Deck 8: Money, the Price Level, and Inflation

Question 1

In a barter system, we would see

A) wide- spread depository institutions.
B) many different units of money.
C) money and goods exchanged for each other.
D) goods traded directly for other goods and services.

Answer 1

D

Question 2

The fact that using money avoids the double coincidence of wants necessary in a barter economy illustrates which function of money?

A) medium of exchange
B) source of liquidity
C) unit of account
D) store of value

Answer 2

A

Question 3

Barter occurs when you exchange

A) money for goods.
B) one money, such as U.S. dollars, for another money, such as Japanese yen.
C) goods for money.
D) goods for other goods.

Answer 3

D

Question 4

A medium of exchange is

A) an asset that is used to settle future debts.
B) a measure by which prices are expressed.
C) an object that sellers will accept as payment.
D) the thing traded when barter takes place.

Question 5

When you buy a hamburger for lunch, you are using money as a

A) unit of accounting.
B) standard of deferred payment.
C) store of value.
D) medium of exchange.

Question 6

Which of the following is NOT considered a function of money?

A) It acts as a means of payment.
B) It facilitates exchange.
C) It allows banks to lend out funds.
D) It can be held and exchanged for future goods and services.

Question 7

Money .

A) loses its value as it becomes older
B) requires a double coincidence of wants
C) is any commodity that is generally acceptable as a means of payment
D) is always composed of coins and paper

Question 8

The functions of money are

A) medium of exchange and the ability to buy goods and services.
B) medium of exchange, unit of account, and store of value.
C) pricing, contracts, and means of payment.
D) medium of exchange, unit of account, and means of payment.

Question 9

The direct exchange of goods and services for other goods and services is known as

A) primitive trade.
B) purchasing power trading.
C) nonmarket trade.
D) barter.

Question 10

The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a

A) store of value.
B) standard of deferred payment.
C) medium of exchange.
D) unit of account.

Question 11

The "double coincidence of wants" problem is

A) always present in all economic systems.
B) created by the use of money.
C) resolved under a system of barter.
D) resolved by the use of money.

Question 12

Which of the following does NOT describe a function of money?

A) a hedge against inflation
B) a store of value
C) a medium of exchange
D) a unit of account

Question 13

Which of the following is a primary function of money?

A) to reduce the burden of excessive imports
B) to serve as an encouragement to work
C) to serve as a unit of account
D) to raise funds for the government

Question 14

Which function of money refers to the use of money to solve the problem of a need for a double coincidence of wants?

A) unit of account
B) store of value
C) medium of exchange
D) none of the above

Question 15

The most direct way in which money replaces barter is through its use as a

A) store of value.
B) medium of exchange.
C) recording device.
D) unit of account.

Question 16

The functions of money are

A) interest rates, prices and output.
B) medium of exchange, unit of account, and store of value.
C) currency, deposits, and traveler's checks.
D) M1, M2 or currency.

Question 17

Which of the following does NOT describe a function of money?

A) a store of value
B) a medium of exchange
C) mutual fund.
D) a unit of account

Question 18

Money serves as

A) a unit of account.
B) a medium of exchange.
C) a store of value.
D) all of the above

Question 19

If an economy has no money, then all transactions must be conducted through the use of .

A) tobacco or wampum
B) barter
C) credit cards
D) debit cards

Question 20

Barter is

A) printing too much money.
B) the exchange of goods and services directly for other goods and services.
C) another type of money.
D) the exchange of goods and services for any type of money.

Question 21

Money's function as a medium of exchange means that

A) money can be used to store wealth.
B) money requires a double coincidence of wants.
C) money serves as an acceptable means of payment.
D) money is a common denominator for expressing the prices of goods and services.

Question 22

Which of the following applies to the use of money as a unit of account?
I) A unit of account is an agreed measure for stating the prices of goods and services.
II) Using money as a unit of account creates a simplified pricing system.
III) Economies choose many goods as units of account.

A) I only
B) II only
C) I and II
D) I and III

Question 23

Pat easily compares the prices of several vacuum cleaners to find the best value. This comparison represents the use of money as

A) a store of value.
B) a unit of account.
C) a medium of exchange.
D) all of the above

Question 24

When you bought your textbook for this course, you were using money as a

A) medium of exchange.
B) price mechanism.
C) unit of account.
D) store of value.

Question 25

Cigarettes served as money in some POW camps during World War II. Given this fact, we would expect to observe

A) people usually resorting to barter rather than using cigarettes as money.
B) no one ever smoking a cigarette.
C) prices of other goods expressed in terms of cigarettes.
D) only government- issued cigarettes being accepted as money.

Question 26

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

A) double coincidence of want.
B) unit of account.
C) medium of exchange.
D) store of value.

Question 27

Which function of money refers to the use of money to state the prices of goods and services?

