Chapter 3 Quiz

A​ person's house is part of her A. money. B. liabilities. C. income. D. wealth.

D

Definition of: 1 debt 2 money 3 income 4 savings 5 wealth

5. Earnings received from​ working, property​ rentals, entrepreneurship, or the ownership of financial assets. 2. A tool used to facilitate​ transactions, store​ wealth, or to be used as a yardstick to compare values. 1. 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. 4. The difference between what is earned and what is spent. This adds to total wealth. 3. What you owe—the accumulation of spending over and above periodic earnings.

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

A

An important characteristic of the modern payments system has been the rapidly increasing use of A. electronic fund transfers. B. commodity monies. C. checks and decreasing use of currency. D. fiat money.

A

During​ hyperinflations, A. money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale. B. the value of money rises rapidly. C. middleminus−class savers benefit as prices rise. D. ​money's value remains fixed to the price​ level; that​ is, if prices double so does the value of money.

A

If the price level​ doubles, the value of money A. falls by 50 percent. B. rises but does not​ double, due to diminishing returns. C. more than​ doubles, due to scale economies. D. doubles.

A

The M2 monetary aggregate contains everything that is in M1 plus other assets that are highly​ ________ (can be turned into cash quickly at very little​ cost). A. liquid B. efficient C. stable D. consistent

A

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

A

When economists say that money promotes​ ________, they mean that money encourages specialization and the division of labor. A. efficiency B. contracting C. greed D. bargaining

A

Which of the following is a true​ statement? A. Income is a flow variable. B. Money and income are stock variables. C. Money is a flow variable. D. Money and income are flow variables.

A

Which of the following is not included in the M1 measure of money but is included in the M2 measure of​ money? A. Smallminus−denomination time deposits B. Demand deposits C. ​Traveler's checks D. Currency

A

​________ 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. Paper C. Fiat D. Electronic

A

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: ​(Check all that​ apply.) A. an inflationary problem may exist in the future as the growth of M1 to​ 17% is alarmingly high. This is the correct answer. B. a deflationary opportunity may exist in the future as the growth rate of M2 is much smaller than that of M1. Your answer is not correct. C. the growth rate of M2 was quite reasonable compared to that of M1. D. the growth rate of M2 should be higher than the​ 3% increase shown over this period. This is the correct answer. E. an inflationary problem may exist in the future as both M1 and M2 growth rates have increased during that time

A, D

In a barter economy the number of prices in an economy with N goods is A. ​N(N/2) minus− 1. B. ​[N(N minus− ​1)]/2. C. ​N(N/2). D. 2N.

B

Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called​ ________ money. A. electronic B. fiat C. commodity D. funny

B

Which of the following is included in both M1 and​ M2? A. Money market deposit accounts B. Currency C. Smallminus−denomination time deposits D. Savings deposits

B

All of the following are necessary criteria for a commodity to function as money except A. it must be easy to carry. B. it must be divisible. C. it must deteriorate quickly. D. it must be widely accepted.

C

An​ individual's annual salary is her A. liabilities. B. wealth. C. income. D. money.

C

Money is A. a flow of earnings per unit of time. B. the total collection of pieces of property that are a store of value. C. anything that is generally accepted in payment for goods and services or in the repayment of debt. D. always based on a precious metal like gold or silver.

C

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 promote the safety of the payments system. B. competition among firms to make it easier for customers to purchase their products. C. innovations that reduced the costs of exchanging goods and services. D. government regulations designed to improve the efficiency of the payments system.

C

The payments system is A. an illegal method of rewarding contracts. B. used by your employer to determine salary increases. C. the method of conducting transactions in the economy. D. used by union officials to set salary caps.

C

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

Which of the following is a disadvantage of using checks as a means of​ payment? A. There is a maximum dollar amount for which checks may be used. B. Checks are seldom accepted for small to moderate purchases. C. All the paper shuffling required to process checks is costly. D. Checks are only accepted by businesses sharing a bank with the check writer.

C

Why is simply counting currency an inadequate measure of​ money? A. Currency is too broad a definition of​ money, and often means many things. B. Simply counting currency can often overstate an​ individual's wealth or income. C. There are other liquid assets similar to currency that can be used as money to purchase goods and services. D. All of the above are correct.

C

Compared to an economy that uses a medium of​ exchange, in a barter economy A. transaction costs are lower. B. liquidity costs are higher. C. liquidity costs are lower. D. transaction costs are higher.

D

Compared to​ checks, paper currency and coins have the major drawbacks that they A. must be backed by gold. B. are hard to counterfeit. C. are not the most liquid assets. D. are easily stolen.

D

If there are five goods in a barter​ economy, one needs to know ten prices in order to exchange one good for another.​ If, however, there are ten goods in a barter​ economy, then one needs to know​ ________ prices in order to exchange one good for another. A. 20 B. 25 C. 30 D. 45

D

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? A. Medium of exchange B. Standard of deferred payment C. Store of value D. Unit of account

D

pared to an electronic payments​ system, a payments system based on checks has the major drawback that A. legal liability is more clearly defined. B. fraud may be more difficult to commit when paper receipts are eliminated. C. checks are less costly to process. D. checks take longer to​ process, meaning that it may take several days before the depositor can get her cash.

D

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 decrease and M2 will stay the same

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? A. Unit of account B. Medium of exchange C. Store of value D. A and B are correct E. B and C are correct F. ​A, B, and C are correct

F

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