Econ 2035 Ch 3 Jha LSU
which statements uses the economists' definition of money?
"I hope that i have enough money to buy my lunch today"
small-denomination time deposits refer to certificates of deposit w/ denomination of less than _____
$100,000
of the following, which is least liquid? (stocks, traveler check, house, bank deposits)
house
If merchants in country Zed choose to close doors, preferring to be stuck w/ rotting merchandise than worthless currency, then one can conclude Zed's experiencing
hyperinflation
bc inflation in Germany after WWI exceeded 1,000% per month, one can conclude German economy suffered from _____
hyperinflation
____ is a flow of earnings per unit of time
income
an individual's annual salary is her
income
which is true?
income is a flow variable
a fall in level of prices _____ value of money
increases
the conversion of a barter economy to one that uses money does what? How's it do so
increases efficiency by reducing transaction costs
evolution of payment system from barter to precious metals, then fiat, then checks can best be understood as consequence of
innovations that reduces the cost of exchanging goods/services
as a store of value, money
is a way for saving for future purchases
increasing transaction costs of selling an asset make the asset ___ liquid
less
_____ is relative ease/speed which an asset can be converted to medium of exchange
liquidity
monetary aggregates are
measures of the money supply reported by the Fed
Kevin purchasing concert tickets with debit card is example of the _____ function of money
medium of exchange
of Money's 3 functions, the 1 that distinguishes money from other assets is its function as a _____
medium of exchange
payment system is
method of conducting transactions in the economy
Since it doesn't have to be converted to make purchase, ____ is most liquid asset
money
if peanuts serve as medium of exchange, a unit of account, and a store of value, then peanuts are ____?
money
to an economist, ____ is anything that's generally accepted in payment for goods/services or in repayment of debt
money
during hyperinflations ____ no longer serves as a good ______ and ppl may resort to barter transactions on much larger scale
money store of value
which statement best explains how use of money in an economy increases economic efficiency?
money increases economic efficiency bc it decreases trisection costs
diff bw money and income is that
money's a stock income is a flow
recent financial innovation makes Federal Reserve's job of conduction monetary policy ___ difficult since Fed no longer knows what to consider ____
more money
in explaining evolution of money
new forms of money evolve to lower transaction costs
generally, the initial money supply data reported by fed is ___
not a reliable guide to short-run behavior of the money supply
bc its a unit of account, money reduces ___
number of prices needed to be calculated
currency includes
paper money coins
hyperinflation
period of extreme inflation, usually >50% per month
the evolution of payment system from barter to precious metals, then to fiat money, then to checks can best be understood as consequence of the fact that
precious metals were difficult to carry/transport
introduction of checks to payment system reduced costs of exchanging goods/services. Another advantage is that
provide convent receipts for purchases
money ____ transaction cost, allowing ppl to specialize in what they do best
reduces
Fed revises its estimates of the monetary aggregates, sometime by large amounts bc
seasonal adjustments become more precise only as data's more available
the increase in holiday spending is not same every year, causing Fed's adjustment for _____ ____ to be revised as more data becomes available
seasonal variation
Fed estimates initial monetary aggregate reports because ____ depository institutions report the ant of their deposits infrequently
small
which is NOT included in M1 measure of money but IS includes in M2? (currency, travelers checks, demand deposits, small-den time deposits)
small-denomination time deposits
Patrick places pocket change into savings bank on his desk each day, By his actions, he indicates that he believes money is a _______
store of value
compared to electronic payment system, payment system based on checks has major drawback that
take longer to process money transfer isn't immediate
ecen economist have no single, precise definition of money because
the "moneyness" or liquidity of an asset is a matter of degree
when we say that money is a stock variable, we mean that
the quantity of money is measured at a given point in time
when compared to exchange systems that rely on money, disadvantages of the barter system include
the requirement of a double coincidence of wants
all but the most primitive societies use money as medium of exchange, implying that___
the use of money is economically efficient
_____ are time and resources spent trying to exchange goods/services
transaction costs
compared to an economy that uses medium of exchange, in a barter economy
transaction costs are higher
an electronic payments system hasn't completely replaced paper system for reasons EXCEPT
transportation costs
M1 measure of money includes (small denomination time deposits, money market deposit acct, money mkt mutual funds, travelers check)
traveler's checks
Dennis notes that jackets are on sale for $99. In this case, money's functioning as ______
unit of account
when money prices are used to facilitate comparisons of value, money is said to function as a ___
unit of account
components of US M1 money supply are demand and checkable deposits + ____
currence + travelers checks
ranking assets from most to least liquid, correct order is what?
