Questions and Answers
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1.Money is anything that is generally accepted in payment for goods and services or in the repayment of debt
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A.
True
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B.
False
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A.
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2.Income is the same thing as money, because if someone has a high income that person earns a lot of money
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A.
True
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B.
False
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A.
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3.Of the three functions of money, the function that separates money from all other assets is that money serves as a medium of exchange
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A.
True
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B.
False
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A.
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4.Barter is inefficient because it requires that there be a "double coincidence of wants" in order for an exchange to take place
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A.
True
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B.
False
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A.
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5.Barer is inefficient because barter requires an enormous number of prices for each good to be valued in terms of all other goods
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A.
True
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B.
False
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A.
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6.Money is the most liquid store of value in the economy
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A.
True
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B.
False
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A.
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7.Money is an excellent store of value during infationary times
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A.
True
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B.
False
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A.
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8.Fiat money evolved into commodity money because commodity money is less likely to be stolen and is easier to transport
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A.
True
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B.
False
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A.
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9.Fiat money is paper money that the government has guarenteed to redeem in terms of a particular precious metal.
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A.
True
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B.
False
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A.
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10.The driving force behind the movement from checks toward electronic payment is the time and high cost of transporting and processing checks
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A.
True
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B.
False
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A.
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11.Savings deposits are included in the monetary aggregate known as M1
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A.
True
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B.
False
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A.
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12.M1 contains only perfectly liquid financial assets
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A.
True
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B.
False
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A.
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13.Policy makers can use either M1 or M2 as a guide for monetary policy and get the same results because the movements of these monetary aggregates always closely track each other
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A.
True
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B.
False
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A.
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14.The Fed rarely revises its first estimates of the monetary aggregates because its first estimates usually turn out to be very accurate
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A.
True
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B.
False
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A.
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15.The Fed should not concern itself too much with short-run movements in the money supply because there are significant revisions in the monetary aggregates due to small depository institutions reporting their deposits infrequently and revisions in seasonal variation as new data comes in.
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A.
True
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B.
False
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A.
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16.Which of the following is measured as a flow per unit of time?
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A.
Money
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B.
Wealth
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C.
Income
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D.
All of the above
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A.
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17.Which of the following economies has the least efficient payments system?
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A.
An economy using fold as a commodity money
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B.
A barter economy
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C.
An economy using fiat money
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D.
An economy using currency and deposit money
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A.
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18.In which of the following economies are good and services traded directly for other goods and services
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A.
An economy using gold as a commodity money
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B.
A barter economy
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C.
An economy using fiat money
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D.
An economy using currency and deposit money
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A.
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19.Which of the following is not a purpose or function of money?
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A.
Store of value
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B.
Medium of exchange
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C.
Protection against inflation
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D.
Unit of account
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A.
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20.A payments system based on money is
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A.
More efficient than a barter economy because transactions costs are lower
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B.
More efficient than a barter economy because fewer prices are needed to establish relative values between all commodities
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C.
Less efficient than a barter economy because a money economy requires that there be a double coincidence of wants in order for there to be an exchange
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D.
Less efficient than a barter economy because money is costly to transport
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E.
Both (a) and (b) are correct
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A.
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21.With a payments system based on money, John can specialize as a medical doctor and use the money earned from his efforts to buy all of the things he needs. Which of the functions of money has been most clearly demonstrated by the scenario above?
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A.
Store of value
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B.
Medium of exchange
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C.
Protection against inflation
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D.
Unit of account
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A.
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22.Which of the following is not a characteristic of an effective commodity money?
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A.
I must be widely accepted
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B.
It must be standardized
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C.
It must be divisible
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D.
It should be able to be easily reproduced by everyone in the economy
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E.
All of the above are characteristics of an effective commodity money
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A.
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23.An asset with great liquidity is one that
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A.
Can be converted into a medium of exchange with relative ease and speed
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B.
Generates high transactions costs when liquidating
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C.
Is an excellent store of value
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D.
Acts as a unit of account
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E.
All of the above
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A.
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24.Which of the following is an example of a commodity money?
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A.
A five dollar bill
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B.
A check drawn on a bank account in the United States
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C.
A credit card
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D.
Cigarettes in a POW camp
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E.
All of the above
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A.
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25.Which of the following is an example of fiat money?
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A.
A five dollar bill
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B.
A twenty dollar gold piece
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C.
Sea shells used as money in a primitive society
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D.
Cigarettes in a POW camp
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E.
All of the above
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A.
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26.Which of the following forms of payment is least efficient because it generates the highest transactions costs?
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A.
Checks
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B.
Commodity money
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C.
Fiat money
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D.
Electronic payment
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A.
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27.Which of the following is not an example of electronic money?
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A.
Debit card
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B.
Stored-value card
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C.
Smart card
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D.
Credit card
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A.
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28.Which of the following statements about fiat money is false?
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A.
Fiat money is paper currency decreed by government as legal tender
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B.
Fiat money is easier to transport than commodity money
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C.
Fiat money is redeemable into a particular precious metal such as gold
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D.
Fiat money should be made difficult to counterfeit
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A.
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29.When prices are rising rapidly, money does not act as a good
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A.
Unit of account
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B.
Medium of exchange
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C.
Liquid asset
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D.
Store of value
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A.
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30.Which of the following is not included in the M1 monetary aggregate?
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A.
Money market deposit accounts
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B.
Currency
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C.
Demand deposits
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D.
NOW accounts
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E.
Traveler's checks
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A.
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31.Checkable deposits are included in which of the following monetary aggregates?
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A.
M1 only
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B.
M2 only
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C.
M1 and M2
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D.
Checkable deposits are not included in either of the monetary aggregates
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A.
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32.Which of the following is not included in M2?
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A.
Currency
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B.
Large-denomination time deposits
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C.
Small-denomination time deposits
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D.
Savings deposits
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A.
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33.Which of the following statements about the monetary aggregates is true?
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A.
M1 is greater than M2
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B.
The growth rates of M1 and M2 always track each other very closely
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C.
The Fed is more concerned with long-run movements in the monetary aggregates rather than the short-run movements
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D.
The Fed rarely revises its estimates of the monetary aggregates
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A.
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34.Which of the following statements about the liquidity of the assets in the monetary aggregates is true?
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A.
The assets in M1 are more liquid than the assets in M2
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B.
The assets in M2 are more liquid than the assets in M1
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C.
All of the assets in the monetary aggregates have equal liquidity because they are all considered money
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D.
The only liquid asset in the monetary aggregates is currency
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A.
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35.Which of the following is not a characteristic of barter economies?
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A.
Barter requires that there be a double coincidence of wants in order for there to be an exchange
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B.
Barter requires an enormous number of prices in order for every good to be valued in terms of every other good
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C.
In a barter economy, it is difficult for people to specialize in the production of just one item
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D.
Barter generates very low transaction costs
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E.
In a barter economy, goods are exchanged directly for other goods
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A.
