Final Review

The Federal Reserve uses two definitions of the money supply, M1 and M2, because A. M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply. B. M2 is a narrow definition focusing more on liquidity, whereas M1 is a broader definition of the money supply. C. M2 satisfies the medium of exchange function of money, whereas M1 satisfies the store of value function. D. M2 is also known as cash and cash equivalent, whereas M1 represents the standard of deferred payment function.

A. M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply.

A baseball fan with an Albert Pujols baseball card wants to trade it for a Derek Jeter baseball card, but everyone the fan knows who has a Jeter card doesn't want a Pujols card. Economists characterize this problem as a failure of the A. principle of a double coincidence of wants. B. theory of comparative advantage. C. irrational exuberance doctrine. D. market clearing mechanism.

A. principle of a double coincidence of wants.

The U.S. dollar can best be described as A. commodity-backed money. B. fiat money. C. reserve money. D. commodity money.

B. fiat money.

The central bank of a country controls the money supply, which equals the currency held by A. the public. B. the public plus their checking account balance. C. banks. D. the public plus their checking and saving account balances.

B. the public plus their checking account balances.

When money is acting as a store of value, it allows an individual to A. exchange goods for other goods and services in the economy. B. transfer dollars, and therefore purchasing power, into the future. C. measure the value of goods and services in the economy. D. trade money for goods and services in the economy.

B. transfer dollars, and therefore purchasing power, into the future.

Distinguish among money, income, and wealth. A. A person's money is the currency plus all bank accounts owned, income is equal to the earning from work and wealth is equal to the profit from investment. B. A person's money is the currency held and the earning from work, income is equal to the bank balance and wealth is equal to the profit from investment. C. A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts. D. A person's money is the currency in thr pocket, imcome is the earning and wealth is equal to asset value.

C. A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts.

The economic definition of money is: A. Anything authorized by the government to be used in an exchange. B. Anything of value owned by a person or a firm. C. A good that has intrinsic value. D. Any asset that people are generally willing to accept in exchange for goods and services.

D. Any asset that people are generally willing to accept in exchange for goods and services.

Which of the following best explains the difference between commodity money and fiat money? A. Commodity money is usually authorized by the central bank, whereas fiat money has to be exchanged for gold by the central bank. B. Commodity money has no value except as money, whereas fiat money has value independent of its use as money. C. All money is commodity money, as it has to be exchanged for gold by the central bank. D. Fiat money has no value except as money whereas commodity money has value independent of its use as money.

D. Fait money has no value except as money, whereas commodity money has value independent of its use as money.

Which of the following is not a function of money? A. Standard of deferred payment. B. Unit of account. C. Store of value. D. Medium of exchange. E. Commodity.

E. Commodity.

Money is an imperfect standard of deferred payment because _________ causes the value of money to decrease over time.

inflation