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