Econ 2035 Ch3.3

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

Barter, coins made of precious metals, paper currency, checks, electronic funds transfers

________ 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

Commodity

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

The equipment necessary to set up the system is expensive, security of the information, and privacy concerns are issues that need to be addressed before an electronic payments system will be widely accepted

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

a credit card

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

accepted as payment for debts

Compared to checks, paper currency and coins have the major drawbacks that they

are easily stolen

A smart card is the equivalent of

cash

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

checks take longer to process, meaning that it may take several days before the depositor can get her cash

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

commodity money

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

commodity money is likely to precede the use of paper currency

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

electronic fund transfers

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

fiat

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

innovations that reduced the costs of exchanging goods and services

In explaining the evolution of money

new forms of money evolve to lower transaction costs

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

paper; counterfeiting

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

precious metals were difficult to carry and transport

The payments system is

the method of conducting transactions in the economy

Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks is that

they provide convenient receipts for purchases

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

transportation costs