EC Chapter 3
4) Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money. A) commodity B) fiat C) electronic D) funny
B
5) Money is ________. A) the same as currency B) anything that is generally accepted in payment of goods or services or in the repayment of debts C) not used as a unit of account D) defined as paper money and coins
B
1) If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are ________. A) bank deposits B) reserves C) money D) loanable funds
C
10) When economists say that money promotes ________, they mean that money encourages specialization and the division of labour. A) bargaining B) contracting C) efficiency D) greed
C
27) Since it does not have to be converted into anything else to make purchases, ________ is the most liquid asset. A) money B) stock C) artwork D) gold
A
3) A disadvantage of ________ is that it can be very heavy and hard to transport from one place to another. A) commodity money B) fiat money C) electronic money D) paper money
A
3) ________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs B) Transaction costs C) Contracting costs D) Barter costs
B
34) During hyperinflations, ________. A) the value of money rises rapidly B) money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale C) middle-class savers benefit as prices rise D) money's value remains fixed to the price level; that is, if prices double so does the value of money
B
9) The M1+ measure of money includes ________. A) small denomination time deposits B) chequable deposits C) money market deposit accounts D) money market mutual fund shares
B
28) Of the following assets, the least liquid is ________. A) stocks B) travellers cheques C) chequing deposits D) a house
D
31) If the price level doubles, the value of money ________. A) doubles B) more than doubles, due to scale economies C) rises but does not double, due to diminishing returns D) falls by half
D
36) 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 ________. A) superdeflation B) hyperdeflation C) disinflation D) hyperinflation
D
1) The payments system is ________. A) the method of conducting transactions in the economy B) used by union officials to set salary caps C) an illegal method of rewarding contracts D) used by your employer to determine salary increases
A
22) Dennis notices that jackets are on sale for $99. In this case money is functioning as a ______. A) medium of exchange B) unit of account C) store of value D) payments-system ruler
B
25) ________ is the relative ease and speed with which an asset can be converted into a medium of exchange. A) Efficiency B) Liquidity C) Deflation D) Specialization
B
12) Which of the following is not included in the M2 measure of money but is included in the M3 measure of money? A) Currency B) Personal deposits C) Demand deposits D) Foreign currency deposits
D
23) The decade during which the growth rates of monetary aggregates diverged the most is ________. A) the 1960s B) the 1970s C) the 1980s D) the 1990s
D
33) A hyperinflation is ________. A) a period of extreme inflation generally greater than 50 percent per month B) a period of anxiety caused by rising prices C) an increase in output caused by higher prices D) impossible today because of tighter regulations
A
4) Compared to an economy that uses a medium of exchange, in a barter economy ________. A) transaction costs are higher B) transaction costs are lower C) liquidity costs are higher D) liquidity costs are lower
A
30) 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 all of the following except _____. A) perfectly liquid B) a unique good for which there are no substitutes C) the only thing accepted in economic exchange D) backed by gold
A
16) When money prices are used to facilitate comparisons of value, money is said to function as a ________. A) unit of account B) medium of exchange C) store of value D) payments-system ruler
A
4) Currency is defined as ________. A) anything accepted for payment of goods and services B) paper money and coins C) a unit of account D) foreign exchange
B
6) ________ is the narrowest monetary aggregate that the Bank of Canada reports. A) M0 B) M1+ C) M2 D) M3
B
11) Which of the following sequences accurately describes the evolution of the payments system? A) Barter, coins made of precious metals, paper currency, cheques, electronic funds transfers B) Barter, coins made of precious metals, cheques, paper currency, electronic funds transfers C) Barter, cheques, paper currency, coins made of precious metals, electronic funds transfers D) Barter, cheques, paper currency, electronic funds transfers
A
11) ________ is a flow of earnings per unit of time. A) Income B) Money C) Wealth D) Currency
A
7) Compared to cheques, paper currency and coins have the major drawbacks that they ______. A) are easily stolen B) are hard to counterfeit C) are not the most liquid assets D) must be backed by gold
A
1) A person's house is part of her ________. A) money B) income C) liabilities D) wealth
D
11) Money ________ transaction costs, allowing people to specialize in what they do best. A) reduces B) increases C) enhances D) eliminates
A
11) Which of the following statements accurately describes the two measures of the money supply? A) The two measures do not move together, so they cannot be used interchangeably by policymakers. B) The two measures' movements closely parallel each other, even on a month-to-month basis. C) Short-run movements in the money supply are extremely reliable. D) M2 is the narrowest measure the Bank of Canada reports.
