anything that people are willing to accept in payment for goods and services.
Money is defined as
standard of deferred, medium of exchange payment. store of value.
All of these are functions of money
anything that is generally accepted as payment for goods and services
Money in its role as a medium of exchange refers only to
Money serves as a medium of exchange.
Which of the following distinguishes money from other assets?
must be portable, divisible, durable, and recognizable
In order for a good to be usable as a medium of exchange, the good
provides three light bulbs to her neighbor in exchange for two gallons of milk
An example of barter is a situation in which an individual
money gives traders a way of measuring value in the economy.
Money as a unit of account means that
money allows value to be stored easily.
Money as a store of value means that
money
9. Which of the following is the most efficient facilitator of trade?
traders to have a double coincidence of wants
The use of money eliminates the need for
) the double coincidence of wants problem
. Harold can’t make a deal with Arthur. Harold has a Derek Jeter
baseball card and would like to trade it to Arthur for Arthur’s Sammy Sosa card, but Arthur doesn’t want a Derek Jeter card. Harold’s problem illustrates the drawback to a barter system known as
) money provides a means of valuing payments that will occur in the future.
Money as a standard of deferred payment means that
) generate transactions costs when they are exchanged for money
One of the major reasons why money is superior to other assets is that other assets
the necessity to quote a wide variety of prices for each good is reduced.
Using a commodity as a medium of exchange confers the benefit to the economy that
) measured bags of gold dust
. Which of the following is an example of commodity money?
the value of money is linked to the value of a specific commodity
A commodity standard is a monetary system in which
if the demand for coffee decreases.
If coffee is used as money under a commodity standard system, the overall price level of goods and services in the economy will increase
is money that would have no value if it were not usable as money.
Fiat money
a Federal Reserve note used as money in the 21st century United States.
. Which of the following is an example of fiat money?
it is generally acceptable as a medium of exchange
. In a fiat money system, money has value because
the process through which a
government reduces the precious metal content of a commodity standard money
Debasement is
) M1.
Of the following, the most basic definition of “cash” is
) large-denomination time deposits
. All of the following are included in M2 EXCEPT
includes M1, savings and small-denomination time deposits, and individual and broker-dealer money market mutual funds.
The definition of M2
) term repurchase agreements
Included in M3, but not in M2, are
liquidity.
Monetary aggregates are classified mainly by the level of
M2 contains less liquid assets than those in M1.
The major difference between M1 and M2 is that
the amount of goods and services it can exchange for.
. The purchasing power of money is
the difference between the government’s revenues and costs in coining money
Seigniorage refers to
Electronic payments account for a relatively small share of U.S. transactions by number but a relatively large share of U.S. transactions by dollar value
. Which of the following best describes the role of electronic versus nonelectronic payments in the United States?
rise.
Everything else held constant, a decline in interest rates will cause spending on housing to
encourage
An increase in interest rates might ________ saving because more can be earned in interest income
there is a strong positive association between inflation and growth rate of money over long periods of time.
Evidence from the United States and other foreign countries indicates that
business cycle
The upward and downward movement of aggregate output produced in the economy is referred to as the
recessions
Sustained downward movements in the business cycle are referred to as
the growth rate of the money stock.
Prior to all recessions since 1900, there has been a drop in
recessions have been preceded by a decline in the growth rate of money
Evidence from business cycle fluctuations in the United States indicates that
an increase in the inflation rate
A sharp increase in the growth of the money supply is likely followed by
continually rising price level.
It is true that inflation is a
Monetary
________ theory relates changes in the quantity of money to changes in aggregate economic activity and the price level.
monetary; central
The management of money and interest rates is called ________ policy and is conducted by a nation’s ________ bank.
Federal Reserve System.
The organization responsible for the conduct of monetary policy in the United States is the
aggregate price level
The average price of goods and services in an economy is called
the
the aggregate price level has declined during this ten-year period
If ten years ago the prices of the items bought last month by the
average consumer would have been much higher, then one can likely conclude that
the “moneyness” or liquidity of an asset is a matter of degree.
Economists find no completely satisfactory way to measure money because
money
To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt
paper money and coins.
urrency includes
money is a stock and income is a flow
The difference between money and income is that
stock
income is a flow and wealth is a
income
An individual’s annual salary is her
wealth
A person’s house is part of her
anything that is generally accepted in payment for goods and services or in the repayment of debt
Money is
Money; wealth
________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value.
Income
________ is a flow of earnings per unit of time.
I hope that I have enough money to buy my lunch today
Which of the following statements uses the economists’ definition of money?
medium of exchange
Of money’s three functions, the one that distinguishes money from other assets is its function as a
money.
If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are
increases efficiency by reducing transactions costs.
The conversion of a barter economy to one that uses money
the requirement of a double coincidence of wants.
When compared to exchange systems that rely on money, disadvantages of the barter system include:
efficieny
When economists say that money promotes ________, they mean that money encourages specialization and the division of labor.
Money increases economic efficiency because it decreases transactions costs
Which of the following statements best explains how the use of money in an economy increases economic efficiency?
easily standardized, making it easy to ascertain its value.
For a commodity to function effectively as money it must be

