Deck 3: What Is Money

Question 1

Even economists have no single, precise definition of money because ________.

A)money supply statistics are a state secret
B)the Bank of Canada 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

Answer 1

C

Question 2

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.

Answer 2

C

Question 3

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

Answer 3

B

Question 4

Income is a ________ and wealth is a ________.

A)stock; flow
B)flow; stock
C)variable; constant
D)constant; variable

Question 5

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

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

Question 6

Money is ________.

A)anything that is generally accepted in payment for goods and 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 7

An individual's annual salary is her ________.

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

Question 8

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 9

Currency is defined as ________.

A)anything accepted for payment of goods and services
B)paper money and coins
C)a unit of account
D)foreign exchange

Question 10

________ 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 11

Money is ________.

A)the same as currency
B)anything that is generally accepted in payment of goods or services or in the repayment of debts
C)not used as a unit of account
D)defined as paper money and coins

Question 12

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 13

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 14

________ is a flow of earnings per unit of time.

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

Question 15

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.

Question 16

Explain the concepts of wealth and income and how they relate to the concept of money.

Question 17

A person's house is part of her ________.

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

Question 18

There is no single precise measure of money or the money supply for economists because ________.

A)the government considers money supply statistics to be confidential and refuses to publish them
B)deciding what is generally accepted in payment for goods and services or in the repayment of debt is difficult to determine
C)economists cannot agree if currency should be considered money
D)definitions change all the time

Question 19

Currency includes ________.

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

Question 20

In the country of Moneyland the law allows you to repay mortgage in rocks. Thus, ________.

A)Moneyland is a poor country
B)rocks in this country are considered as money
C)money is scarce
D)Moneyland is a developing country

Question 21

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 22

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

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

Question 23

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 24

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 25

Which of the following is a true statement?

A)The conversion of a barter economy to one that uses money increases efficiency by increasing the cost of exchange.
B)The conversion of a barter economy to one that uses money increases efficiency by increasing the cost to those who wish to specialize.
C)The conversion of a barter economy to one that uses money increases efficiency by reducing transactions costs.
D)The conversion of a barter economy to one that uses money does not increases efficiency.

Question 26

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 27

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

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

Question 28

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 29

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 30

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 31

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 32

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 33

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

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

Question 34

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

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

Question 35

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 36

________ 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 37

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 38

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 39

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 40

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 41

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 half

Question 42

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 43

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 44

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 45

A hyperinflation is ________.

A)a period of extreme inflation generally greater than 50 percent 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 46

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 47

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 48

Because inflation in Germany after World War I sometimes exceeded 1000 percent per month, one can conclude that the German economy suffered from ________.

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

Question 49

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 50

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 51

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 52

________ 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 53

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 all of the following except ________.

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

Question 54

Why are people are willing to hold money even if it is not the most attractive store of value?

Question 55

Economists say that money is a store of value. since there are other assets that are a more desirable store of money, why do people hold money at all?

Question 56

Can packs of cigarettes be used as commodity money?

Question 57

Increasing transactions costs of selling an asset make the asset ________.

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

Question 58

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 59

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

Question 60

Of the following assets, the least liquid is ________.

A)stocks
B)travellers cheques
C)chequing deposits
D)a house

Question 61

What is a cheque? what are their advantages and disadvantages?

Question 62

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

A)cheques and decreasing use of currency
B)electronic payments
C)commodity monies
D)fiat money

Question 63

The evolution of the payments system from barter to precious metals, then to fiat money, then to cheques 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 cheques

Question 64

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 65

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 cheques

Question 66

E-cash is used for payments ________.

A)that are always secure
B)that are very important
C)on the internet
D)in any transaction

Question 67

The evolution of the payments system from barter to precious metals, then to fiat money, then to cheques 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 68

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 69

Introduction of cheques into the payments system reduced the costs of exchanging goods and services. Another advantage of cheques 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 cheque are available for use immediately

Question 70

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

Question 71

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

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

Question 72

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

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

Question 73

Compared to an electronic payments system, a payments system based on cheques has the major drawback that ________.

A)cheques are less costly to process
B)cheques 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 74

A smart card is the equivalent of ________.

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

Question 75

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 76

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 77

What are electronic payments? how do they reduce transaction costs? by how much?

Question 78

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 79

Explain the evolution of the payments system. Is the system headed towards a cashless society?

Question 80

Compared to cheques, paper currency and coins have the major drawbacks that they ________.

A)are easily stolen
B)are hard to counterfeit
C)are not the most liquid assets
D)must be backed by gold