A
12) All of the following are necessary criteria for a commodity to function as money except ___. A) it must deteriorate quickly B) it must be divisible C) it must be easy to carry D) it must be widely accepted
A
13) When we say that money is a stock variable, we mean that ________. A) the quantity of money is measured at a given point in time B) we must attach a time period to the measure C) it is sold in the equity market D) money never loses purchasing power
A
13) Which of the following is included in both M1+ and M2? A) Currency B) Savings deposits C) Small-denomination time deposits D) Money market deposit accounts
A
14) All but the most primitive societies use money as a medium of exchange, implying that ____. A) the use of money is economically efficient B) barter exchange is economically efficient C) barter exchange cannot work outside the family D) inflation is not a concern
A
15) A smart card is the equivalent of ________. A) cash B) savings bonds C) savings deposits D) certificates of deposit
A
15) Kevin purchasing concert tickets with his debit card is an example of the ________ function of money. A) medium of exchange B) unit of account C) store of value D) specialization
A
18) In a barter economy the number of prices in an economy with N goods is ________. A) [N(N - 1)]/2 B) N(N/2) C) 2N D) N(N/2) - 1
A
2) As the payments system evolves from barter to a monetary system, ________. A) commodity money is likely to precede the use of paper currency B) transaction costs increase C) the number of prices that need to be calculated increase rather dramatically D) specialization decreases
A
2) For a commodity to function effectively as money it must be ________. A) easily standardized, making it easy to ascertain its value B) difficult to make change C) deteriorate quickly so that its supply does not become too large D) hard to carry around
A
2) If an individual moves money from a chequing account to a money market mutual fund, ____. A) M1+ decreases and M2+ increases B) M1+ stays the same and M2+ increases C) M1+ stays the same and M2+ stays the same D) M1+ increases and M2+ decreases
A
2) Money is ________. A) anything that is generally accepted in payment for goods and services or in the repayment of debt B) a flow of earnings per unit of time C) the total collection of pieces of property that are a store of value D) always based on a precious metal like gold or silver
A
22) The measures of money supply used by the Bank of Canada are ________ indices. A) simple-sum B) complex C) multiplicative D) accurate
A
4) Monetary aggregates are ________. A) measures of the money supply reported by the Bank of Canada B) measures of the wealth of individuals C) never redefined since "money" never changes D) reported by the Department of Finance annually
A
6) Currency includes ________. A) paper money and coins B) paper money, coins, and cheques C) paper money and cheques D) paper money, coins, cheques, and savings deposits
A
6) When compared to exchange systems that rely on money, disadvantages of the barter system include ________. A) the requirement of a double coincidence of wants B) lowering the cost of exchanging goods over time C) lowering the cost of exchange to those who would specialize D) encouraging specialization and the division of labor
A
8) Introduction of cheques into the payments system reduced the costs of exchanging goods and services. Another advantage of cheques is that ________. A) they provide convenient receipts for purchases B) they can never be stolen C) they are more widely accepted than currency D) the funds from a deposited cheque are available for use immediately
A
9) The total collection of pieces of property that serve to store value is a person's ________. A) wealth B) income C) money D) credit
A
1) If an individual moves money from a demand deposit account to a money market mutual fund, ___. A) M1+ decreases and M2 stays the same B) M1+ stays the same and M2+ increases C) M1+ stays the same and M2 stays the same D) M1+ increases and M2 decreases
B
10) Compared to an electronic payments system, a payments system based on cheques has the major drawback that ________. A) cheques are less costly to process B) cheques 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) legal liability is more clearly defined
B
12) An individual's annual salary is her ________. A) money B) income C) wealth D) liabilities
B
12) During the past two decades an important characteristic of the modern payments system has been the rapidly increasing use of ________. A) cheques and decreasing use of currency B) electronic payments C) commodity monies D) fiat money
B
13) Whatever a society uses as money, the distinguishing characteristic is that it must ________. A) be completely inflation proof B) be generally acceptable as payment for goods and services or in the repayment of debt C) contain gold D) be produced by the government
B
13) 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
14) The difference between money and income is that ________. A) money is a flow and income is a stock B) money is a stock and income is a flow C) there is no difference—money and income are both stocks D) there is no difference—money and income are both flows
