ECON 2035 Ch. 2 FINALx

To an economist, ___ is anything that is generally accepted in payment for goods and services or in the repayment of debt.

money

The two measures of the ___ ___ do not move together, so they cannot be used interchangeably by policymakers.

money supply

Recent financial innovation makes the Federal Reserve's job of conducting monetary policy ___ ___, since the Fed no longer knows what to consider money.

more difficult

Defining money becomes ___ difficult as the pace of financial innovation ___.

more quickens

A problem with barter exchange when there are many goods is that in a barter system there exists a(n) ___ ___ of prices for each good.

multiple number

The currency component includes paper money and coins held in the hands of the ___ ___.

nonbank public

Although ___ currency is lighter than coins made of metals, a disadvantage arising from modern technology is the ease of ___.

paper counterfeiting

Whatever a society uses as money, the distinguishing characteristic is that it must be generally acceptable as ___ for goods and services or in the repayment of ___.

payment debt

When paper currency is decreed by governments as legal tender, legally it must be accepted as ___ for ___.

payment debts

When we say that money is a stock variable, we mean that the ___ of money is measured at a given point in time.

quantity

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 innovations that ___ the costs of exchanging goods and services.

reduced

Because it is a unit of account, money ___ the number of prices that need to be calculated.

reduces

Money ___ transaction costs, allowing people to specialize in what they do best.

reduces

As a store of value, money is a way of ___ for future purchases.

saving

The other checkable deposits component of the M1 measure reported by the Federal Reserve includes automatic transfer from ___ ___.

savings accounts

For a commodity to function effectively as money it must be easily ___, making it easy to ascertain its value.

standardized

If an individual moves money from a savings deposit account to a money market deposit account, M1 and M2 ___ ___ ___.

stay the same

If an individual moves money from currency to a demand deposit account, M1 and M2 ___ ___ ___.

stays the same

The difference between money and income is that money is a ___ and income is a ___.

stock flow

Compared to checks, paper currency and coins have the major drawbacks that they are easily ___.

stolen

Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a(n) ___ of ___.

store value

*T/F* Income is a flow variable.

t

The M1 measure of money includes ___ checks.

travelers

Dennis notices that jackets are on sale for $99. In this case money is functioning as a(n) ___ of ___.

unit account

When money prices are used to facilitate comparisons of value, money is said to function as a(n) ___ of ___.

unit account

A person's house is part of her ___.

wealth

The total collection of pieces of property that serve to store value is a person's ___.

wealth

Small-denomination time deposits refer to certificates of deposit with a denomination of less than $___.

100000

The decade during which the growth rates of monetary aggregates diverged the most is the ___s.

1990

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.

45

A hyperinflation is a period of extreme inflation generally greater than ___% per month.

50

If there are four goods in a barter economy, then one needs to know ___ prices in order to exchange one good for another.

6

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

Since it does not have to be converted into anything else to make purchases, ___ is the most liquid asset.

money

During hyperinflations, ___ no longer functions as a good store of value and people may resort to barter transactions on a much larger scale.

money

Ranking assets from most liquid to least liquid, the correct order is A) savings bonds; house; currency. B) currency; savings bonds; house. C) currency; house; savings bonds. D) house; savings bonds; currency.

B

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

___ is included in both M1 and M2.

Currency

___ 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.

Commodity

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

Of the following assets, the least liquid is A) stocks. B) traveler's checks. C) checking deposits. D) a house.

D

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

D

Which of the following is *included in M2 but not in M1?* A) NOW accounts B) Demand deposits C) Currency D) Money market mutual fund shares (retail)

D

Which of the following is not included in the M1 measure of money but is included in the M2 measure of money? A) Currency B) Traveler's checks C) Demand deposits D) Small-denomination time deposits

D

___ is a flow of earnings per unit of time.

Income

________ is the relative ease and speed with which an asset can be converted into a medium of exchange.

Liquidity

________ is the narrowest monetary aggregate that the Fed reports.

M1

___ ___ are measures of the money supply reported by the Federal Reserve.

Monetary aggregates

___ is used to make purchases while ___ is the total collection of pieces of property that serve to store value.

Money wealth

In a barter economy the number of prices in an economy with N goods is [___(___ - 1)]/2.

