interest rate?

Stagflation
Explanation

It leads to reduced purchasing power.

#12

Which of the following is a characteristic of fiat money?

Value determined by government decree
Explanation

Government dictates its value.

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