ECON 311 Exam 3 (Ch. 3)
Small-denomination time deposits refer to certificates of deposit with a denomination of less than __________.
$100,000
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
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 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
I hope that I have enough money to buy my lunch today
______ 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
If an individual moves money from a demand deposit account to a money market deposit account,
M1 decreases and M2 stays the same
If an individual redeems a U.S. savings bond for currency
M1 increases and M2 increases
If an individual moves money from a money market deposit account to currency,
M1 increases and M2 stays the same
If an individual moves money from a small-denomination time deposit to a demand deposit account,
M1 increases and M2 stays the same
If an individual moves money from a savings deposit account to a money market deposit account,
M1 stays the same and M2 stays the same
If an individual moves money from currency to a demand deposit account,
M1 stays the same and M2 stays the same
Of the following, the largest is a. money market deposit accounts b. demand deposits c. M1 d. M2
M2
_____ is used to make purchases while ______ is the total collection of pieces of property that serve to store value.
Money; wealth
What best describes the two measures of the money supply?
The two measures do not move together, so they cannot be used interchangeably by policymakers
__________ are the time and resources spent trying to exchange goods and services.
Transaction costs
T/F: Income is a flow variable.
True
In a barter economy the number of prices in an economy with N goods is
[N(N-1)]/2
Of the following assets, the least liquid is a. stocks b. traveler's checks c. checking deposits d. a house
a house
A hyperinflation is
a period of extreme inflation generally greater than 50% per month
When paper currency is decreed by governments as legal tender, legally it must be
accepted as payment for debts
Compared to checks, paper currency and coins have the major drawbacks that they
are easily stolen
What sequence accurately describes the evolution of the payments system?
barter, coins made of precious metals, paper currency, checks, electronic funds transfers
Whatever a society uses as money, the distinguishing characteristic is that it must
be generally accepted as payment for goods and services or in the repayment of debt
A smart card is the equivalent of
cash
Compared to an electronic payments system, a payments system based on checks has the major drawback that
checks take longer to process, meaning that it may take several days before the depositor can get their cash
A disadvantage of __________ 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,
commodity money is likely to precede the use of paper currency
Which of the following is not a form of e-money? a. debit card b. credit card c. stored-value card d. smart card
credit card
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
currency
The components of the U.S. M1 money supply are demand and checkable deposits plus
currency plus traveler's checks
Ranking an asset from most liquid to least liquid, the correct order is
currency; savings bonds; house
An examination of revised money supply statistics, when compared to the initial statistics, suggests that the initial statistics
do not provide a good guide to short-run movements in the money supply
For a commodity to function effectively as money it must be
easily standardized, making it easy to ascertain its value
When economists say that money promotes __________, they mean that money encourages specialization and the division of labor.
efficiency
During the past two decades 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
If the price level doubles, the value of money
falls by 50 percent
Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ____ money.
flat
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 his/her
income
The conversion of a barter economy to one that uses money
increases efficiency by reducing transaction costs
A fall in the level of prices
increases the value of money
The evolution of the payments system from barter to precious metals, then to flat money, then to checks can best be understood as a consequence of
innovations that reduced the costs of exchanging goods and services
As a store of value, money
is a way of saving for future purchases
Generally, the initial money supply data reported by the Fed
is not a reliable guide to the short-run behavior of the money supply
All of the following are necessary criteria for a commodity to functions 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
it must deteriorate quickly
Increasing transactions costs of selling an asset make the asset
less liquid
Monetary aggregates are
measures of the money supply reported by the Federal Reserve
Kevin purchasing concert tickets with his debit card is an example of the __________ function of money.
medium of exchange
Of money's three functions, the one that distinguishes money from other assets is its function as a
medium of exchange
If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are
money
Since it does not have to be converted into anything else to make purchases, _____ is the most liquid asset.
money
To an economist, _____ is anything that is generally accepted in payment for goods and services or in the repayment of debt.
money
Which of the following statements best explains how the use of money in an economy increases economic efficiency? a. Money is costless to produce b. Money discourages specialization c. Money decreases transaction costs d. Money cannot have an effect on economic efficiency
money increases economic efficiency because it decreases transaction costs
The difference between money and income is that
money is a stock and income is a flow
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)
money market mutual fund shares (retail)
During hyperinflations,
money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale
The initial money supply data reported by the Fed are not a reliable guide to short-run movements in the money supply such as a _____, but are reasonably reliable for longer periods such as a ____.
month; year
Recent financial innovation makes the Federal Reserve's job of conducting monetary policy
more difficult, since the Fed no longer knows what to consider money
Defining money becomes ____ difficult as the pace of financial innovation ________.
more; quickens
In explaining the evolution of money
new forms of money evolve to lower transaction costs
Currency includes
paper money and coins
The evolution of the payments system from barter to precious metals, then to flat money, then to checks can best be understood as a consequence of the fact that
precious metals were difficult to carry and transport
Money _______ transaction costs, allowing people to specialize in what they do best.
reduces
Because it is a unit of account, money
reduces the number of prices that need to be calculated
Which of the following is not included in the measure of M1? a. NOW accounts b. Demand deposits c. Currency d. Savings deposits
savings deposits
Which of the following is not included in the monetary aggregate M2? a. Currency b. Savings deposits c. Traveler's checks d. Checking deposits
savings deposits
The Fed revises its estimates of the monetary aggregates, sometimes by large amounts, because
seasonal adjustments become more precise only as more data becomes available
The increase in holiday spending is not the same every year causing the Fed's adjustment for __________ to be revised as more data becomes available.
seasonal variation
The Fed estimates initial monetary aggregate reports because _____ depository institutions report the amount of their deposits infrequently.
small
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
small-denomination time deposits
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
store of value
Even economists have no single, precise definition of money because
the "moneyless" or liquidity of an asset is a matter of degree
The decade during which the growth rates of monetary aggregates diverged the most is
the 1990's
The currency component includes paper money and coins held in __________.
the hands of the nonbank public
The payments system is
the method of conducting transactions in the economy
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/needs
All but the most primitive societies use money as a medium of exchange, implying that
the use of money is economically efficient
A problem with barter exchange when there are many goods is that in a barter system
there exists a multiple number of prices for each good
Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks is that
they provide convenient receipts for purchases
Compared to an economy that uses a medium of exchange, in a barter economy
transaction costs are higher
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. transportations costs
transportation costs
The M1 measure of money includes
traveler's checks
Dennis notices that jackets are on sale for $99. In this case money is functioning as a
unit of account
When money prices are used to facilitate comparisons of value, money is said to function as a
unit of account
A person's house is part of his/her
wealth
The total collection of pieces of property that serve to store value is a person's
wealth
