Deck 3: What Is Money

Question 1

________ is a flow of earnings per unit of time.

A)Income
B)Money
C)Wealth
D)Currency

Answer 1

Income

Question 2

An individual's annual salary is her

A)money.
B)income.
C)wealth.
D)liabilities.

Answer 2

income.

Question 3

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

A)I plan to earn a lot of money over the summer.
B)Betsy is rich-she has a lot of money.
C)I hope that I have enough money to buy my lunch today.
D)The job with New Company gave me the opportunity to earn more money.

Answer 3

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

Question 4

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

A)bank deposits.
B)reserves.
C)money.
D)loanable funds.

Question 5

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

A)wealth
B)income
C)money
D)credit

Question 6

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

A)Bargaining costs
B)Transaction costs
C)Contracting costs
D)Barter costs

Question 7

The difference between money and income is that

A)money is a flow and income is a stock.
B)money is a stock and income is a flow.
C)there is no difference-money and income are both stocks.
D)there is no difference-money and income are both flows.

Question 8

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

A)Money;income
B)Wealth;income
C)Income;money
D)Money;wealth

Question 9

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

A)transaction costs are higher.
B)transaction costs are lower.
C)liquidity costs are higher.
D)liquidity costs are lower.

Question 10

Even economists have no single,precise definition of money because

A)money supply statistics are a state secret.
B)the Federal Reserve does not employ or report different measures of the money supply.
C)the "moneyness" or liquidity of an asset is a matter of degree.
D)economists find disagreement interesting and refuse to agree for ideological reasons.

Question 11

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

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

Question 12

When we say that income is a flow variable,we mean that

A)we must attach a time period to the measure for it to make sense.
B)it is measured at a given point in time.
C)it moves through our hands quickly.
D)the value is constantly changing.

Question 13

Money is

A)anything that is generally accepted in payment for goods or services or in the repayment of debt.
B)a flow of earnings per unit of time.
C)the total collection of pieces of property that are a store of value.
D)always based on a precious metal like gold or silver.

Question 14

A person's house is part of her

A)money.
B)income.
C)liabilities.
D)wealth.

Question 15

Currency includes

A)paper money and coins.
B)paper money,coins,and checks.
C)paper money and checks.
D)paper money,coins,checks,and savings deposits.

Question 16

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

A)the requirement of a double coincidence of wants.
B)lowering the cost of exchanging goods over time.
C)lowering the cost of exchange to those who would specialize.
D)encouraging specialization and the division of labor.

Question 17

Which of the following is a TRUE statement?

A)Money and income are flow variables.
B)Money is a flow variable.
C)Income is a flow variable.
D)Money and income are stock variables.

Question 18

The total collection of pieces of property that serve to store value is a person's

A)wealth.
B)income.
C)money.
D)credit.

Question 19

The conversion of a barter economy to one that uses money

A)increases efficiency by reducing the need to exchange goods and services.
B)increases efficiency by reducing the need to specialize.
C)increases efficiency by reducing transactions costs.
D)does not increase economic efficiency.

Question 20

When we say that money is a stock variable,we mean that

A)the quantity of money is measured at a given point in time.
B)we must attach a time period to the measure.
C)it is sold in the equity market.
D)money never loses purchasing power.

Question 21

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

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

Question 22

For a commodity to function effectively as money it must be

A)easily standardized,making it easy to ascertain its value.
B)difficult to make change.
C)deteriorate quickly so that its supply does not become too large.
D)hard to carry around.

Question 23

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

A)the use of money is economically efficient.
B)barter exchange is economically efficient.
C)barter exchange cannot work outside the family.
D)inflation is not a concern.

Question 24

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

A)medium of exchange.
B)unit of account.
C)store of value.
D)payments-system ruler.

Question 25

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

A)[N(N - 1)]/2.
B)N(N/2).
C)2N.
D)N(N/2)- 1.

Question 26

Kevin purchasing concert tickets with a $100 bill is an example of the ________ function of money.

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

Question 27

Because it is a unit of account,money

A)increases transaction costs.
B)reduces the number of prices that need to be calculated.
C)does not earn interest.
D)discourages specialization.

Question 28

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

A)bargaining
B)contracting
C)efficiency
D)greed

Question 29

All of the following are necessary criteria for a commodity to function as money EXCEPT

A)it must deteriorate quickly.
B)it must be divisible.
C)it must be easy to carry.
D)it must be widely accepted.

