Homework 3.

fiat

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

store of value

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 ______________.

increases the value of money

A fall in the level of prices _________.

there exists a multiple number of prices for each good

A problem with barter exchange when there are many goods is that in a barter system _________________.

the use of money is economically efficient

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

it must deteriorate quickly

All of the following are necessary criteria for a commodity to function as money EXCEPT

is a way of saving for future purchases

As a store of value, money ________.

hyperinflation

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

reduces the number of prices that need to be calculated

Because it is a unit of account, money ____________.

higher

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

unit of account

Dennis notices that jackets are on sale for $99. In this case money is functioning as a _______.

money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale

During hyperinflation, _________________.

The "moneyness" or liquidity of an asset is a matter of degree

Even economists have no single, precise definition of money because __________.

easily standardized, making it easy to ascertain its value

For a commodity to function effectively as money it must be ________________.

M1 decreases and M2 stays the same

If an individual moves money from a demand deposit account to a savings deposit account ________.

less liquid

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

medium of exchange

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

measures of the money supply reported by the Federal Reserve

Monetary aggregates are _____________.

Reduces

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

medium of exchange

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

currency; savings bonds; house

Ranking assets from most liquid to least liquid, the correct order is ______________.

money

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

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).

money is a stock and income is a flow

The difference between money and income is that ______________.

Money

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

the requirement of a double coincidence of wants

When compared to exchange systems that rely on money, disadvantages of the barter system include _________________.

unit of account

When money prices are used to facilitate comparisons of value, money is said to function as a _______.

accepted as payment for debts

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

the quantity of money is measured at a given point in time

When we say that money is a stock variable, we mean that _______.

savings deposits

Which of the following is NOT included in the measure of M1?

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

Which of the following statements accurately describes the two measures of the money supply (M1 and M2)?

Money increases economic efficiency because it decreases transactions costs

Which of the following statements best explains how the use of money in an economy increases economic efficiency?

Transaction costs

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

Liquidity

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

Commodity

________ 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.