Chapter 3 Questions

2) ________ 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) Money; wealth

12) Which of the following sequences accurately describes the evolution of the payments system? A) Barter, coins made of precious metals, paper currency, checks, electronic funds transfers B) Barter, coins made of precious metals, checks, paper currency, electronic funds transfers C) Barter, checks, paper currency, coins made of precious metals, electronic funds transfers D) Barter, checks, paper currency, electronic funds transfers

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

1) 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) anything that is generally accepted in payment for goods and services or in the repayment of debt.

14) A smart card is the equivalent of A) cash. B) savings bonds. C) savings deposits. D) certificates of deposit.

A) cash.

6) 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) easily standardized, making it easy to ascertain its value.

9) 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) extremely liquid.

8) If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 8 B) 6 C) 5 D) 4

B) 6

5) ________ 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) Transaction costs.

13) Which of the following is not a form of e-money? A) a debit card B) a credit card C) a stored-value card D) a smart card

B) a credit card

11) Paper currency that has been declared legal tender is called ________ money. A) commodity B) fiat C) electronic D) funny

B) fiat

16) Defining money becomes ________ difficult as the pace of financial innovation ________. A) less; quickens B) more; quickens C) more; slows D) more; stops

B) more; quickens

7) A problem with barter exchange 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) there exists a multiple number of prices for each good.

18) Of the following, the largest is A) money market deposit accounts. B) demand deposits. C) M1. D) M2.

D) M2

19) Small-denomination time deposits refer to certificates of deposit with a denomination of less than ________. A) $1,000 B) $10,000 C) $100,000 D) $1,000,000

C) $100,000

3) 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) Income is a flow variable.

17) The components of the U.S. M1 money supply are demand and checkable deposits plus A) currency. B) currency plus savings deposits. C) currency plus travelers checks. D) currency plus travelers checks plus money market deposits.

C) currency plus travelers checks.

10) Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one can conclude that the German economy suffered from A) deflation. B) disinflation. C) hyperinflation. D) superdeflation.

C) hyperinflation

4) 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) medium of exchange.

15) An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except A) expensive equipment is necessary to set up the system. B) security concerns. C) privacy concerns. D) transportation costs.

D) transportation costs.