Question 30

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

A)reduces
B)increases
C)enhances
D)eliminates

Question 31

As a store of value,money

A)does not earn interest.
B)cannot be a durable asset.
C)must be currency.
D)is a way of saving for future purchases.

Question 32

________ is the relative ease and speed with which an asset can be converted into a medium of exchange.

A)Efficiency
B)Liquidity
C)Deflation
D)Specialization

Question 33

Increasing transactions costs of selling an asset make the asset

A)more valuable.
B)more liquid.
C)less liquid.
D)more moneylike.

Question 34

Since it does not have to be converted into anything else to make purchases,________ is the most liquid asset.

A)money
B)stock
C)artwork
D)gold

Question 35

When there are many goods in a barter system,

A)transactions costs are minimized.
B)there are multiple prices for each good.
C)there is only one store of value.
D)exchange of services is impossible.

Question 36

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

A)8
B)6
C)5
D)4

Question 37

Whatever a society uses as money,the distinguishing characteristic is that it must

A)be completely inflation proof.
B)be generally acceptable as payment for goods and services or in the repayment of debt.
C)contain gold.
D)be produced by the government.

Question 38

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

A)Money increases economic efficiency because it is costless to produce.
B)Money increases economic efficiency because it discourages specialization.
C)Money increases economic efficiency because it decreases transactions costs.
D)Money cannot have an effect on economic efficiency.

Question 39

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

A)unit of account.
B)medium of exchange.
C)store of value.
D)payments-system ruler.

Question 40

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.

A)20
B)25
C)30
D)45

Question 41

Although ________ currency is lighter than coins made of metals,a disadvantage arising from modern technology is the ease of ________.

A)paper;transport
B)commodity;counterfeiting
C)fiat;transport
D)paper;counterfeiting

Question 42

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

A)paper currency backed by gold.
B)a precious metal such as gold or silver.
C)accepted as payment for debts.
D)convertible into an electronic payment.

Question 43

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

A)savings bonds;house;currency.
B)currency;savings bonds;house.
C)currency;house;savings bonds.
D)house;savings bonds;currency.

Question 44

The payments system is

A)the method of conducting transactions in the economy.
B)used by union officials to set salary caps.
C)an illegal method of rewarding contracts.
D)used by your employer to determine salary increases.

Question 45

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

Question 46

Of the following assets,the least liquid is

A)stocks.
B)traveler's checks.
C)checking deposits.
D)a house.

Question 47

During hyperinflations

A)the value of money rises rapidly.
B)money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale.
C)middle-class savers benefit as prices rise.
D)money's value remains fixed to the price level;that is,if prices double so does the value of money.

Question 48

A disadvantage of ________made from precious metals is that it is very heavy and hard to transport from one place to another.

A)commodity money
B)fiat money
C)electronic money
D)paper money

Question 49

If the price level doubles,the value of money

A)doubles.
B)more than doubles,due to scale economies.
C)rises but does not double,due to diminishing returns.
D)falls by 50 percent.

Question 50

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

A)commodity money is likely to precede the use of paper currency.
B)transaction costs increase.
C)the number of prices that need to be calculated increase rather dramatically.
D)specialization decreases.

Question 51

A fall in the level of prices

A)does not affect the value of money.
B)has an uncertain effect on the value of money.
C)increases the value of money.
D)reduces the value of money.

Question 52

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

A)commodity
B)fiat
C)electronic
D)funny

Question 53

A hyperinflation is

A)a period of extreme inflation generally greater than 50% per month.
B)a period of anxiety caused by rising prices.
C)an increase in output caused by higher prices.
D)impossible today because of tighter regulations.

Question 54

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

A)paper is more costly to produce than precious metals.
B)precious metals were not generally acceptable.
C)precious metals were difficult to carry and transport.
D)paper money is less accepted than checks.

Question 55

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

A)superdeflation.
B)hyperdeflation.
C)disinflation.
D)hyperinflation.

Question 56

During the German hyperinflation after World War I,transactions costs skyrocketed. As a result,not surprisingly,output

A)declined sharply.
B)increased dramatically.
C)did not change.
D)grew at a much smaller pace than prior to the war.

