Chapter 3

What variable type is "Income"?

Flow Variable A flow variable is measured per unit of time.

In ancient​ Greece, what property made gold a more likely candidate for use as money than​ wine?

Gold's property as a "store of value" made it a more likely candidate for use as money when compared to wine.

▼ Hyperinflation Recessions Underwritings Currency exchanges are periods of extreme inflation.

Hyperinflations; are periods of extreme inflation.

Stock variable of "profits"?

(Owner's) Equity stock

Money

A tool used to facilitate​ transactions, store​ wealth, or to be used as a yardstick to compare values.

Demand Deposits

A type of transactions account with virtually no restrictions as to the​ size, timing, or number of checks that can be written on the account.

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

A. All the paper shuffling required to process checks is costly.

Which of the following statements about fiat money is​ false? A. Fiat money is redeemable into a particular precious metal such as gold. B. Fiat money should be made difficult to counterfeit. C. Fiat money is paper currency decreed by government as legal tender. D. Fiat money is easier to transport than commodity money.

A. Fiat money is redeemable into a particular precious metal such as gold. It is false to say fiat money is redeemable into a particular precious metal such as gold. Fiat money is legal tender and is not backed by any coins or precious metal.

Which of the following is measured as a flow per unit of​ time? A. income B. money C. money supply D. wealth

A. Income; is measured as a flow per unit of time. A flow per unit of time refers to a change in the amount per period of time.

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

A. There are other liquid assets similar to currency that can be used as money to purchase goods and services.

Which of the following economies has the least efficient payments​ system? A. a barter economy B. an economy using fiat money C. an economy using gold as a commodity money D. an economy using checks

A. a barter economy

Which of the following is not included in​ M2? A. large-denomination time deposits B. currency C. small-denomination time deposits D. savings deposits

A. large-denomination time deposits

We know that money is the most liquid store of value due to many reasons except that A. money is exposed to the risks associated with hyperinflation. B. it saves purchasing power from the time income is received until the time it is spent. C. it is the medium of exchange. D. we do not have to convert it to make purchases.

A. money is exposed to the risks associated with hyperinflation We know that money is the most liquid store of value due to many reasons except that money is exposed to the risks associated with hyperinflation.

Which of the following is not included in the M1 monetary​ aggregate? A. money market deposit accounts B. NOW accounts C. currency D. traveler's checks E. demand deposits

A. money market deposit accounts

Which of the following represents an advantage of using commodity money for​ transactions? A. It is lightweight and portable 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 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

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. Public authorities may be tempted to produce too much of it

Which of the following statements about the liquidity of the assets in the monetary aggregates is false​? A. Not all of the assets in the monetary aggregates have equal liquidity. B. The only liquid asset in the monetary aggregates is currency. C. The assets in M2 are less liquid than the assets in M1. D. The assets in M1 are more liquid than the assets in M2.

B. The only liquid asset in the monetary aggregates is currency.

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. Unit of account C. Standard of deferred payment D. Store of value

B. Unit of account The second role of money is to provide a unit of​ account; that​ is, it is used to measure value in the economy. We measure the value of goods and services in terms of​ money, just as we measure weight in terms of pounds or distance in terms of miles.

Which of the following statements about the monetary aggregates is false​? A. The growth rates of M1 and M2 almost never track each other closely. B. When the growth rate of M2 increases, the growth rate of M1 must decrease. C. When you transfer funds from your savings account to your checking account, M1 increases and M2 stays the same. D. M1 is less than M2.

B. When the growth rate of M2 increases, the growth rate of M1 must decrease.

It is not unusual to find a business that displays a sign saying​ "no personal​ checks, please." Based on this​ observation, a checking account must be "___________" than currency.

Based on this​ observation, a checking account must be "less liquid" than currency.

How do checkable deposits differ from demand deposits​? A. Only demand deposits can be utilized as a medium of exchange. B. Demand deposits are those transactions accounts against which a limited number of checks can ordinarily be written. Checkable deposits carry no restrictions on transferability. C. Demand deposits are those transactions accounts against which an unlimited number of checks can ordinarily be written. Checkable deposits often carry restrictions on transferability. D. Only checkable deposits can be utilized as a medium of exchange.

C. Demand deposits are those transactions accounts against which an unlimited number of checks can ordinarily be written. Checkable deposits often carry restrictions on transferability.

What is the main disadvantage of moving to e-money or moving to a cashless​ society? A. Funds are debited too quickly from the​ payer's account B. It is difficult to keep track of electronic purchases C. There are problems with security and privacy D. The use of​ e-money does not work with vending machines or other​ coin-based transactions

C. There are problems with security and privacy

An asset with great liquidity is one that A. acts as a unit of account. B. generates high transactions costs when liquidating. C. can be converted into a medium of exchange with relative ease and speed. D. is an excellent store of value.

C. can be converted into a medium of exchange with relative ease and speed. An asset with great liquidity is one that can be converted into a medium of exchange with relative ease and speed.

Stock variable of "Investment"?

Capital stock

Rank the following assets from most liquid ​(1​) to least liquid ​(6​): a. Checking account deposits b. Houses c. Currency d. Automobile e. Savings deposits f. Common stock

Currency Checking accounts Savings Deposits Common Stock Car House

People in the United States in the nineteenth century were sometimes willing to be paid by cheque rather than with​ gold, even though they knew that there was a possibility that the cheque might bounce. Which of the following would represent an advantage of gold over cheques as a form of​ money? A. Gold is easy for an individual to carry from place to place B. Gold is easily divisible and may be used for small expenditures C. Gold is easy to transfer from one city to another or one state to another D. Gold has intrinsic value when compared to cheques

D. Gold has intrinsic value when compared to cheques

Which of the following is not a purpose or function of​ money? A. Medium of exchange B. Unit of account C. Store of value D. Protection against inflation

D. Protection against inflation Money has three primary functions in any​ economy: as a medium of​ exchange, as a unit of​ account, and as a store of value.