currency savings bonds house
currency component includes paper money and coins held in ___
hands of nonbank public
decade during which growth rates of monetary aggregates diverged most is
1990's
which accurately describes 2 measure of money supply
2 measures don't move together, so CANNOT be used interchangeably by policymakers
if there's 5 goods in barter economy, need to know 10 prices in order to exchange goods. If 10 goods in barter economy, need to know ____ prices in order to exchange one good for another
45 (10(9)) / 2 = 90/2
If there's 4 goods in barter economy, one needs to know ___ prices to exchange goods for one another
6
which of the following is NOT e-money (credit card, debit, stored value, smart card)
Credit Card
which is included in M1 and M2 (currency, saving del, small den, mm deposit acct)
Currency
an examination of revised money supply statistics, when compared to initial statistic, suggest that the initial statistics ____
DO NOT provide good guide to short-run movements in money supply
paper currency that's been declared legal tender but isn't convertible into coins/precious metals is called ____ money
Fiat Money
which is NOT included in measure of M1 (NOW acct, demand deposits, currency, savings deposits)
Savings deposits
____ is narrowest monetary aggregate that Fed reports
M1
if individual moves money from demand deposit acct to money market deposit acct,
M1 decreases M2 stays same
If individual redeems US savings bond for currency,
M1 increases M2 increases
If individual moves money from small-denomination time deposit to demand deposit
M1 increases M2 stays same
if individual moves money from money market deposit acct to currency,
M1 increases M2 stays same
If individual moves money from saving deposit acct to money market deposit account
M1 stays same M2 stays same
if individual moves money from currency to demand deposit account
M1 stays same M2 stays same
of the following the largest is? (mm deposit acct, demand deposits, M1, M2)
M2
all of following are necessary criteria for commodity to function as money except?
MUST DETERIORATE QUICKLY be divisible easy to carry widely accepted
___ is used to make purchases while ____ is the total collection of pieces of property that serve to store wealth
Money Wealth
Which's included in M2 but NOT m1 (NOW, demand del, currency, mm mutual fund shares)
Money Market Mutual Fund Shares (retail)
the initial money supply data reported by Fed aren't a reliable guide to short-run movements in money supply such as ___, but ARE reliable for longer periods such as a _____
Month year
defining money becomes ___ difficult as the pace of financial innovation _____
More Quickens
which is NOT included in monetary aggregate M2? (saving bonds, currency, trav check, checking deposit)
Savings Bonds
In a barter economy, the number of prices in an economy with N goods is?
[N(N-1)] / (2)
a problem with barter exchange when there are many goods is that in a barter system,
a multiple number of prices exist for each good
When paper currency is decreed by gov as legal tender, legally it must be _____
accepted as payments for debts
money is ___
anything generally accepted in payment for goods/services or in repayment of debt
which sequence accurately describes evolution of payments system?
barter; coins made of precious metals; paper currency; checks; electronic funds transfers
whatever a society uses as money, the distinguishing characterist is that it mus
be generally accepted as payment for goods/services or in repayment of debt
Smart card is equivalent to
cash
explain how dig's could be "money" in POW camps of WWII
cigs performed 3 functions. 1) served as medium of exchange (bought things w/ cigs). 2) served as unit of account (prices quoted in # of cigs) 3) served as store of value (ppl willing to save cigs for exchange in future)
a disadvantage of ____ is that it's very heavy and hard to transport
commodity money
as payment systems evolve from barter to monetary system, ____ money's likely to precede use of ____ currency
commodity money paper currency
why're most of US dollars held outside US
concern ab high inflation eroding value of their own currency causes foreigners to hold US dollar as hedge against inflation risk
for a commodity to function effectively as money, it must be
easily standardized, making it easy to ascertain its value
compared to checks, paper currency and coins have drawback of
easily stolen
when economist say that money promotes ____, they mean that money encourages specialization and the division of labor
efficiency
during past 2 decades an imp characteristic of modern payments system has been rapidly increasing use of ____
electronic fund transfers
what factors've slowed movement to system where all payments are electronically paid
expensive equipment security of info privacy concerns
ppl hold money even during inflationary episodes when other assets prove to be better stores of value. This's explained by fact that money is ________
extremely liquid
if price level doubles, value of money _____
falls by 50%
a person's hous is part of their
wealth
the total collection of pieces of property that serve to store value is a person's
wealth