Question 57

Because inflation in Germany after World War I sometimes exceeded 1,000% per month,one can conclude that the German economy suffered from

A)deflation.
B)disinflation.
C)hyperinflation.
D)superdeflation.

Question 58

________ money could be used for some other purpose other than as a medium of exchange,for example,gold coins could be melted down and turned into gold jewelry.

A)Commodity
B)Fiat
C)Paper
D)Electronic

Question 59

As a means of payment,coins have the major drawback that they

A)are heavy and hard to transport.
B)are hard to counterfeit.
C)are not the most liquid assets.
D)must be backed by gold.

Question 60

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

A)extremely liquid.
B)a unique good for which there are no substitutes.
C)the only thing accepted in economic exchange.
D)backed by gold.

Question 61

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

A)barter,coins made of precious metals,paper currency,checks,electronic funds transfers
B)barter,coins made of precious metals,checks,paper currency,electronic funds transfers
C)barter,checks,paper currency,coins made of precious metals,electronic funds transfers
D)barter,checks,paper currency,electronic funds transfers

Question 62

Bitcoin fails to satisfy which two of the three functions of money?

A)unit of account and store of value
B)medium of exchange and unit of account
C)medium of exchange and store of value
D)bitcoin satisfies all of the functions of money

Question 63

A feature of Bitcoin,a new type of electronic money,that make it attractive as a medium of exchange is

A)anonymous transactions.
B)volatility of value.
C)heavy regulations by the central bank.
D)wide acceptance by businesses.

Question 64

The currency component includes paper money and coins held in

A)bank vaults.
B)ATMs.
C)the hands of the nonbank public.
D)the central bank.

Question 65

An important characteristic of the modern payments system has been the rapidly increasing use of

A)checks and decreasing use of currency.
B)electronic fund transfers.
C)commodity monies.
D)fiat money.

Question 66

An advantage of checks as a method of payment is that

A)they provide convenient receipts for purchases.
B)they can never be stolen.
C)they are more widely accepted than currency.
D)the funds from a deposited check are available for use immediately.

Question 67

The other checkable deposits component of the M1 measure reported by the Federal Reserve includes

A)negotiable time deposits.
B)money market mutual fund shares.
C)automatic transfer from savings accounts.
D)money market deposit accounts.

Question 68

The M1 measure of money includes

A)small denomination time deposits.
B)traveler's checks.
C)money market deposit accounts.
D)money market mutual fund shares.

Question 69

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

A)easier,since the Fed now knows what to consider money.
B)more difficult,since the Fed now knows what to consider money.
C)easier,since the Fed no longer knows what to consider money.
D)more difficult,since the Fed no longer knows what to consider money.

Question 70

A smart card is the equivalent of

A)cash.
B)savings bonds.
C)savings deposits.
D)certificates of deposit.

Question 71

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

A)less;quickens
B)more;quickens
C)more;slows
D)more;stops

Question 72

Compared to an electronic payments system,a payments system based on checks has the major drawback that

A)checks are less costly to process.
B)checks take longer to process,meaning that it may take several days before the depositor can get her cash.
C)fraud may be more difficult to commit when paper receipts are eliminated.
D)legal liability is more clearly defined.

Question 73

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

A)a debit card
B)a credit card
C)a stored-value card
D)a smart card

Question 74

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

A)government regulations designed to improve the efficiency of the payments system.
B)government regulations designed to promote the safety of the payments system.
C)innovations that reduced the costs of exchanging goods and services.
D)competition among firms to make it easier for customers to purchase their products.

Question 75

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

A)currency.
B)currency plus savings deposits.
C)currency plus traveler's checks.
D)currency plus traveler's checks plus money market deposits.

Question 76

In explaining the evolution of money

A)government regulation is the most important factor.
B)commodity money,because it is valued more highly,tends to drive out paper money.
C)new forms of money evolve to lower transaction costs.
D)paper money is always backed by gold and therefore more desirable than checks.

Question 77

________ is the narrowest monetary aggregate that the Fed reports.

A)M0
B)M1
C)M2
D)M3

Question 78

Monetary aggregates are

A)measures of the money supply reported by the Federal Reserve.
B)measures of the wealth of individuals.
C)never redefined since "money" never changes.
D)reported by the Treasury Department annually.

Question 79

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons EXCEPT

A)expensive equipment is necessary to set up the system.
B)security concerns.
C)privacy concerns.
D)transportation costs.

Question 80

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