Chapter 3

income

flow variable

debt money savings wealth

stock variable

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

1. 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. 3. 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. 5. What you owe—the accumulation of spending over and above periodic earnings

1. income 2. money 3. wealth 4. savings 5. debt

1. ​(Owner's) Equity 2. Debt 3. Inventory 4. Wealth 5. Capital stock

1. profits 2. deficit spending 3. quantity supplied 4. savings per month 5. investment

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

B

Which of the following is a disadvantage of using fiat money? A. Fiat money is not easily divisible or suitable for small purchases B. Public authorities may be tempted to produce too much of it C. Fiat money is not portable or widely accepted

B

Which of the following represents an advantage of using commodity money for​ transactions? A. It can never be debased dash- its​ purity, quantity, and value are easy to verify B. It has an intrinsic value beyond its use as a medium of exchange C. It is easily​ divisible, so that it is easy to​ 'make change' D. It is lightweight and portable

B

Which of the following is an example of fiat​ money? A. a twenty dollar gold piece B. a five dollar bill C. sea shells used as money in a primitive society D. cigarettes in a POW​ (prison) camp Which of the following statements about fiat money is​ false? A. Fiat money is paper currency decreed by government as legal tender. B. Fiat money is redeemable into a particular precious metal such as gold. C. Fiat money is easier to transport than commodity money. D. Fiat money should be made difficult to counterfeit.

B, B

Which of the following is not a purpose or function of​ money? A. Medium of exchange B. Protection against inflation C. Unit of account D. Store of value A payments system based on money is A. less efficient than a barter economy because transactions costs are higher. B. less efficient than a barter economy because a money economy requires that there be a double coincidence of wants in order for there to be an exchange. C. more efficient than a barter economy because fewer prices are needed to establish relative values between all commodities. D. less efficient than a barter economy because money is costly to transport.

B, C

Which of the following is not a characteristic of an effective commodity​ money? A. It must be widely accepted. B. It should be able to be easily reproduced by everyone in the economy. C. It must be standardized. D. It must be divisible. Which of the following forms of payment is least efficient because it generates the highest transactions​ costs? A. fiat money B. electronic payment C. checks D. commodity money

B, D

Currency​ includes: A. paper money and checks. B. paper​ money, coins,​ checks, and savings deposits. C. paper money and coins. D. paper​ money, coins, and checks.

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

Which of the following economies has the least efficient payments​ system? A. an economy using checks B. an economy using fiat money C. a barter economy D. an economy using gold as a commodity money Suppose that there are 14 goods in an economy. The number of prices that are needed to exchange any good for any other good are ------

C, A if its most efficient 91

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​: A. cigarettes are widely accepted as a form of payment in prison. B. cigarettes serve as a medium of exchange. C. prisoners can exchange cigarettes for other goods and services. D. exchanging cigarettes for other goods and services increases transaction costs.

D

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

----- are periods of extreme inflation. During​ hyperinflation, the quantity of money needed to purchase the most basic items are ------ since money is ----- its value rapidly.

Hyperinflation excessive losing

Which of the Federal​ Reserve's measures of the monetary aggregateslong dash—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

----- is the relative ease and speed with which an asset can be converted into cash. ------ is the most liquid store of value in the economy.

liquidity money

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

medium of exchange unit of account store of value

When money is used as acceptance for payment of goods and​ services, it is being used as a . When money is used to express the relative value of goods and​ services, it is being used as a . When money is used to hold purchasing power for future​ use, it is being used as a .

medium of exchange unit of account store of value

a. Checking account deposits b. Houses c. Currency d. Automobile e. Savings deposits f. Common stock

most liquid first currency checking acct savings common stock car house