A) store of value
B) medium of exchange
C) means of payment
D) unit of account

Question 28

The unit of account

A) is a type of value stored within all assets.
B) is an agreed measure for stating the prices of goods and services in an economy.
C) is a type of accounting of how many currency units there are in an economy.
D) is an accounting of the total units of goods and services produced in an economy.

Question 29

As a unit of account, money is used to

A) hold purchasing power over time.
B) exchange for goods and services.
C) state prices of all goods and services.
D) pay off future debts.

Question 30

Suppose prices are quoted in dollars and transactions are conducted in pesos. The peso serves as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above

Question 31

Matthew purchases a candy bar with his allowance. This purchase represents using money as

A) an unit of account.
B) a store of value.
C) a medium of exchange.
D) none of the above

Question 32

Suppose prices are quoted in dollars and transactions are conducted in pesos. The dollar serves as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above

Question 33

After you finish your degree, suppose your salary is $52,000 per year. This is an example of using the function of money known as

A) a store of value.
B) a unit of account.
C) M1.
D) medium of exchange.

Question 34

A $25,000 price tag on a new car is an example of money as

A) a store of value.
B) a unit of account.
C) medium of exchange.
D) a time deposit.

Question 35

Catherine compares the prices of candy bars in order to get the "best buy." This comparison represents using money as a

A) store of value.
B) medium of exchange.
C) unit of account.
D) none of the above

Question 36

Barter is an inefficient means of exchange because

A) barter transactions require a double coincidence of wants.
B) barter only occurs in relatively primitive economies.
C) in a barter transaction only one party needs to want what the other party has to sell.
D) demand will not necessarily equal supply.

Question 37

Money is

A) equally efficient as barter as a form of exchange.
B) a less efficient form of exchange than barter.
C) a more efficient form of exchange than barter.
D) None of the above answers is correct.

Question 38

Money as a medium of exchange
I) facilitates the exchange of goods.
II) reduces or eliminates the need for barter.

A) I only
B) II only
C) both I and II
D) neither I nor II

Question 39

The unit of account function occurs when money serves as a

A) pricing mechanism.
B) means of payment.
C) double coincidence of wants.
D) medium of exchange.

Question 40

When money is accepted as payment in a market transaction, it is functioning as a

A) unit of accounting.
B) store of value.
C) unit of investment.
D) medium of exchange.

Question 41

Checking deposits at banks are

A) money only because they are insured by the FDIC.
B) money.
C) not money until they are converted into currency.
D) not money because they are an intangible.

Question 42

Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model he is interested in has a sticker price of $29,000. The fact the price is quoted in dollars is an example of money as a

A) store of value.
B) unit of account
C) medium of exchange.
D) All of the above answers are correct.

Question 43

Which of the following applies to an object serving as a store of value?
I) If an object can be held and exchanged later for a good or service, it serves as a store of value.
II) The less stable an object's value, the better it serves as a store of value.
III) A work of art can serve as a store of value.

A) I only
B) I and II
C) I, II and III
D) I and III

Question 44

The price of movies is equivalent to 2 six- packs of soda. A six- pack of soda is equivalent to 2
Ice- cream cones. An increase cone is equivalent to 3 packs of jelly beans. What can be said, given this data?

A) A pack of jelly beans is equivalent to 1.33 movies.
B) Movies are $6.00 each.
C) Using a unit of account would make this problem much easier.
D) Movies are equivalent to 6 packs of jelly beans.

Question 45

M1 is a measure of

A) money and includes both savings deposits and money market mutual funds.
B) liquidity and in which the most liquid asset is money.
C) money and includes both currency and checking deposits.
D) money and includes both savings deposits and currency.

Question 46

U.S. currency _.

A) is the sum of M1 and M2
B) includes tobacco
C) is less efficient than barter
D) is composed of the bills and coins that we use today

Question 47

Which of the following correctly completes this statement? Money in the United States includes

A) the sum of currency, deposits, and bonds held by the public and by the banking industry.
B) the cash in banks plus the sum of all checks written.
C) the sum of all money incomes.
D) the currency and bank deposits outside of banks.

Question 48

In the United States today, money consists of

A) currency and deposits at banks.
B) currency only.
C) deposits at banks only.
D) coins only.

Question 49

The money aggregate M1 consists of

A) checking accounts, savings accounts and Treasury bills.
B) only demand deposits and time deposits.
C) currency and demand deposits, including traveler's checks.
D) currency and savings accounts.

Question 50

Checking deposits are

A) small in volume relative to currency in circulation.
B) part of money.
C) not part of money.
D) quite different from checking accounts.

Question 51

Which of the following applies to money when it serves as a store of value?
I) Money is a store of value because it is an agreed measure for stating goods' prices.
II) The more stable money's value, the better it serves as a store of value.
III) When money serves as a store of value, it requires a double coincidence of wants.

A) I only
B) II only
C) I and II
D) II and III

Question 52

Which of the following counts as part of money?

