Economics 205 Homework 5
Which of the following best explains the difference between commodity money and fiat money?
Fiat money has no value except as money, whereas commodity money has value independent of its use as money.
Which of the following is NOT a function of money?
acceptability
The use of money
all of the above
Which of the following would be the least desirable candidate to be a good medium of exchange?
milk
The formula for the simple deposit multiplier is
simple deposit multiplier= 1/RR
In the late 1940s, the Communists under Mao Zedong were defeating the government of China in a civil war. The paper currency issued by the Chinese government was losing much of its value, and most businesses refused to accept it. At the same time, there was a paper shortage in Japan. During these years, Japan was still under military occupation by the United States. Some U.S. troops in Japan realized that they could use dollars to buy up vast amounts of paper currency inChina, ship it to Japan to be recycled into paper, and make a substantial profit. Under these circumstances, was the Chinese paper currency a commodity money or a fiat money?
It is a commodity money because it has value as recycled paper.
The Federal Reserve uses two definitions of the money supply, M1 and M2, because
M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply.
Which of the following is included in M2 but not M1?
Money market deposit accounts in banks
How do the banks "create money"?
When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands.
Suppose you decide to withdraw $100 in cash from your checking account. Which one of the following choices accurately shows the effect of this transaction on your bank's balance sheet.
Your bank's balance sheet shows a decrease in reserves by $100 and a decrease in deposits by $100.
Look carefully at the following list. a. The coins in your pocket. b. The funds in your checking account. c. The funds in your savings account. d. The traveler's check that you have left over from a trip. e. Your Citibank Platinum MasterCard. Which of the things above are NOT included in the M1 definition of the money supply?
c&e
The U.S. dollar can best be described as
fiat money
Credit cards are
included in neither the M1 definition of the money supply nor in the M2 definition.
An asset would be usable as a medium of exchange for all of the following reasons except:
the asset should be a commodity that has intrinsic value.
A double coincidence of wants refers to
the fact that for a barter trade to take place between two people, each person must want what the other one has.
