LMS - Chapter 2: Overview on Money and Finance

Ranking assets from most liquid to least liquid, the correct order is Select one: a. currency; savings bonds; house. b. currency; house; savings bonds. c. house; savings bonds; currency d. savings bonds; house; currency.

a. currency; savings bonds; house.

Of moneyʹ s three functions, the one that distinguishes money from other assets is its function as a Select one: a. store of value. b. medium of exchange c. standard of deferred payment. d. unit of account.

a. store of value.

A key factor in producing high economic growth is Select one: a. well- functioning financial markets. b. high interest rates. c. stock market volatility. d. eliminating foreign trade.

a. well- functioning financial markets.

Compared to an electronic payments system, a payments system based on checks has the major drawback that Select one: a. legal liability is more clearly defined b. checks take longer to process, meaning that it may take several days before the depositor can get her cash. c. fraud may be more difficult to commit when paper receipts are eliminated. d. checks are less costly to process.

b. checks take longer to process, meaning that it may take several days before the depositor can get her cash.

A disadvantage of ________ is that it is very heavy and hard to transport from one place to another. Select one: a. paper money b. commodity money c. electronic money d. fiat money

b. commodity money

Kevin purchasing concert tickets with his debit card is an example of the ________ function of money. Select one: a. unit of account b. medium of exchange c. specialization d. store of value

b. medium of exchange

Financial intermediaries Select one: a. produce nothing of value and are therefore a drain on societyʹ s resources. b. provide a channel for linking those who want to save with those who want to invest. c. hold very little of the average Americanʹ s wealth. d. can hurt the performance of the economy.

b. provide a channel for linking those who want to save with those who want to invest.

________ is the relative ease and speed with which an asset can be converted into a medium of exchange. Select one: a. Efficiency b. Deflation c. Liquidity d. Specialization

c. Liquidity

________ are the time and resources spent trying to exchange goods and services. Select one: a. Contracting costs. b. Barter costs. c. Transaction costs. d. Bargaining costs.

c. Transaction costs.

For a commodity to function effectively as money it must be Select one: a. deteriorate quickly so that its supply does not become too large. b. hard to carry around c. easily standardized, making it easy to ascertain its value. d. difficult to make change.

c. easily standardized, making it easy to ascertain its value.

Banks are important to the study of money and the economy because they Select one: a. are the only important financial institution in the U.S. economy. b. create inflation. c. have been a source of rapid financial innovation. d. channel funds from investors to savers.

c. have been a source of rapid financial innovation.

Currency includes Select one: a. paper money, coins, checks, and savings deposits b. paper money and checks. c. paper money and coins. d. paper money, coins, and checks.

c. paper money and coins.

During a recession, output declines resulting in Select one: a. higher wages for the workers. b. no impact on the unemployment in the economy. c. lower unemployment in the economy. d. higher unemployment in the economy.

d. higher unemployment in the economy.