eco ch 3
When money is used to express the relative value of goods and services, it is being used as a
unit of account
1) 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.
a
10) 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.
a
10) Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks 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.
a
10) 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.
a
11) 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.
a
13) 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.
a
14) 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
a
15) 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.
a
2) 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.
a
2) 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.
a
26) 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
a
29) 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.
a
3) 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.
a
3) ________ 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
a
4) 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
a
4) 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.
a
5) The total collection of pieces of property that serve to store value is a person's A) wealth. B) income. C) money. D) credit.
a
5) 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.
a
8) Compared to checks, 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.
a
8) ________ is a flow of earnings per unit of time. A) Income B) Money C) Wealth D) Currency
a
9) Money ________ transaction costs, allowing people to specialize in what they do best. A) reduces B) increases C) enhances D) eliminates
a
In prison, cigarettes are sometimes used among inmates as a form of payment. All of the following explain how cigarettes solve the "double coincidence of wants" problem, even if a prisoner does not smoke, except: A. exchanging cigarettes for other goods and services increases transaction costs. B. prisoners can exchange cigarettes for other goods and services. C. cigarettes are widely accepted as a form of payment in prison. D. cigarettes serve as a medium of exchange
a
11) 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.
b
12) 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.
b
16) 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.
b
20) 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.
b
21) 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.
b
24) ________ 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
b
28) 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.
b
3) ________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs B) Transaction costs C) Contracting costs D) Barter costs
b
5) 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
b
9) An individual's annual salary is her A) money. B) income. C) wealth. D) liabilities.
b
1) 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
c
11) 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.
c
12) 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.
c
13) 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.
c
2) 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.
c
23) 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.
c
25) Increasing transactions costs of selling an asset make the asset A) more valuable. B) more liquid. C) less liquid. D) more moneylike.
c
31) 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.
c
4) 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.
c
6) 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.
c
6) 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.
c
7) 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.
c
7) 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.
c
8) 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
c
Which of the following is an example of fiat money? A. a twenty dollar gold piece B. cigarettes in a POW (prison) camp C. a five dollar bill D. sea shells used as money in a primitive society
c
1) 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.
d
22) 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.
d
27) Of the following assets, the least liquid is A) stocks. B) traveler's checks. C) checking deposits. D) a house.
d
30) 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.
d
6) A person's house is part of her A) money. B) income. C) liabilities. D) wealth.
d
7) ________ 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
d
9) 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
d
People in the United States in the nineteenth century were sometimes willing to be paid by cheque rather than with gold, even though they knew that there was a possibility that the cheque might bounce. Which of the following would represent an advantage of gold over cheques as a form of money? A. Gold is easily divisible and may be used for small expenditures B. Gold is easy for an individual to carry from place to place C. Gold is easy to transfer from one city to another or one state to another D. Gold has intrinsic value when compared to cheques
d
Which of the following statements about fiat money is false? A. Fiat money is easier to transport than commodity money. B. Fiat money is paper currency decreed by government as legal tender. C. Fiat money should be made difficult to counterfeit. D. Fiat money is redeemable into a particular precious metal such as gold.
d
When money is used as acceptance for payment of goods and services, it is being used as a
medium of exchange
When money is used to hold purchasing power for future use, it is being used as a
store of value