For a commodity to function effectively as money it must be

the use of money is economically efficient
All but the most primitive societies use money as a medium of exchange, implying that
Transaction costs
________ are the time and resources spent trying to exchange goods and services.
transaction costs are higher
Compared to an economy that uses a medium of exchange, in a barter economy
reduces
Money ________ transaction costs, allowing people to specialize in what they do best.
medium of exchange
Kevin purchasing concert tickets with his debit card is an example of the ________ function of money
unit of account.
When money prices are used to facilitate comparisons of value, money is said to function as a
reduces the number of prices that need to be calculated.
Because it is a unit of account, money
there exists a multiple number of prices for each good.
A problem with barter exchange when there are many goods is that in a barter system
[N(N – 1)]/2
In a barter economy the number of prices in an economy with N goods is
unit of account
Dennis notices that jackets are on sale for $99. In this case money is functioning as a ________.
45
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.
6
If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another.
is a way of saving for future purchases
Because it is a store of value, money
store of value
Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money has a ________ function.
currency; savings bonds; house
Ranking assets from most liquid to least liquid, the correct order is
extremely liquid.
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
increases the value of money
A fall in the level of prices
money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale.
During hyperinflations
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
The cigarettes performed the three functions of money. They served as the medium of exchange because individuals did exchange items for cigarettes. They served as a unit of account because prices were quoted in terms of the number of cigarettes required for the exchange. They served as a store of value because an individual would be willing to save their cigarettes even if they did not smoke because they believed that they could exchange the cigarettes for something that they did want at some time in the future.
Explain how cigarettes could be called “money” in prisoner-of-war camps of World War II.
commodity money is likely to precede the use of paper currency.
As the payments system evolves from barter to a monetary system,
commodity money
disadvantage of ________ is that it is very heavy and hard to transport from one place to another.
fiat
Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money.
accepted as payment for debts
When paper currency is decreed by governments as legal tender, legally it must be ________.
innovations that reduced the costs of exchanging goods and services.
The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of
precious metals were difficult to carry and transport
The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that
Barter, coins made of precious metals, paper currency, checks, electronic funds transfers
Which of the following sequences accurately describes the evolution of the payments system?
new forms of money evolve to lower transaction costs.
In explaining the evolution of money
electronic fund transfers.
During the past two decades an important characteristic of the modern payments system has been the rapidly increasing use of
cash.
A smart card is the equivalent of
a stored-value card
Which of the following is not a form of e-money?
transportation costs
Which of the following reasons would not explain why electronic payments have been slow to displace the paper payments system?
The equipment necessary to set up the system is expensive, security of the information, and privacy concerns are issues that need to be addressed before an electronic payments system will be widely accepted.
What factors have slowed down the movement to a system where all payments are made electronically?
more difficult, since the Fed no longer knows what to consider money.
Recent financial innovation makes the Federal Reserve’s job of conducting monetary policy
more; quickens
Defining money becomes ________ difficult as the pace of financial innovation ________.
M1
________ is the narrowest monetary aggregate that the Fed reports.
Savings deposits.
Which of the following is not included in the measure of M1?
currency plus travelers checks.
The components of the U.S. M1 money supply are demand and
checkable deposits plus
traveler’s checks.
The M1 measure of money includes
the hands of the nonbank public
The currency component includes paper money and coins held in ________.
Savings bonds
Which of the following is not included in the monetary aggregate M2?
Money market mutual fund shares (retail
Which of the following is included in M2 but not in M1?
Small-denomination time deposits
Which of the following is not included in the M1 measure of money but is included in the M2 measure of money?
Currency
Which of the following is included in both M1 and M2?
M2.
Of the following, the largest is
M1 increases and M2 increases.
If an individual redeems a U.S. savings bond for 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 decreases and M2 stays the same.
If an individual moves money from a demand deposit account to a money market deposit account,
M1 stays the same 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 increases and M2 stays the same.
If an individual moves money from a money market deposit account to currency,
$100,000
Small-denomination time deposits refer to certificates of deposit with a denomination of less than ________.
tend to move together in the long run but can diverge in the short run.
The growth rates of monetary aggregates
the 1990s
The decade during which the growth rates of monetary aggregates diverged the most is
Concern about high inflation eroding the value of their own currency causes many people in foreign countries to hold U.S. dollars as a hedge against inflation risk
Why are most of the U.S. dollars held outside of the United States?
not a reliable guide to the short-run behavior of the money supply.
Generally, the data initially reported by the Fed are
do not provide a good guide to short-run movements in the money supply
An examination of revised money supply statistics, when compared to the initial statistics, suggests that the initial statistics
seasonal adjustments become more precise only as more data becomes available
The Fed revises its estimates of the monetary aggregates, sometimes by large amounts, because
Small
The Fed estimates initial monetary aggregate reports because ________ depository institutions report the amount of their deposits infrequently.
seasonal variation
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.
The two measures do not move together, so they cannot be used interchangeably by policymakers.
Which of the following statements accurately describes the two measures of the money supply?
goods and services for other goods and services.
2. Barter is the exchange of
a double coincidence of wants.
4. The major problem with barter is that it requires
money reduces a double coincidence of wants.
The basic advantage of money over barter is that
serves as a medium of exchan.ge
7. The most important aspect of money is that it
unit of account.
The price tag on a washing machine is an example of money as a
store of value.
The function of money in the form of holding its purchasing power over time is called a
) Barter; commodity moneys; commodity standards; fiat moneys.
10. Which of the following is the correct sequence of the evolution of exchange methods in history?
the amount of goods and services that one unit of gold can exchange for.
11. In a gold commodity money system, the price of gold is
gold bullion.
12. Under the gold standard, the monetary base was
less than its cost of production.
13. Seigniorage occurs when the face value of money is
with no intrinsic value.
14. Fiat money is money
bills of credit by colonial governments.
15. Fiat money was first issued in America in the form of
) fiat money.
16. Most paper money around the world today is
) it is more difficult to dispose of a house without losing its value.
18. A house is not as liquid as cash because
are less liquid.
19. Compared to M1, M2 consists of assets that
) purchasing power
20. The amount of goods and services that money can buy is the money’s
) the overall price level
21. The purchasing power of money varies inversely with
x

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