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Money is defined as

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anything that people are willing to accept in payment for goods and services.

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All of these are functions of money

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standard of deferred, medium of exchange payment. store of value.

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Money in its role as a medium of exchange refers only to

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anything that is generally accepted as payment for goods and services

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Which of the following distinguishes money from other assets?

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Money serves as a medium of exchange.

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In order for a good to be usable as a medium of exchange, the good

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must be portable, divisible, durable, and recognizable

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An example of barter is a situation in which an individual

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provides three light bulbs to her neighbor in exchange for two gallons of milk

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Money as a unit of account means that

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money gives traders a way of measuring value in the economy.

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Money as a store of value means that

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money allows value to be stored easily.

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9. Which of the following is the most efficient facilitator of trade?

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money

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The use of money eliminates the need for

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traders to have a double coincidence of wants

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. Harold can't make a deal with Arthur. Harold has a Derek Jeter baseball card and would like to trade it to Arthur for Arthur's Sammy Sosa card, but Arthur doesn't want a Derek Jeter card. Harold's problem illustrates the drawback to a barter system known as

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) the double coincidence of wants problem

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Money as a standard of deferred payment means that

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) money provides a means of valuing payments that will occur in the future.

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One of the major reasons why money is superior to other assets is that other assets

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) generate transactions costs when they are exchanged for money

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Using a commodity as a medium of exchange confers the benefit to the economy that

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the necessity to quote a wide variety of prices for each good is reduced.

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. Which of the following is an example of commodity money?

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) measured bags of gold dust

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A commodity standard is a monetary system in which

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the value of money is linked to the value of a specific commodity

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If coffee is used as money under a commodity standard system, the overall price level of goods and services in the economy will increase

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if the demand for coffee decreases.

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Fiat money

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is money that would have no value if it were not usable as money.

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. Which of the following is an example of fiat money?

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a Federal Reserve note used as money in the 21st century United States.

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. In a fiat money system, money has value because

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it is generally acceptable as a medium of exchange

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Debasement is

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the process through which a government reduces the precious metal content of a commodity standard money

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Of the following, the most basic definition of "cash" is

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) M1.

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. All of the following are included in M2 EXCEPT

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) large-denomination time deposits

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The definition of M2

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includes M1, savings and small-denomination time deposits, and individual and broker-dealer money market mutual funds.

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Included in M3, but not in M2, are

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) term repurchase agreements

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Monetary aggregates are classified mainly by the level of

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liquidity.

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The major difference between M1 and M2 is that

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M2 contains less liquid assets than those in M1.

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. The purchasing power of money is

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the amount of goods and services it can exchange for.

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Seigniorage refers to

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the difference between the government's revenues and costs in coining money

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. Which of the following best describes the role of electronic versus nonelectronic payments in the United States?

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Electronic payments account for a relatively small share of U.S. transactions by number but a relatively large share of U.S. transactions by dollar value

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Everything else held constant, a decline in interest rates will cause spending on housing to

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rise.

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An increase in interest rates might ________ saving because more can be earned in interest income

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encourage

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Evidence from the United States and other foreign countries indicates that

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there is a strong positive association between inflation and growth rate of money over long periods of time.

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The upward and downward movement of aggregate output produced in the economy is referred to as the

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business cycle

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Sustained downward movements in the business cycle are referred to as

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recessions

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Prior to all recessions since 1900, there has been a drop in

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the growth rate of the money stock.

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Evidence from business cycle fluctuations in the United States indicates that

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recessions have been preceded by a decline in the growth rate of money

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A sharp increase in the growth of the money supply is likely followed by

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an increase in the inflation rate

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It is true that inflation is a

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continually rising price level.

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________ theory relates changes in the quantity of money to changes in aggregate economic activity and the price level.

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Monetary

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The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.

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monetary; central

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The organization responsible for the conduct of monetary policy in the United States is the

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Federal Reserve System.

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The average price of goods and services in an economy is called the

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aggregate price level

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If ten years ago the prices of the items bought last month by the average consumer would have been much higher, then one can likely conclude that

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the aggregate price level has declined during this ten-year period

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Economists find no completely satisfactory way to measure money because

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the "moneyness" or liquidity of an asset is a matter of degree.

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To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt

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money

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urrency includes

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paper money and coins.