N N

___ ___ are not included in the monetary aggregate M2.

Savings bonds

___ ___ are the time and resources spent trying to exchange goods and services.

Transaction costs

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are ___.

money

For a commodity to function as money it must be widely ___.

accepted

For a commodity to function as money it must be easy to ___.

carry

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 the fact that precious metals were difficult to ___ and ___.

carry transport

A smart card is the equivalent of ___.

cash

A disadvantage of ___ ___ made from precious metals is that it is very heavy and hard to transport from one place to another.

commodity money

As the payments system evolves from barter to a monetary system, ___ ___ is likely to precede the use of paper currency.

commodity money

The payments system is the method of ___ ___ in the economy.

conducting transactions

Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks is that they provide ___ ___ for purchases.

convenient receipts

Paper money and coins make up ___.

currency

The components of the U.S. M1 money supply are demand and checkable deposits plus ___ plus ___ ___.

currency travelers checks

If an individual moves money from a demand deposit account to a money market deposit account, M1 ___ and M2 stays the same.

decreases

If an individual uses money from a demand deposit account to purchase a U.S. savings bond, M1 ___ and M2 ___.

decreases

Money increases economic efficiency because it ___ transactions costs.

decreases

For a commodity to function as money it must *NOT* ___ quickly.

deteriorate

For a commodity to function as money it must be ___.

divisible

When compared to exchange systems that rely on money, disadvantages of the barter system include the requirement of a ___ ___ of wants.

double coincidence

All but the most primitive societies use money as a medium of exchange, implying that the use of money is ___ ___.

economically efficient

When economists say that money promotes ___, they mean that money encourages specialization and the division of labor.

efficiency

The conversion of a barter economy to one that uses money increases ___ by reducing ___ costs.

efficiency transaction

An important characteristic of the modern payments system has been the rapidly increasing use of ___ ___ ___.

electronic fund transfers

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 ___ ___.

extremely liquid

*T/F* Money and income are flow variables.

f

*T/F* Money and income are stock variables.

f

*T/F* Money is a flow variable.

f

If the price level doubles, the value of money ___ by 50 percent.

falls

Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ___ money.

fiat

Compared to an economy that uses a medium of exchange, in a barter economy transaction costs are ___.

higher

Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one can conclude that the German economy suffered from ___.

hyperinflation

If merchants in the country Zed choose to close their doors, preferring to be stuck with rotting merchandise rather than worthless currency, then one can conclude that Zed is experiencing a ___.

hyperinflation

An individual's annual salary is her ___.

income

A fall in the level of prices ___ the value of money.

increases

If an individual moves money from a money market deposit account to currency, M1 ___ and M2 stays the same.

increases

If an individual moves money from a small-denomination time deposit to a demand deposit account, M1 ___ and M2 stays the same.

increases

If an individual redeems a U.S. savings bond for currency M1 ___ and M2 ___.

increases increases

Increasing transactions costs of selling an asset make the asset ___ ___.

less liquid

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).

liquid

Even economists have no single, precise definition of money because the "moneyness" or ___ of an asset is a matter of degree.

liquidity

Compared to an electronic payments system, a payments system based on checks has the major drawback that checks take ___ to ___, meaning that it may take several days before the depositor can get her cash.

longer process

In explaining the evolution of money new forms of money evolve to ___ ___ ___.

lower transaction costs

Kevin purchasing concert tickets with his debit card is an example of the ___ of ___ function of money.

medium exchange

Of money's three functions, the one that distinguishes money from other assets is its function as a ___ of ___.

medium exchange