Money and Banking: Chapter 3

Which of the following is not a purpose or function of​ money?

Protection against inflation

Which of the following is a disadvantage of using fiat money.

Public authorities may be tempted to produce too much of it.

In ancient​ Greece, what property made gold a more likely candidate for use as money than​ wine? Gold's property as a ____________ made it a more likely candidate for use as money when compared to wine.

Store of Value

Maria is currently pregnant. She expects her expenditures to increase in the future and decides to increase the balance in her savings account.

Store of Value

Money may serve as an instrument that allows for comparison of the relative worth of various goods and services. What function of money does this​ describe?

Unit of Account

Tim wants to calculate the relative value of oranges and​ apples, and therefore checks the price per pound of each of these goods quoted in currency units.

Unit of Account

When money is used to express the relative value of goods and​ services, it is being used as a ________________.

Unit of Account

In​ Brazil, a country that underwent a rapid inflation before​ 1994, many transactions were conducted in dollars rather than in​ reals, the domestic currency. During this​ period, the US dollar served what property or properties in​ Brazil?

Unit of account, Medium of exchange, Store value

__________ is the total collection of pieces of property that serves to store value.

Wealth

_____________ is the total collection of pieces of property that serves to store value.

Wealth

Debt

What you owe—the accumulation of spending over and above periodic earnings.

Wealth

What you own—the total collection of assets that serve to store value. This includes not only money but also other assets such as​ bonds, common​ stock, art,​ land, furniture,​ cars, and houses.

Which of the following statements about the monetary aggregates is false​?

When the growth rate of M2 increases, the growth rate of M1 must decrease.

It is not unusual to find a business that displays a sign saying​ "no personal​ checks, please." Based on this​ observation, a checking account must be_______________ than currency.

Less Liquid

______________ is the relative ease and speed with which an asset can be converted into cash.

Liquidity

Which of the Federal​ Reserves measures of the monetary aggregates M1 or M2long dash—is composed of the most liquid​ assets? Which is the larger​ measure?All else​ equal, ___________ is the monetary aggregate composed of the most liquid assets and _________ is the larger measure

M1, M2

Brooke accepts money in exchange for performing her daily tasks at her​ office, since she knows she can use that money to buy goods and services.

Medium of Exchange

When money is used as acceptance for payment of goods and​ services, it is being used as a_______________.

Medium of Exchange

_____________ is the most liquid store of value in the economy.

Money

If you use an online payment system such as PayPal to purchase goods or services on the​ Internet, this will affect____________.

Neither M1 and M2

In September​ 2008, the growth rate of the M1 money supply was​ zero, while the growth rate of the M2 money supply was about​ 5%. In July​ 2009, the growth rate of M1 was about​ 17%, and the growth rate of M2 was about​ 8%. When interpreting changes in the growth rates of M1 and​ M2, Federal Reserve policymakers should​ recognize:

1.) an inflationary problem may exist in the future as the growth of M1 to​ 17% is alarmingly high. 2.) the growth rate of M2 should be higher than the​ 3% increase shown over this period.

Which of the following is not included in​ M2?

​large-denomination time deposits

Money

A tool used to facilitate​ transactions, store​ wealth, or to be used as a yardstick to compare values.

Which of the following is a disadvantage of using checks as a means of​ payment?

All the paper shuffling required to process checks is costly.

Which of the following economies has the most efficient payments​ system?

An economy using checks.

Assume that you are interested in earning some return on idle balances you usually keep in your checking account and decide to buy some money market mutual fund shares by writing a check. Everything else the​ same, M1 will______________ and M2 will _____________.

Decrease, Stay the Same

How do checkable deposits differ from demand deposits?

Demand deposits are those transactions accounts against which an unlimited number of checks can ordinarily be written. Checkable deposits often carry restrictions on transferability.

Income

Earnings received from​ working, property​ rentals, entrepreneurship, or the ownership of financial assets.

If using an automatic checking account to pay for​ goods, the type of payment utilized is called ____________ .

Electronic Payment

During​ hyperinflation, the quantity of money needed to purchase the most basic items are _______________ since money is ____________ is value rapidly.

Excessive, Losing

Which of the following statements about fiat money is​ false?

Fiat money is redeemable into a particular precious metal such as gold.

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?

Gold has intrinsic value when compared to cheques

_______________ are periods of extreme inflation.

Hyperinflation

Which of the following is measured as a flow per unit of​ time.

Income

Which of the following is measured as a flow per unit of​ time?

Income

Which of the following represents an advantage of using commodity money for​ transactions?

It has an intrinsic value beyond its use as a medium of exchange.

Which of the following is not a characteristic of an effective commodity​ money?

It should be able to be easily reproduced by everyone in the economy.

The diagram to the right shows the rate of inflation in the United States over the past 35 years. As it is well​ known, the United States experienced​ double-digit inflation in the late 1970s. What property would lead individuals to hold more money in the 1990s than in the​ 1970s? Everything else​ equal, this would demonstrate the property of money as a ____________ .

Store of Value

When money is used to hold purchasing power for future​ use, it is being used as a ______________ .

Store of Value

Savings

The difference between what is earned and what is spent. This adds to total wealth.

The following are some of the reasons behind the movement from checks toward electronic payment except_____________.

The increase in identity theft risks with online payments.

Which of the following statements about the liquidity of the assets in the monetary aggregates is false​?

The only liquid assets in the monetary aggregates is currency.

Why is simply counting currency an inadequate measure of​ money?

There are other liquid assets similar to currency that can be used as money to purchase goods and services.

What is the main disadvantage of moving to e-money or moving to a cashless​ society?

There are problems with security and privacy

Which of the following is an example of fiat​ money?

a five dollar bill

An asset with great liquidity is one that

can be converted into a medium of exchange with relative ease and speed.

Which of the following forms of payment is least efficient because it generates the highest transactions​ costs?

commodity money

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​:

exchanging cigarettes for other goods and services increases transaction costs.

n​ 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​:

exchanging cigarettes for other goods and services increases transaction costs.

We know that money is the most liquid store of value due to many reasons except that

money is exposed to the risks associated with hyperinflation.

Which of the following is not included in the M1 monetary​ aggregate?

money market deposit accounts

A payments system based on money is

more efficient than a barter economy because fewer prices are needed to establish relative values between all commodities.

Currency​ includes

paper money and coins.

Currency​ includes:

paper money and coins.