Deck 8: Money, The Price Level, and Inflation

Question 1

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) unit of account
C) store of value
D) source of liquidity

Answer 1

A

Question 2

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

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

Answer 2

B

Question 3

The functions of money are

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

Answer 3

D

Question 4

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

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

Question 5

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

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

Question 6

Money ________.

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

Question 7

Which of the following is a primary function of money?

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

Question 8

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

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

Question 9

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

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

Question 10

The "double coincidence of wants" problem is

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

Question 11

Barter occurs when you exchange

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

Question 12

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

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

Question 13

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

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

Question 14

Barter is

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

Question 15

As a means of payment,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 means of lending.
C) pricing, contracts, and store of value.
D) medium of exchange, unit of account, and store of value.

Question 16

In a barter system,we would see

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

Question 17

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

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

Question 18

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

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

Question 19

A medium of exchange is

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

Question 20

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

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

Question 21

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 22

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

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

Question 23

Money's function as a medium of exchange means that

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

Question 24

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

Question 25

The unit of account

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

Question 26

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

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

Question 27

As a unit of account,money is used to

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

Question 28

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

Question 29

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

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

Question 30

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

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

Question 31

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) store of value.
D) record keeping device.

Question 32

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

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

Question 33

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) demand will not necessarily equal supply.
D) in a barter transaction only one party needs to want what the other party has to sell.

Question 34

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

Question 35

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

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

Question 36

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

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

Question 37

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

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

Question 38

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 III
D) I and II

Question 39

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

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

Question 40

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

Question 41

In the United States today,money consists of

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

Question 42

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

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

Question 43

Checking deposits at banks are

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

Question 44

The money aggregate M1 consists of

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

Question 45

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

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

Question 46

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 unit of account
C) a medium of exchange
D) a means of payment

Question 47

M1 is a measure of

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

Question 48

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

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

Question 49

Which of the following is money?

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

Question 50

Which of the following counts as part of money?

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

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 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 and III
D) I, II and III

Question 52

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

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

Question 53

Checking deposits are

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

Question 54

M1 includes all the following items except ________.

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

Question 55

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

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

Question 56

Which of the following is NOT included in M1?

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

Question 57

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

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

Question 58

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 59

M1 includes

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

Question 60

U.S.currency ________.

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

Question 61

M2 is

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

Question 62

The largest component of M2 is

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

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

Question 64

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

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

Question 65

Suppose you cash in a Certificate of Deposit (a small time deposit) to acquire the traveler's checks you'll need for your vacation.What happens to M1 and M2?

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

Question 66

Comparing M1 and M2 we know that

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

Question 67

Which of the following is included in M1?

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

Question 68

The definition of M2 includes

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

Question 69

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

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

Question 70

M2 ________.

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

Question 71

Which of the following is part of M2?

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

Question 72

Currency held outside the banking system is included

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

Question 73

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

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

Question 74

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

Question 75

Checking deposits are included in

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

Question 76

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

Question 77

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

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

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

Question 78

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

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

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

Question 79

Sam has $500 in traveler's 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 $250 and M2 does not change
B) M1 decreases by $400 and M2 increases by $250
C) M1 does not change and M2 increases by $250
D) M1 and M2 do not change

Question 80

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

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