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The difference between money and income is that

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money is a stock and income is a flow

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income is a flow and wealth is a

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stock

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An individual's annual salary is her

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income

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A person's house is part of her

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wealth

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Money is

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anything that is generally accepted in payment for goods and services or in the repayment of debt

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________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value.

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Money; wealth

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________ is a flow of earnings per unit of time.

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Income

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Which of the following statements uses the economists' definition of money?

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I hope that I have enough money to buy my lunch today

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Of money's three functions, the one that distinguishes money from other assets is its function as a

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medium of exchange

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If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are

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money.

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The conversion of a barter economy to one that uses money

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increases efficiency by reducing transactions costs.

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When compared to exchange systems that rely on money, disadvantages of the barter system include:

answer

the requirement of a double coincidence of wants.

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When economists say that money promotes ________, they mean that money encourages specialization and the division of labor.

answer

efficieny

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Which of the following statements best explains how the use of money in an economy increases economic efficiency?

answer

Money increases economic efficiency because it decreases transactions costs

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For a commodity to function effectively as money it must be For a commodity to function effectively as money it must be

answer

easily standardized, making it easy to ascertain its value.

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All but the most primitive societies use money as a medium of exchange, implying that

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the use of money is economically efficient

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________ are the time and resources spent trying to exchange goods and services.

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Transaction costs

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Compared to an economy that uses a medium of exchange, in a barter economy

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transaction costs are higher

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Money ________ transaction costs, allowing people to specialize in what they do best.

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reduces

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Kevin purchasing concert tickets with his debit card is an example of the ________ function of money

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medium of exchange

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When money prices are used to facilitate comparisons of value, money is said to function as a

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unit of account.

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Because it is a unit of account, money

answer

reduces the number of prices that need to be calculated.

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A problem with barter exchange when there are many goods is that in a barter system

answer

there exists a multiple number of prices for each good.

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In a barter economy the number of prices in an economy with N goods is

answer

[N(N - 1)]/2

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Dennis notices that jackets are on sale for $99. In this case money is functioning as a ________.

answer

unit of account

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If there are five goods in a barter economy, one needs to know ten prices in order to exchange one good for another. If, however, there are ten goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another.

answer

45

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If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another.

answer

6

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Because it is a store of value, money

answer

is a way of saving for future purchases

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Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money has a ________ function.

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store of value

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Ranking assets from most liquid to least liquid, the correct order is

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currency; savings bonds; house

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People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is

answer

extremely liquid.

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A fall in the level of prices

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increases the value of money

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During hyperinflations

answer

money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale.

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If merchants in the country Zed choose to close their doors, preferring to be stuck with rotting merchandise rather than worthless currency, then one can conclude that Zed is experiencing a

answer

hyperinflation.

question

Explain how cigarettes could be called "money" in prisoner-of-war camps of World War II.

answer

The cigarettes performed the three functions of money. They served as the medium of exchange because individuals did exchange items for cigarettes. They served as a unit of account because prices were quoted in terms of the number of cigarettes required for the exchange. They served as a store of value because an individual would be willing to save their cigarettes even if they did not smoke because they believed that they could exchange the cigarettes for something that they did want at some time in the future.

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As the payments system evolves from barter to a monetary system,

answer

commodity money is likely to precede the use of paper currency.

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disadvantage of ________ is that it is very heavy and hard to transport from one place to another.

answer

commodity money

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Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money.

answer

fiat

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When paper currency is decreed by governments as legal tender, legally it must be ________.

answer

accepted as payment for debts

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The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of

answer

innovations that reduced the costs of exchanging goods and services.

question

The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that

answer

precious metals were difficult to carry and transport

question

Which of the following sequences accurately describes the evolution of the payments system?

answer

Barter, coins made of precious metals, paper currency, checks, electronic funds transfers

question

In explaining the evolution of money

answer

new forms of money evolve to lower transaction costs.

question

During the past two decades an important characteristic of the modern payments system has been the rapidly increasing use of

answer

electronic fund transfers.

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A smart card is the equivalent of

answer

cash.

question

Which of the following is not a form of e-money?

answer

a stored-value card

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Which of the following reasons would not explain why electronic payments have been slow to displace the paper payments system?

answer

transportation costs

question

What factors have slowed down the movement to a system where all payments are made electronically?

answer

The equipment necessary to set up the system is expensive, security of the information, and privacy concerns are issues that need to be addressed before an electronic payments system will be widely accepted.

question

Recent financial innovation makes the Federal Reserve's job of conducting monetary policy

answer

more difficult, since the Fed no longer knows what to consider money.

question

Defining money becomes ________ difficult as the pace of financial innovation ________.

answer

more; quickens

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________ is the narrowest monetary aggregate that the Fed reports.

answer

M1

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Which of the following is not included in the measure of M1?

answer

Savings deposits.

