Econ Chapter 11 Homework Questions

John owns a pizzeria and needs to borrow money for a new oven. In the loanable funds market, John is

a demander of loanable funds

She quickly walks to the checkout line where she pays the cashier for her new dress. At the cashier, money is serving as

a medium of exchange

She is especially excited because she has been saving money each week in her piggy bank at home so that she can afford a trip to Florida next summer. The money in the piggy bank is serving as

a store of value

Dan saves a portion of his income in an interest-earning account. in the loanable funds market, dan is

a supplier of loanable funds

Norah walks into her favorite department store, Bullseye, to pick out a new dress. She checks out the price tag and is excited to see that the dress is on sale and is now relatively cheaper than another dress she was considering. Here, money is serving as

a unit of account

M1 and M2 are two definitions of the money supply. Determine whether the items listed are included in the money supply under each of these definitions. a. common stock b. money market account balances c. balances in savings accounts d. balances on checking accounts e. certificates of deposit f. currency g. credit cards h. gold

a. neither M1 or M2 b. M2 only c. M2 only d. both M1 and M2 e. M2 only f. both M1 and M2 g. neither M1 or M2 h. neither M1 or M2

If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act? a. their business will not take out the loan b. the business will take out the loan c. the business will demand more funds to cover the shortfall d. the business will proceed anyway, knowing that the return is only an estimate

a. the business will not take out the loan

Liquidity is best defined as a. the ease of converting an asset into cash b. anything that is accepted in exchange for goods or for the payment of debt c. money with no intrinsic value d. the direct exchange of goods and services for other goods and services

a. the ease of converting an asset into cash

a double coincidence of wants is a. literally trading one good for another without using money b. a situation where two individuals each want some or service that the other can provide c. a situation in which money is used to facilitate economic transactions

b. a situation where two individuals each want some or service that the other can provide

Money is best defined as... a. paper bills and coins b. whatever serves society in three functions: medium of exchange, store of value, and unit of account c. whatever the government allows money to be

b. whatever serves society in three functions: medium of exchange, store of value, and unit of account

Barter is best defined as a. an informal market such as a flea market b. a situation where two individuals each want some or service that the other can provide c. literally trading one good for another without using money

c. literally trading one good for another without using money

as interest rate decreases, what happens to the quantity of loanable funds demanded? a. there will be no change in quantity demanded b. quantity demanded will decrease c. quantity demanded will increase d. some borrowers will demand more funds whereas others will demand less

c. quantity demanded will increase

Classify each example as commodity or fiat money gold cigarettes bitcoins Euros beaver pelts

commodity money: gold, beaver pelts, cigarettes fiat money: bitcoins, Euros

Identify which asset is the most liquid a. stock certificate b. real estate c. 6 month certificate of deposit d. checking account

d. checking account

which of the terms acts as the "price" in the market for loanable funds? a. demand b. capital c. supply d. interest rate

d. interest rate

Cattle is not an effective form of money. What essential characteristic of money does cattle lack that most makes it ineffective? a. stackabilty b. store of value c. unit of account d. medium of exchange e. allocated by the government

d. medium of exchange

What effects will an increase in interest rates have on the quantity of loanable funds supplied? a. some lenders will offer more whereas others offer less b. quantity supplied will decrease c. there will be no change in quantity supplied d. quantity supplied will increase

d. quantity supplied will increase

Borrowers like John are likely to borrow more when the real interest rate ________. Therefore the demand curve for loanable funds ___________.

decreases, slopes downward

fresh fish is not an effective form of money. what essential characteristic of money does fresh fish lack that most makes it ineffective? a. unit of account b. stackability c. allocated by the government d. medium of exchange e. store of value

e. store of value

Savers like Dan are likely to save more when the real interest rate _____. Therefore, the supply curve for loanable funds ______.

increases, slopes upwards