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. Answer: B Ques Status: Previous Edition
10)________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs. B) Transaction costs. C) Contracting costs. D) Barter costs.
Answer: B Ques Status: New
11)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.
Answer: A Ques Status: Previous Edition
12)Money ________ transaction costs, allowing people to specialize in what they do best. A) reduces B) increases C) enhances D) eliminates
Answer: A Ques Status: New
13)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
Answer: A Ques Status: New
14)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. Answer: A Ques Status: Previous Edition 15) 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. Answer: B Ques Status: Revised
16)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. Answer: B Ques Status: Revised
17)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.
Answer: A Ques Status: Previous Edition 18)
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 Answer: B Ques Status: New 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
Answer: D Ques Status: Previous Edition 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
Answer: B Ques Status: Previous Edition ·
21) Because it is 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. Answer: D Ques Status: Revised 22)
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.
A) medium of exchange
B) unit of account C) store of value D) specialization
Answer: C Ques Status: New 23)
________ 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
Answer: B Ques Status: New
24) Increasing transactions costs of selling an asset make the asset A) more valuable. B) more liquid. C) less liquid. D) more moneylike.
Answer: C Ques Status: Revised
25) Of the following assets, the least liquid is A) stocks.
B) traveler?s checks. C) checking deposits. D) a house.
Answer: D Ques Status: Revised 26)
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. Answer: B Ques Status: Revised 27)
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 A) extremely liquid.
B) a unique good for which there are no substitutes. C) the only thing accepted in economic exchange. D) backed by gold.
Answer: A Ques Status: Revised
28) 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 50 percent.
Answer: D Ques Status: Previous Edition ·
29) 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. Answer: C Ques Status: Revised 30) 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.
Answer: B Ques Status: Revised 31)
Because inflation in Nicaragua in 1990 topped 13,000 percent, one can conclude that the Nicaraguan economy suffered from A) deflation. B) disinflation. C) hyperinflation. D) superdeflation.
Answer: C Ques Status: Previous Edition 32)
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.
Answer: D Ques Status: Previous Edition
33) Explain how cigarettes could be called ?money? in prisoner-of-war camps of World War II. Answer:
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. Ques Status: New 3.3 Evolution of The Payments System 1)
Compared to checks, 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. Answer: A Ques Status: Revised
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. Answer: A Ques Status: Revised 3)
A disadvantage of ________ is that it is very heavy and hard to transport from one place to another. A) commodity money B) fiat money C) electronic money D) paper money
Answer: A Ques Status: New · 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
Answer: B Ques Status: New 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 Answer: C Ques Status: New 6)
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 A)
government regulations designed to improve the efficiency of the payments system. B)
government regulations designed to promote the safety of the payme
nts 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.
Answer: C Ques Status: Revised 7)
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 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 checks. Answer: C Ques Status: Revised
8)Which of the following sequences accurately describes the evolution of the payments system? A)
Barter, coins made of precious metals, paper currency, checks, electronic funds transfers B)
Barter, coins made of precious metals, checks, paper currency, electronic funds transfers C)
Barter, checks, paper currency, coins made of precious metals, electronic funds transfers
D) Barter, checks, paper currency, electronic funds transfers Answer: A Ques Status: Previous Edition 9) 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 checks.
Answer: C Ques Status: Revised 10)
During the past two decades an important characteristic of the modern payments system has been the rapidly increasing use of A) checks and decreasing use of currency. B) electronic fund transfers. C) commodity monies. D) fiat money.
Answer: B Ques Status: Revised 11)
Compared to an electronic payments system, a payments system base
d on checks has the major drawback that A) checks are less costly to process. B)
checks 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. Answer: B Ques Status: Revised ·
12) A smart card is the equivalent of A) cash. B) savings bonds. C) savings deposits. D) certificates of deposit. Answer: A Ques Status: Revised
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
Answer: B Ques Status: New 14)
Which of the following reasons would not explain why electronic payments have been slow to displace the paper payments system? A) expensive equipment is necessary to set up the system B) security concerns C) privacy concerns D) transportation costs Answer: D Ques Status: New 15)
What factors have slowed down the movement to a system where all payments are made electronically? Answer:
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. Ques Status: New 3.4 Measuring Money
1) Recent financial innovation makes the Federal Reserve?s job of conducting monetary policy
A) easier, since the Fed now knows what to consider money. B) more difficult, since the Fed now knows what to consider money. C) easier, since the Fed no longer knows what to consider money. D)
more difficult, since the Fed no longer knows what to consider money.
Answer: D Ques Status: Previous Edition 2)
Defining money becomes ________ difficult as the pace of financial innovation ________. A) less; quickens B) more; quickens C) more; slows D) more; stops
Answer: B Ques Status: Revised 3)
________ is the narrowest monetary aggregate that the Fed reports. A) M0 B) M1 C) M2 D) M3
Answer: B Ques Status: New
4) Which of the following is not included in the measure of M1? A) NOW accounts. B) Demand deposits. C) Currency. D) Savings deposits.
Answer: D Ques Status: Previous Edition · 5)
The components of the U.S. M1 money supply are demand and checkable deposits plus A) currency.
B) currency plus savings deposits. C) currency plus travelers checks.
D) currency plus travelers checks plus money market deposits. Answer: C Ques Status: Previous Edition 6) The M1 measure of money includes A) small denomination time deposits. B) traveler?s checks.
C) money market deposit accounts. D) money market mutual fund shares. Answer: B Ques Status: Revised 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
Answer: C Ques Status: New 8)
Which of the following is not included in the monetary aggregate M2?
A) Currency B) Savings bonds C) Traveler?s checks
D) Checking deposits
Answer: B Ques Status: Revised
9) 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) Answer: D Ques Status: Revised 10)
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 Answer: D Ques Status: Previous Edition
11) 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 Answer: A Ques Status: Revised 12) Of the following, the largest is A) money market deposit accounts. B) demand deposits. C) M1. D) M2.
Answer: D Ques Status: Revised ·
13) If an individual redeems a U.S. 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. Answer: B Ques Status: Revised 14)
If an individual moves money from a small-denomination time deposit to a demand deposit 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. Answer: A Ques Status: Previous Edition 15)
If an individual moves money from a demand deposit account to a money market 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 decreases. Answer: A Ques Status: Previous Edition
16)
If an individual moves money from a savings deposit account to a money market 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 decreases. Answer: C Ques Status: Previous Edition
17)If an individual moves money from currency to a demand 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. Answer: C Ques Status: Previous Edition 18)
If an individual moves money from a money market deposit account 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. Answer: A Ques Status: Previous Edition 19)
Small-denomination time deposits refer to certificates of deposit with a denomination of less than ________. A) $1,000 B) $10,000 C) $100,000 D) $1,000,000
Answer: C Ques Status: New
20) The growth rates of monetary aggregates A) follow one another exactly.
B) tend to move together in the short run but not in the long run. C) are unrelated in the long run. D)
tend to move together in the long run but can diverge in the short run. Answer: D Ques Status: Revised · 21)
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.
Answer: D Ques Status: Revised 22)
Why are most of the U.S. dollars held outside of the United States?