Money and the Financial System
Multiple Choice Questions
After watching the Money and the Financial System video lecture, consider the question(s) below. Then “submit” your response.
Question
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Question
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After watching the Money and the Financial System video lecture, consider the question(s) below. Then “submit” your response.
Question
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Question
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Question
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
Short Answer/Discussion Questions
After watching the Money and the Financial System video lecture, consider the question(s) below. Then “submit” your response.
Question
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Suggested solution: M1 consists of currency (bills and coins) and demand deposits, such as checking accounts. These represent assets that can instantly be used as cash. This is a core measure of the money supply. M2 is M1 plus savings accounts, money market deposits, money market mutual funds, and small-denomination time deposits. The M2 additions to the M1 definition of the money supply represent assets that can quickly (but not instantly) be converted to cash.
Question
U/PY0nnd5stN2ACVAW9+eeDvFo3OAdM6mbjGn6IBMXSxhXDfgdAhEK3prdWuAQSiFxAPIH4SOuXrmkFjLy8Gt6RDMALxfAhGWuFzd4MTYrlka5CWBQCuimuHP6VBi7tul/epAwNsyQtwcKOt4FrqT5idtupDuDRbfaI9uFwhXlGVUgIwc8QsQPRpx9biYvHH
Suggested solution: Because banks are in the business of lending money, they reduce the risks of nonpayment by pooling money from many savers to lend to many borrowers. The failure of an individual borrower to repay a loan is diluted among many savers. Banks are also in a better position to assess the credit-worthiness of borrowers because of information they can collect on borrowers’ credit histories. Lastly, banks reduce the transaction costs of the lending process.
Question
WUe+MFBjqCMmZ9H7+WR5GNT9jAqseyq+x4bJAvxhBPkCAiDTRkFvqWQO4kWfJkXCs/Z/hTesswyzD+jgKSJ62HL7V0QRk04z3m7rC1osaE2rPS/+NqT1AcqWktbmmrsYP65dxvjdfMT1o+k0EfcRvLPKYaQEHBq6ojPwSmNtAtXBOUXL
Suggested solution: The price of funds loaned by savers to borrowers is expressed as the real interest rate. The risk from a savers standpoint is the possibility the loan made to the borrower will not be repaid. In order for savers to be compensated for the greater risk of loss from nonrepayment of a loan, they will charge higher interest rates to risky borrowers and lower rates to low-risk borrowers. For example, the U.S. government has never defaulted on a loan and pays the lowest rate of interest