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15 multiple-choice questions and 15 flashcards on Money, Banking, and Financial Institutions, about 7% of the High School Economics bank. Every one carries a written rationale.
Money, Banking, and Financial Institutions is one of 11 chapters in CoStudy's High School Economics bank, and it holds 15 of the bank's 225 multiple-choice questions — roughly 7% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
10 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
Opportunity cost of attending college is:
Answer: D — Tuition + books + foregone earnings from not working + value of foregone leisure — all next-best uses of those resources
Opportunity cost = next-best foregone. For college: explicit (tuition, books) + implicit (lost wages, time). Even with scholarship, foregone earnings often largest cost. Helps explain real cost of decisions.
When a market produces or consumes a good and imposes costs on third parties not reflected in price, this is called a:
Answer: D — Negative externality
Negative externalities (e.g., pollution) create spillover costs on others, causing markets to overproduce; positive externalities (e.g., vaccinations) cause underproduction.
Compound interest at 6% annually. Using the RULE OF 72, roughly how many years does it take money to double?
Answer: B — About 12 years — 72 ÷ 6 = 12
B) Rule of 72 approximation: doubling time ≈ 72 / interest rate. At 6%, ≈ 12 years. A/C/D) Miscalculate the rule.
A key economic difference between STOCKS and BONDS is:
Answer: C — Stocks represent OWNERSHIP in a corporation (residual claim on profits and assets); bonds are LOANS to an issuer (fixed interest payments and principal repayment at maturity)
C) Fundamental difference: equity claim vs. debt claim. A) Reverses risk — stocks are generally riskier. B) Only bonds pay a fixed coupon; dividends can vary or be omitted. D) Bonds have capped upside (coupon + principal).
Law of demand:
Answer: C — Holding other factors constant, when price rises, quantity demanded falls (and vice versa) — inverse relationship
Law of demand: downward-sloping demand curve. Higher price → less quantity demanded (ceteris paribus). Reasons: substitution effect, income effect, diminishing marginal utility. Foundation of consumer theory.
DIVERSIFICATION in an investment portfolio primarily reduces:
Answer: D — IDIOSYNCRATIC (firm-specific) risk — the risk that one company's bad news could sink the portfolio
D) Diversification cancels out uncorrelated firm-specific risks. Market-wide (systematic) risk cannot be diversified away — a trap. A) Diversification does not necessarily reduce expected returns. B) Depends on assets, not diversification. C) Systematic risk survives diversification.
M1 includes which of the following but M2 also adds:
Answer: A — M1 = currency + demand deposits + traveler's checks; M2 adds savings deposits, small time deposits, and retail money-market funds
A) Standard textbook definitions: M1 is the most liquid measure of money; M2 broadens to near-money. B/C/D) None of these match the official Fed money-supply definitions.
M1 money supply consists of the most liquid forms of money, including:
Answer: C — Currency in circulation and checkable (demand) deposits
C) M1 = cash + demand deposits + traveler's checks — instantly usable for transactions. A/B/D) All are less liquid; some are in broader money supply (M2, M3) or wealth measures but not M1.
In FRACTIONAL RESERVE BANKING with a 10% reserve requirement, a new $1,000 deposit can EXPAND the money supply by a maximum of approximately:
Answer: D — $10,000 total (money multiplier = 1/reserve ratio = 10, so total money supply rises by up to $10,000; the NEW money created is $9,000)
D) Simple money multiplier = 1/0.10 = 10. Total money supply expansion = $1,000 × 10 = $10,000. The NEW money created by lending is $9,000 (the original $1,000 was existing). A) Just the required reserve. B) Just the deposit itself. C) The new money, not the total expansion.
The three primary FUNCTIONS OF MONEY are:
Answer: A — Medium of exchange, unit of account, store of value
A) Textbook trio: enables trade (medium), measures value (unit), preserves purchasing power over time (store). B/C/D) Each describes activities or forms, not the theoretical functions.
4 cards from the 15 in this chapter.
What is an ETF?
Exchange-Traded Fund — like a mutual fund but trades on stock exchanges throughout the day, often with lower fees.
What is the difference between simple and compound interest?
Simple: interest on principal only. Compound: interest on principal plus accumulated interest — grows faster.
What is a credit score?
A numerical rating (typically 300–850) of an individual's creditworthiness based on credit history.
What is diversification?
Spreading investments across many assets to reduce risk.
These are a sample. The full Money, Banking, and Financial Institutions chapter runs 30 items with per-chapter progress tracking, on the web and in the iOS app.
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