B
14) Which of the following is not included in the monetary aggregate M2? A) Currency B) Money market mutual funds C) Personal deposits D) Notice deposits
B
15) Income is a ________ and wealth is a ________. A) stock; flow B) flow; stock C) variable; constant D) constant; variable
B
17) A problem with barter exchange when there are many goods is that in a barter system ____. A) transactions costs are minimized B) there exists a multiple number of prices for each good C) there is only one store of value D) exchange of services is impossible
B
17) If an individual redeems a Canada savings bond for currency, ________. A) M1+ stays the same and M2 decreases B) M1+ increases and M2 increases C) M1+ increases and M2 stays the same D) M1+ stays the same and M2 stays the same
B
18) In the country of Moneyland the law allows you to repay mortgage in rocks. Thus, _______. A) Moneyland is a poor country B) rocks in this country are considered as money C) money is scarce D) Moneyland is a developing country
B
20) If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 8 B) 6 C) 5 D) 4
B
21) Because it is a unit of account, money ________. A) increases transaction costs B) reduces the number of prices that need to be calculated C) does not earn interest D) discourages specialization
B
27) Weighting monetary components in a simple-sum aggregate index ________. A) has never been attempted because it is too complex B) might be attempted with rigourous use of microeconomic, aggregation and index number theory C) might not perform as well as the simple-sum index D) might not predict inflation and business cycles better than conventional measures
B
29) 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
3) Defining money becomes ________ difficult as the pace of financial innovation ________. A) less; quickens B) more; quickens C) more; slows D) more; stops
B
7) There is no single precise measure of money or the money supply for economists because ___. A) the government considers money supply statistics to be confidential and refuses to publish them B) deciding what is generally accepted in payment for goods and services or in the repayment of debt is difficult to determine C) economists cannot agree if currency should be considered money D) definitions change all the time
B
14) E-cash is used for payments ________. A) that are always secure B) that are very important C) on the internet D) in any transaction
C
16) Which of the following is a true statement? A) Money and income are flow variables. B) Money is a flow variable. C) Income is a flow variable. D) Money and income are stock variables.
C
17) In explaining the evolution of money, ________. A) government regulation is the most important factor B) commodity money, because it is valued more highly, tends to drive out paper money C) new forms of money evolve to lower transaction costs D) paper money is always backed by gold and therefore more desirable than cheques
C
17) Which of the following statements uses the economists' definition of money? A) I plan to earn a lot of money over the summer. B) Betsy is rich—she has a lot of money. C) I hope that I have enough money to buy my lunch today. D) The job with New Company gave me the opportunity to earn more money.
C
19) If an individual moves money from currency to a personal deposit account, ________. A) M1+ decreases and M2+ stays the same B) M1+ stays the same and M2+ increases C) M1+ stays the same and M2+ stays the same D) M1+ increases and M2+ stays the same
C
21) The currency component of M2 shows that there is ________ in cash in the hands of each person in Canada. A) $150 B) $15,000 C) $1500 D) $15
C
24) 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 ________. A) medium of exchange B) unit of account C) store of value D) unit of specialization
C
26) Increasing transactions costs of selling an asset make the asset ________. A) more valuable B) more liquid C) less liquid D) more moneylike
C
26) The formula used the Bank of Canada in calculating the money supply is ________. A) M = A1X1+A2X2+ ... +AnXn B) M = x1+x2+...+xn/n C) M = X1+X2+ +Xn D) M = A1X1+A2X2+...AnXn/n
C
3) To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A) wealth B) income C) money D) credit
C
32) A fall in the level of prices ________. A) does not affect the value of money B) has an uncertain effect on the value of money C) increases the value of money D) reduces the value of money
C
35) Because inflation in Germany after World War I sometimes exceeded 1,000 percent per month, one can conclude that the German economy suffered from ________. A) deflation B) disinflation C) hyperinflation D) superdeflation
C
5) When paper currency is decreed by governments as legal tender, legally it must be ________. A) paper currency backed by gold B) a precious metal such as gold or silver C) accepted as payment for debts D) convertible into an electronic payment
C
