Deck 8: Money, the Price Level, and Inflation

Question 1

Money .

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

Answer 1

A

Question 2

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

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

Answer 2

D

Question 3

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

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

Answer 3

D

Question 4

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

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

Question 5

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

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

Question 6

The ʺdouble coincidence of wantsʺ problem is

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

Question 7

A medium of exchange is

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

Question 8

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

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

Question 9

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

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

Question 10

The functions of money are

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

Question 11

Barter is

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

Question 12

Which of the following is a primary function of money?

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

Question 13

Barter occurs when you exchange

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

Question 14

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

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

Question 15

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

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

Question 16

In a barter system, we would see

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

Question 17

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

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

Question 18

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

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

Question 19

The functions of money are

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

Question 20

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

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

Question 21

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

Question 22

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

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

Question 23

Matthew purchases a candy bar with his allowance. This purchase 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 24

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

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

Question 25

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

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

Question 26

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) medium of exchange.
B) unit of account.
C) record keeping device.
D) store of value.

Question 27

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

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

Question 28

As a unit of account, money is used to

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

Question 29

Moneyʹs 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 30

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

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

Question 31

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

Question 32

Barter is an inefficient means of exchange because

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

Question 33

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

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

Question 34

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

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

Question 35

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

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

Question 36

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

Question 37

The unit of account

A) is an accounting of the total units of goods and services produced in an economy.
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 a type of value stored within all assets.

Question 38

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

Question 39

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 40

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

Question 41

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

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

Question 42

M1 is a measure of

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

Question 43

Checking deposits at banks are

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

Question 44

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

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

Question 45

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

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

Question 46

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

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

Question 47

M1 includes

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

Question 48

If an economy tried to use bananas as money, which function would bananas likely have the most difficult time fulfilling?

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

Question 49

U.S. currency .

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

Question 50

Which of the following is NOT included in M1?

A) currency
B) saving deposits
C) travelerʹs checks
D) checking deposits owned by individuals

Question 51

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 objectʹs value, the better it serves as a store of value.
III. A work of art can serve as a store of value.

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

Question 52

M1 includes all the following items except .

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

Question 53

Which of the following is money?

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

Question 54

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 goodsʹ prices.
II. The more stable moneyʹs 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) II and III
B) I and II
C) I only
D) II only

Question 55

Nicholas is saving money collected from his paper route in order to purchase a new bicycle. His saving 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 56

Checking deposits are

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

Question 57

Which of the following counts as part of money?

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

Question 58

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

A) savings deposits
B) currency
C) travelerʹs checks
D) checking deposits

Question 59

The money aggregate M1 consists of

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

Question 60

In the United States today, money consists of

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

Question 61

Comparing M1 and M2 we know that

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

Question 62

Checking deposits are included in

A) M1 and M2.
B) M2 only.
C) neither M1 nor M2.
D) M1 only.

Question 63

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

A) time deposits
B) shares of the stocks of large companies
C) travelerʹs checks
D) checking deposits

Question 64

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

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

Question 65

In an economy, there is $200 million in currency held outside banks, $100 million in travelerʹs 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) $1,200 million
B) $1,150 million
C) $750 million
D) $600 million

Question 66

The definition of M2 includes

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

Question 67

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 68

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

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

Question 69

A new financial innovation results in people switching their funds from checking deposits to savings accounts. The quantity of M1 and the quantity of M2 .

A) decreases; increases
B) decreases; does not change
C) increases; decreases
D) decreases; decreases

Question 70

Currency held outside the banking system is included

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

Question 71

Sam has $500 in travelerʹs checks. He cashes a $100 traveler check, deposits $150 into his checking account at a Savings and Loan Association, and deposits the remaining $250 into a savings account at a credit union. Immediately, .

A) M1 decreases by $400 and M2 increases by $250
B) M1 decreases by $250 and M2 does not change
C) M1 does not change and M2 increases by $250
D) M1 and M2 do not change

Question 72

Suppose you cash in a Certificate of Deposit a small time deposit) to acquire the travelerʹs checks youʹll need for your vacation. What happens to M1 and M2?

A) M1 increases and M2 stays the same.
B) M1 and M2 both increase.
C) M1 stays the same and M2 increases.
D) M1 increases and M2 decreases.

Question 73

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

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

Question 74

If you use $500 of currency to make a deposit in a saving deposit,

A) M1 and M2 both increase
B) M1 is unchanged, but M2 increases
C) M1 decreases and M2 increases
D) M1 decreases, but M2 is unchanged

Question 75

M2 .

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

Question 76

$$\begin{array} { | l | l | } \hline \text { Component } & \begin{array} { l } \text { Amount } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline \begin{array} { l } \text { Money market } \\\text { mutual fund } \\\text { deposits }\end{array} & 4,400 \\\hline \text { Time deposits } & 1,237 \\\hline \text { Savings deposits } & 1,589 \\\hline \text { Checking deposits } & 752 \\\hline \text { Currency } & 609 \\\hline\end{array}$$

-Based on the data in the table above, what is the value of M2?

A) $2,950 billion
B) $4,187 billion
C) $8,587 billion
D) $4,400 billion

Question 77

M2 is

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

Question 78

$$\begin{array} { | l | l | } \hline \text { Component } & \begin{array} { l } \text { Amount } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline \begin{array} { l } \text { Money market } \\\text { mutual fund } \\\text { deposits }\end{array} & 4,400 \\\hline \text { Time deposits } & 1,237 \\\hline \text { Savings deposits } & 1,589 \\\hline \text { Checking deposits } & 752 \\\hline \text { Currency } & 609 \\\hline\end{array}$$

-Based on the data in the table above, what is the value of M1?

A) $1,361 billion
B) $2,950 billion
C) $752 billion
D) $609 billion

Question 79

The largest component of M2 is

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

Question 80

Which of the following is part of M2?

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