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The components of the U.S. M1 money supply are demand and checkable deposits plus

answer

currency plus travelers checks.

question

The M1 measure of money includes

answer

traveler's checks.

question

The currency component includes paper money and coins held in ________.

answer

the hands of the nonbank public

question

Which of the following is not included in the monetary aggregate M2?

answer

Savings bonds

question

Which of the following is included in M2 but not in M1?

answer

Money market mutual fund shares (retail

question

Which of the following is not included in the M1 measure of money but is included in the M2 measure of money?

answer

Small-denomination time deposits

question

Which of the following is included in both M1 and M2?

answer

Currency

question

Of the following, the largest is

answer

M2.

question

If an individual redeems a U.S. savings bond for currency

answer

M1 increases and M2 increases.

question

If an individual moves money from a small-denomination time deposit to a demand deposit account

answer

M1 increases and M2 stays the same.

question

If an individual moves money from a demand deposit account to a money market deposit account,

answer

M1 decreases and M2 stays the same.

question

If an individual moves money from a savings deposit account to a money market deposit account

answer

M1 stays the same and M2 stays the same.

question

If an individual moves money from currency to a demand deposit account,

answer

m1 stays the same and M2 stays the same.

question

If an individual moves money from a money market deposit account to currency,

answer

M1 increases and M2 stays the same.

question

Small-denomination time deposits refer to certificates of deposit with a denomination of less than ________.

answer

$100,000

question

The growth rates of monetary aggregates

answer

tend to move together in the long run but can diverge in the short run.

question

The decade during which the growth rates of monetary aggregates diverged the most is

answer

the 1990s

question

Why are most of the U.S. dollars held outside of the United States?

answer

Concern about high inflation eroding the value of their own currency causes many people in foreign countries to hold U.S. dollars as a hedge against inflation risk

question

Generally, the data initially reported by the Fed are

answer

not a reliable guide to the short-run behavior of the money supply.

question

An examination of revised money supply statistics, when compared to the initial statistics, suggests that the initial statistics

answer

do not provide a good guide to short-run movements in the money supply

question

The Fed revises its estimates of the monetary aggregates, sometimes by large amounts, because

answer

seasonal adjustments become more precise only as more data becomes available

question

The Fed estimates initial monetary aggregate reports because ________ depository institutions report the amount of their deposits infrequently.

answer

Small

question

The increase in holiday spending is not the same every year causing the Fed's adjustment for ________ to be revised as more data becomes available.

answer

seasonal variation

question

Which of the following statements accurately describes the two measures of the money supply?

answer

The two measures do not move together, so they cannot be used interchangeably by policymakers.

question

2. Barter is the exchange of

answer

goods and services for other goods and services.

question

4. The major problem with barter is that it requires

answer

a double coincidence of wants.

question

The basic advantage of money over barter is that

answer

money reduces a double coincidence of wants.

question

7. The most important aspect of money is that it

answer

serves as a medium of exchan.ge

question

The price tag on a washing machine is an example of money as a

answer

unit of account.

question

The function of money in the form of holding its purchasing power over time is called a

answer

store of value.

question

10. Which of the following is the correct sequence of the evolution of exchange methods in history?

answer

) Barter; commodity moneys; commodity standards; fiat moneys.

question

11. In a gold commodity money system, the price of gold is

answer

the amount of goods and services that one unit of gold can exchange for.

question

12. Under the gold standard, the monetary base was

answer

gold bullion.

question

13. Seigniorage occurs when the face value of money is

answer

less than its cost of production.

question

14. Fiat money is money

answer

with no intrinsic value.

question

15. Fiat money was first issued in America in the form of

answer

bills of credit by colonial governments.

question

16. Most paper money around the world today is

answer

) fiat money.

question

18. A house is not as liquid as cash because

answer

) it is more difficult to dispose of a house without losing its value.

question

19. Compared to M1, M2 consists of assets that

answer

are less liquid.

question

20. The amount of goods and services that money can buy is the money's

answer

) purchasing power

question

21. The purchasing power of money varies inversely with

answer

) the overall price level

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