6) The evolution of the payments system from barter to precious metals, then to fiat money, then to cheques can best be understood as a consequence of the fact that ________. A) paper is more costly to produce than precious metals B) precious metals were not generally acceptable C) precious metals were difficult to carry and transport D) paper money is less accepted than cheques
C
7) The conversion of a barter economy to one that uses money ________. A) increases efficiency by reducing the need to exchange goods and services B) increases efficiency by reducing the need to specialize C) increases efficiency by reducing transactions costs D) does not increase economic efficiency
C
7) The currency component includes paper money and coins held in ________. A) bank vaults B) ATMs C) the hands of the nonbank public D) the central bank
C
8) Even economists have no single, precise definition of money because ________. A) money supply statistics are a state secret B) the Bank of Canada does not employ or report different measures of the money supply C) the "moneyness" or liquidity of an asset is a matter of degree D) economists find disagreement interesting and refuse to agree for ideological reasons
C
8) The components of the M1+ monetary aggregate are chequable deposits plus ________. A) currency B) currency plus savings deposits C) currency outside banks D) currency plus money market deposits
C
8) Which of the following statements best explains how the use of money in an economy increases economic efficiency? A) Money increases economic efficiency because it is costless to produce. B) Money increases economic efficiency because it discourages specialization. C) Money increases economic efficiency because it decreases transactions costs. D) Money cannot have an effect on economic efficiency.
C
9) The evolution of the payments system from barter to precious metals, then to fiat money, then to cheques can best be understood as a consequence of ________. A) government regulations designed to improve the efficiency of the payments system B) government regulations designed to promote the safety of the payments system C) innovations that reduced the costs of exchanging goods and services D) competition among firms to make it easier for customers to purchase their products
C
9) Which of the following is a true statement? A) The conversion of a barter economy to one that uses money increases efficiency by increasing the cost of exchange. B) The conversion of a barter economy to one that uses money increases efficiency by increasing the cost to those who wish to specialize. C) The conversion of a barter economy to one that uses money increases efficiency by reducing transactions costs. D) The conversion of a barter economy to one that uses money does not increases efficiency
C
10) Which of the following is not included in the measure of M2? A) Personal deposits B) Non-personal demand deposits C) Currency D) Foreign currency deposits
D
10) ________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value. A) Money; income B) Wealth; income C) Income; money D) Money; wealth
D
15) Which of the following is included in M2+ but not in M2? A) Personal deposits B) Demand deposits C) Currency D) Money market mutual funds
D
16) 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
16) Of the following, the largest is ________. A) money market deposit accounts B) demand deposits C) M1+ D) M2+
D
18) If an individual moves money from a notice deposit to a chequing account, ________. A) M1+ increases and M2 stays the same B) M1+ stays the same and M2 increases C) M1+ stays the same and M2 stays the same D) M1+ increases and M2 decreases
D
19) 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. A) 20 B) 25 C) 30 D) 45
D
20) If an individual moves money from a money market mutual fund to currency, ________. A) M1+ increases and M2+ stays the same B) M1+ stays the same and M2+ increases C) M1+ stays the same and M2+ stays the same D) M1+ increases and M2+ decreases
D
23) As a store of value, money ________. A) does not earn interest B) cannot be a durable asset C) must be currency D) is a way of saving for future purchases
D
24) In the money index used by the Bank of Canada: M = X1+X2+ ... +Xn, the n monetary components have ________. A) a weight of 1/n B) different weights C) a weight of n D) a weight of 1
D
25) In the money index used by the Bank of Canada: M = X1+X2+ ... +Xn, the Xs are ________. A) the proportional weights for calculating M B) the increasing weights in calculating M C) the n monetary components of M D) the decreasing weights in calculating M
D
5) Of money's three functions, the one that distinguishes money from other assets is its function as a ________. A) store of value B) unit of account C) standard of deferred payment D) medium of exchange
D
5) Recent financial innovation makes the Bank of Canada's job of conducting monetary policy ________. A) easier, since the Bank of Canada now knows what to consider money B) more difficult, since the Bank of Canada now knows what to consider money C) easier, since the Bank of Canada no longer knows what to consider money D) more difficult, since the Bank of Canada no longer knows what to consider money
D