Which of the following is an example of fiat​ money? A. cigarettes in a POW​ (prison) camp B. sea shells used as money in a primitive society C. a twenty dollar gold piece D. a five dollar bill

D. a five dollar bill A five dollar bill is an example of fiat money. It is paper currency decreed by governments as legal tender​ (meaning that legally it must be accepted as payment for​ debts) but not convertible into coins or precious metal.

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

D. exchanging cigarettes for other goods and services increases transaction costs.

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 money is costly to transport. C. 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. D. more efficient than a barter economy because fewer prices are needed to establish relative values between all commodities.

D. more efficient than a barter economy because fewer prices are needed to establish relative values between all commodities. A payments system based on money is more efficient than a barter economy because fewer prices are needed to establish relative values between all commodities.

Stock variable of "deficit spending"?

Debt stock

Checkable Deposits

Demand deposits plus other types of transactions accounts that pay interest but that may carry some restrictions on​ use, including minimum balance and limits on the number of checks that can be written per month.

Income

Earnings received from​ working, property​ rentals, entrepreneurship, or the ownership of financial assets.

During​ hyperinflation, the quantity of money needed to purchase the most basic items are ▼ the same minimal excessive since money is ▼ maintaining gaining losing its value rapidly.

Excessive Losing During​ inflation, when the price level is increasing​ rapidly, money loses value​ rapidly, and people will be more reluctant to hold their wealth in this form.

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. A, B, and C are correct

Stock variable of "produced"?

Inventory stock

▼ Liquidity Fiat money Store of value Currency is the relative ease and speed with which an asset can be converted into cash.

Liquidity; is the relative ease and speed with which an asset can be converted into cash.

Which of the Federal​ Reserve's measures of the monetary aggregates —M1 or M2— is composed of the most liquid​ assets? Which is the larger​ measure? All else​ equal, ▼ M1 M2 is the monetary aggregate composed of the most liquid assets and ▼ M1 M2 is the larger measure.

M1 M2

Which monetary aggregate includes checkable deposits ?

M1 & M2

Which monetary aggregate includes currency?

M1 & M2

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 ▼ stay the same increase decrease and M2 will ▼ increase decrease stay the same

M1 will decrease M2 will stay the same

Which monetary aggregate includes Money Market Mutual Funds?

M2 Only

Which monetary aggregate includes small-denomination time deposits ?

M2 Only

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. In this​ case, money is being used as a...

Medium of exchange

M2

Monetary aggregate that adds to M1 other assets that are not quite as liquid as those included in M1: assets that have checking writing features

▼ Wealth Barter Money Income is the most liquid store of value in the economy.

Money is the most liquid store of value.

Commodity money

Money made up of precious metals or another valuable commodity.

Electronic Money (E-money)

Money that exists only in electronic form and substitutes for cash as well.

If you use an online payment system such as PayPal to purchase goods or services on the​ Internet, this will affect ▼ M2 neither M1 nor M2 both M1 and M2 M1

Neither M1 nor M2 is​ affected: Although PayPal and many other​ e-money systems work as other forms of money do to facilitate purchases of goods and​ services, this form of payment does not count in M1 or M2. Because PayPal and similar payment systems are generally​ credit-based, this requires payment at a future date for funds used​ today; those future payments must be made using existing money that is already in the​ system, such as currency or funds in a bank deposit account. In other​ words, the M1 and M2 money supplies would theoretically remain the​ same, but money would move from your checking account to a third​ party, once the credit transaction is settled.

Which monetary aggregate includes U.S. T-Bills (with maturities of less than 90 days)?

Neither M1 or M2

Which monetary aggregate includes large-cap mutual funds?

Neither M1 or M2

Fiat money

Paper currency decreed by a government as legal tender but not convertible into coins or precious metal.

Currency includes

Paper money and coins

Maria is currently pregnant. She expects her expenditures to increase in the future and decides to increase the balance in her savings account. In this​ case, money is being used as a ....

Since Maria is saving money for the​ future, it is being used as a "store of value."

What variable type is "saving deposits"?

Stock Variable Stock variables are measured at a point in time. They are often referred to as snapshot variables.

What variable type is "wealth"?

Stock Variable Stock variables are measured at a point in time. They are often referred to as snapshot variables.

What variable type is "debt"?

Stock variable Stock variables are measured at a point in time. They are often referred to as snapshot variables.

What variable type is "money"?

Stock variable Stock variables are measured at a point in time. They are often referred to as snapshot variables.

Savings

The difference between what is earned and what is spent. This adds to total wealth.

Suppose that there are 20 goods in an economy. The number of prices that are needed to exchange any good for any other good are

The number of prices needed = (20x(20-1))/2 = 190

Liquidity

The relative ease and speed with which an asset can be converted into cash.

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. In this​ case, money is being used as a...

Unit of account

Is the total collection of pieces of property that serves to store value.

Wealth

Stock variable of "savings"?

Wealth stock

Debt

What you owe long dash—the accumulation of spending over and above periodic earnings.

Wealth

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.

M1

is the narrowest measure of money reported by the Fed, which include the most liquid assets: currency, checking account deposits and travelers checks

When money is used as acceptance for payment of goods and​ services, it is being used as a ▼ unit of account medium of exchange store of value

medium of exchange

When money is used to hold purchasing power for future​ use, it is being used as a ▼ store of value medium of exchange unit of account

store of value

When money is used to express the relative value of goods and​ services, it is being used as a ▼ store of value unit of account medium of exchange

unit of account