A) $10,000 of corporate bonds
B) $10,000 in a checking account
C) $10,000 of gold bars
D) $10,000 of government bonds

Question 53

During periods of inflation, which function of money is most severely affected?

A) store of value
B) means of payment
C) medium of exchange
D) unit of account

Question 54

Nicholas is saving money collected from his paper route in order to purchase a new bicycle. His saving represents using money as

A) a store of value.
B) an unit of account.
C) a medium of exchange.
D) none of the above

Question 55

In a world with no money, costs are expressed in terms of other goods. If one video game costs two hamburgers, and a hamburger costs three sodas, how many sodas would it take to buy a video game?

A) 3
B) 5
C) 3/2
D) 6

Question 56

Which of the following is an example of using money as a store of value?

A) keeping $200 on hand for an emergency
B) paying cash for a new automobile
C) paying for a new dress with a credit card
D) paying rent with a check on a demand deposit

Question 57

When you toss your spare quarters into a jar so you can use them later at the laundromat, you are using money in its function as a

A) financial innovation.
B) unit of account.
C) store of value.
D) medium of exchange.

Question 58

Which of the following is money?

A) credit cards
B) checking deposits
C) checks in the checkbook
D) All of the above are money.

Question 59

M1 includes

A) currency, checking deposits and traveler's checks.
B) money market mutual funds, stocks and bonds.
C) money, checking deposits and traveler's checks.
D) money, stocks and bonds.

Question 60

When you keep money in a change jar to be used later, what function is it fulfilling?

A) unit of account.
B) recording device.
C) store of value.
D) medium of exchange.

Question 61

Which of the following is NOT included in the M1 definition of money?

A) checking deposits at savings and loans
B) currency held outside banks
C) time deposits
D) traveler's checks

Question 62

The largest component of M2 is

A) travelers checks
B) savings deposits
C) money market mutual funds
D) currency

Question 63

The definition of M2 includes
I) M1.
II) money market mutual funds.
III) currency held outside of banks.

A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question 64

Checking deposits are included in

A) M2 only.
B) M1 only.
C) M1 and M2.
D) savings balances only.

Question 65

Which of the following is NOT included in the M1 measure of money?

A) traveler's checks
B) savings deposits
C) checking deposits
D) currency

Question 66

Which of the following is NOT included in the M2 measure of money?

A) time deposits
B) checking deposits
C) shares of the stocks of large companies
D) traveler's checks

Question 67

Which of the following is NOT included in the M2 definition of money?

A) money market mutual fund balances
B) currency held by banks
C) checkable deposits
D) savings deposits

Question 68

M2 is

A) smaller than M1.
B) equal to M1, but only when all three functions of money apply.
C) equal to M1, given full employment.
D) larger than M1.

Question 69

In an economy, there is $200 million in currency held outside banks, $100 million in traveler's checks, $250 million in currency held inside the banks, $300 million in checking deposits, and $600 million in savings deposits. The value of M1 is _ .

A) $600 million
B) $1,150 million
C) $1,200 million
D) $750 million

Question 70

Currency held outside the banking system is included

A) in neither M1 nor M2.
B) in M2 but not M1.
C) in M1 but not M2.
D) in both M1 and M2.

Question 71

M2 .

A) is a broader measure of money than M1
B) does not include currency
C) does not include checking deposits held at credit unions
D) does not include traveler's checks

Question 72

Comparing M1 and M2 we know that

A) M1 is larger because it contains currency.
B) M2 is larger because it contains M1 and other assets.
C) M2 is larger because it contains more liquid assets than does M1.
D) M2 is approximately equal to M1.

Question 73

Which of the following is part of M2?

A) credit cards
B) currency held inside a bank
C) checks
D) None of these are part of M1 or M2.

Question 74

Which of the following measures is NOT included in the M1 definition of money?

A) travelers checks
B) time deposits
C) checking deposits
D) currency held by the public

Question 75

Which of the following is included in M1?

A) the $200 loan you arranged to purchase your textbooks
B) the $200 you charged on your credit card to purchase your textbooks
C) the $200 check you wrote to purchase your textbooks
D) the $200 in cash you used to purchase your textbooks

Question 76

The definition of M2 includes

A) time deposits.
B) savings deposits.
C) M1.
D) all of the above

Question 77

Money as defined by M2 consists of

A) only currency, checking deposits and traveler's checks.
B) only currency and checking deposits.
C) currency, checking deposits, and time deposits.
D) only currency and savings accounts.

Question 78

M1 includes all the following items EXCEPT .

A) currency owned by individuals and businesses
B) traveler's checks
C) deposits in money market mutual funds
D) checking deposits owned by individuals and businesses

Question 79

Which of the following is NOT included in M1?

A) checking deposits owned by individuals
B) currency
C) traveler's checks
D) saving deposits

Question 80

Which of the following is NOT included in the M1 measure of money?

A) currency held in bank vaults
B) checking deposits at commercial banks
C) currency held outside banks
D) checking deposits at credit unions