Chapter 29
The Monetary System
Multiple Choice
1. Money
a. is more efficient than barter. b. makes trades easier.
c. allows greater specialization. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 TOP: Money MSC: Definitional
REF: 29-1
2. When we say that trade is roundabout we mean that
a. people sometimes trade goods for goods. b. trades require a double coincidence of wants
c. currency is accepted primarily to make further trades.
d. people must spend time searching for the products they wish to purchase. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Trade MSC: Definitional
3. Paper money
a. has a high intrinsic value.
b. is the primary medium of exchange in a barter economy. c. is valuable because it is generally accepted in trade. d. is valuable only because of the legal tender requirement. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Money MSC: Definitional Consider four survivors on an island. Rupert has machete Amber has cooking pot Rob has fishing spear Tom has cooking pot
wants fishing spear wants fishing spear wants machete wants machete 4. Which of the following pairs have a double-coincidence of wants with each other? a. Rupert with Amber, and Rob with Tom b. Amber with Tom c. Rupert with Rob
d. None of the above have a double-coincidence of wants. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Double-coincidence of wants MSC: Applicative
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Consider the following traders who meet. Bob has an apple Ted has an orange Mary has a pear Alice has a peach
wants an orange wants a peach wants an apple wants an orange 5. Which if any pairs have a double coincidence of wants? a. Bob with Alice b. Ted with Alice
c. Bob with Mary, Ted with Bob, and Ted with Alice
d. None of the pairs above have a coincidence of wants with each other ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Double-coincidence of wants MSC: Applicative
6. The existence of money leads to
a. greater specialization in production, but not a higher standard of living. b. a higher standard of living, but not greater specialization. c. greater specialization and a higher standard of living.
d. neither greater specialization or a higher standard of living. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Money MSC: Definitional
7. Changes in the quantity of money affect
a. interest rates b. prices c. production
d. All of the above are correct ANS: D PTS: 1 DIF: 1 REF: 29-1 TOP: Monetary policy MSC: Definitional
8. Which of the following is a store of value?
a. currency
b. U.S. government bonds c. fine art
d. All of the above are correct. ANS: D PTS: 1 DIF: 1 TOP: Store of value
REF: 29-1
MSC: Interpretive
9. Which of the following best illustrates the unit of account function of money?
a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars. b. You pay for your WNBA tickets with dollars. c. You keep $10 in your backpack for emergencies. d. None of the above is correct. ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Unit of account MSC: Interpretive 10. The “yardstick” people use to post prices and record debts is called
a. a medium of exchange. b. a unit of account. c. a store of value. d. liquidity. ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Unit of account MSC: Definitional
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11. Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
a. store of value
b. medium of exchange c. unit of account
d. None of the above is correct. ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Store of value MSC: Interpretive 12. Which of the following best illustrates the medium of exchange function of money?
a. You keep some money hidden in your shoe.
b. You keep track of the value of your assets in terms of currency. c. You pay for your double latte using currency. d. None of the above is correct. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Medium of exchange MSC: Interpretive
13. You get money for babysitting the neighbors' children. This best illustrates which function of money?
a. medium of exchange b. unit of account c. store of value d. liquidity ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Medium of exchange MSC: Definitional 14. Which of the following is a function of money?
a. a unit of account b. a store of value
c. medium of exchange
d. All of the above is correct. ANS: D PTS: 1 DIF: 1 REF: 29-1 TOP: Money MSC: Definitional
15. An item that people can use to transfer purchasing power from the present to the future is called
a. a medium of exchange. b. a unit of account. c. a store of value.
d. None of the above is correct. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Store of value MSC: Definitional 16. Treasury Bonds are
a. liquid, but not a store of value. b. a store of value, but not liquid. c. both liquid and a store of value. d. neither liquid nor a store of value ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Liquidity | Store of value MSC: Interpretive
17. Which of the following functions of money is also a common function of most other financial assets?
a. a unit of account b. a store of value
c. medium of exchange
d. None of the above is correct. ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Store of value MSC: Definitional
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18. Economists use the word \
a. income generated by the production of goods and services. b. those assets regularly used to buy goods and services. c. the value of a person's assets. d. the value of stocks and bonds. ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Money MSC: Definitional
19. Liquidity refers to
a. the ease with which an asset is converted to the medium of exchange. b. a measurement of the intrinsic value of commodity money. c. the suitability of an asset to serve as a store of value. d. how many time a dollar circulates in a given year. ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Liquidity MSC: Definitional
20. Which list ranks assets from most to least liquid?
a. currency, fine art, stocks b. currency, stocks, fine art c. fine art, currency, stocks d. fine art, stocks, currency ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Liquidity MSC: Definitional
21. Current U.S. currency is
a. fiat money with intrinsic value. b. fiat money with no intrinsic value. c. commodity money with intrinsic value. d. commodity money with no intrinsic value. ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Commodity money | Fiat money MSC: Definitional 22. Fiat money
a. has no intrinsic value. b. is backed by gold.
c. has intrinsic value equal to its value in exchange.
d. is any close substitute for currency such as checkable deposits. ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Fiat money MSC: Definitional
23. Commodity money is
a. backed by gold.
b. the principal type of money in use today. c. money with intrinsic value.
d. receipts created in international trade that are used as a medium of exchange. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: Commodity money MSC: Definitional 24. Fiat money
a. is worthless.
b. has no intrinsic value.
c. may be used as a medium of exchange, but is not legal tender.
d. performs all the functions of money except providing a unit of account. ANS: B PTS: 1 DIF: 1 REF: 29-1 TOP: Fiat money MSC: Definitional
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25. Which type of currency has intrinsic value?
a. commodity money b. fiat money
c. both commodity money and fiat money d. neither commodity money nor fiat money ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Commodity money MSC: Definitional 26. If an economy used gold as money, its money would be
a. commodity money, but not fiat money. b. fiat money, but not commodity money. c. both fiat and commodity money. d. neither fiat nor commodity money. ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Fiat money | Commodity money MSC: Definitional 27. The legal tender requirement means that
a. people are more likely to accept the dollar as a medium of exchange. b. the government must hold enough gold to redeem all currency. c. people may not make trades with anything else. d. All of the above are correct. ANS: A PTS: 1 DIF: 1 REF: 29-1 TOP: Legal tender requirement MSC: Definitional 28. M1 equals currency + demand deposits +
a. nothing else.
b. other checkable deposits.
c. traveler's checks + other checkable deposits.
d. traveler's checks + other checkable deposits + savings deposits. ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: M1 MSC: Definitional 29. M1 includes
a. currency.
b. demand deposits. c. travelers' checks.
d. All of the above are correct. ANS: D PTS: 1 DIF: 1 TOP: M1 MSC: Definitional
REF: 29-1
30. Which of the following is not included in M1?
a. currency
b. demand deposits c. savings deposits d. travelers' checks ANS: C PTS: 1 DIF: 1 REF: 29-1 TOP: M1 MSC: Definitional 31. Which of the following is not included in M1?
a. currency
b. demand deposits c. traveler’s checks d. credit cards ANS: D PTS: 1 DIF: 1 REF: 29-1 TOP: M1 MSC: Definitional