Deck 3: Money

Question 1

Fiat money has no intrinsic value.

Answer 1

True

Question 2

An advantage of fiat money is that the prices of goods automatically adjust with the supply of money.

Answer 2

False

Question 3

Fiat money is representative money, but the converse is not necessarily true.

Answer 3

True

Question 4

Commodity money is always a better store of value than fiat money.

Question 5

An advantage of most representative money is that it is uniform.

Question 6

An increase in bank lending decreases the money supply.

Question 7

An advantage of commodity money is that deflation is impossible.

Question 8

IOUs for gold deposits are one example of commodity money.

Question 9

Checkable mutual funds are at least as liquid as any asset in M3.

Question 10

One of the defining features of money is that it does not pay interest.

Question 11

A disadvantage of credit money is that prices do not automatically adjust to changes in the money supply.

Question 12

A difficulty with gold is that it does not function well as a unit of account.

Question 13

Only fiat money helps solve the "double coincidence of want" problem.

Question 14

Checking accounts are part of the money supply defined by M0.

Question 15

Under credit money, prices automatically fall in a recession.

Question 16

As measures of the money supply, M2 is more liquid than M3.

Question 17

A government law about "legal tender" is not necessary for money to exist.

Question 18

Stocks are less liquid than any asset in M2.

Question 19

An advantage of commodity money is that prices cannot rise indefinitely.

Question 20

Commodity money can never act as representative money.

Question 21

Money

A) does not have to be valuable except as a means of trade.
B) must act as a long term store of value.
C) must have value besides as a means to trade.
D) all of the above.

Question 22

Money solves the "double coincidence of wants" problem since it acts as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above.

Question 23

Rarity is an essential feature of money.

Question 24

During a hyperinflation, money is not functioning well as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above.

Question 25

Representative, fiat, and credit monies are more efficient than commodity money.

Question 26

When money is used to compare the relative value of goods, it is functioning as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above.

Question 27

Receipts for store tobacco are NOT an example of _____ money.

A) commodity
B) representative
C) credit
D) none of the above

Question 28

Credit money has inelastic supply.

Question 29

Slips representing gold deposits with a bank are NOT an example of _____ money.

A) fiat
B) representative
C) credit
D) none of the above

Question 30

Fiat money is self-equilibrating.

Question 31

Fiat money is less elastic than credit money.

Question 32

Tulips don't make very good money because they are particularly bad as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) none of the above.

Question 33

In the absence of money, people

A) must barter to trade.
B) produce a greater variety of goods themselves.
C) face the problem of "double coincidence of wants."
D) all of the above.

Question 34

Arrowheads are an example of _____ money.

A) fiat
B) representative
C) credit
D) none of the above

Question 35

Clamshells and gold are examples of commodity money.

Question 36

ATS accounts automatically transfer money from a checking account to a bank account.

Question 37

Money

A) is anything generally accepted for trade.
B) does not have to be valuable except as a means of trade.
C) can allow people to save more easily.
D) all of the above.

Question 38

Money is the only asset that acts as a

A) medium of exchange.
B) unit of account.
C) store of value.
D) all of the above.

Question 39

Money is

A) anything that acts as a store of value.
B) a divisible good that can be traded with many people.
C) anything generally accepted for trade.
D) all of the above.

Question 40

Cigarettes are an example of _____ money.

A) commodity
B) fiat
C) representative
D) none of the above

Question 41

Which of the following types of money are not self-equilibrating?

A) commodity
B) representative
C) fiat
D) all are self-equilibrating

Question 42

Which type of money is the most difficult to counterfeit?

A) fiat
B) commodity
C) representative
D) credit

Question 43

Which of the following is not an example of commodity money?

A) tobacco
B) gold
C) clamshells
D) all of the above

Question 44

Which of the following is/are desirable attributes of a medium of exchange?

A) edibility
B) elasticity of demand
C) divisibility
D) all of the above

Question 45

The best medium of exchange combines:

A) divisibility
B) durability
C) portability
D) all of the above

Question 46

Default risk is a potential problem for which of the following form(s) of money?

A) commodity
B) representative
C) credit
D) all of the above

Question 47

The biggest problem with credit money is

A) its weight-to-value ratio.
B) elasticity of supply.
C) default risk.
D) none of the above.

Question 48

Diamonds do not make very good money because they are not easily

A) divisible.
B) durable.
C) portable.
D) all of the above.

Question 49

If a fiat money becomes easier to produce, prices denominated in that money will (ceteris paribus)

A) rise.
B) fall.
C) stay the same.
D) cannot be determined.

Question 50

A disadvantage of credit money is

A) elasticity of supply.
B) weight to value ratio
C) indivisibility.
D) none of the above.

Question 51

An advantage of credit money is

A) elasticity of supply.
B) default risk.
C) indivisibility.
D) none of the above.

Question 52

If an economy uses furs as money and the supply is suddenly cut in half, then prices of other goods in terms of furs will

A) double.
B) be halved.
C) stay the same.
D) none of the above.

Question 53

The dollar is an NOT an example of

A) fiat money.
B) representative money.
C) credit money.
D) all of the above.

Question 54

Which of the following is/are desirable attributes of a medium of exchange?

A) the ability to carry it
B) there is a relatively fixed amount available
C) it is difficulty to break up
D) all of the above

Question 55

Rocks would not make very good money because they are not easily

A) divisible.
B) uniform.
C) portable
D) all of the above.

Question 56

If a commodity money becomes easier to find or produce, prices denominated in that money will (ceteris paribus)

A) rise.
B) fall.
C) stay the same.
D) cannot be determined.

Question 57

Which of the following invest in short-term, or money market, instruments?

A) sweep accounts
B) ATS accounts
C) money market mutual funds
D) all of the above

Question 58

Which of the following is/are desirable attributes of a medium of exchange?

A) durability
B) elasticity of supply
C) divisibility
D) all of the above

Question 59

Which of the following is part of any measure of the money supply?

A) cash
B) mutual funds
C) bank reserves
D) commercial loans

Question 60

The biggest problem with credit money is

A) divisibility.
B) elasticity of supply.
C) portability.
D) none of the above.

Question 61

Why would silver dollar coins be a better store of value than gold bars?

Question 62

What are the advantages and disadvantages of commodity money?

Question 63

What is fractional reserve banking?

Question 64

Is a bank with the following balance sheet engaged in fractional reserve banking?

Question 65

If gold is the medium of exchange in an economy, how would prices react in a recession?

Question 66

If an economy is using a medium of exchange that has an inelastic supply, how do prices change in an economic recession? Why?

Question 67

At the end of the 19^th century, some people (including William Jennings Bryan) advocated a bimetallic monetary standard using both gold and silver, to alleviate the deflations that occurred periodically. Was this a sensible suggestion? Would a bimetallic alleviate the problems with gold?

Question 68

Could prices for goods rise indefinitely under commodity or fiat money? Explain.

Question 69

What is the difference between commodity and fiat money?

Question 70

How many prices would be required in a barter economy with 4 goods?

Question 71

What effect would the introduction of fraction reserve banking have on the money supply?

Question 72

What is the double coincidence of wants?

Question 73

How can adoption of a foreign currency help during the collapse of a local currency?

Question 74

What are the advantages of representative money?

Question 75

In what way would apples be better than diamonds as a medium of exchange?

Question 76

An advantage of commodity money is that prices automatically adjust with the supply of money. If this is true, why would economists also say the supply of money should be inelastic?

Question 77

How has the introduction of SWEEP accounts affected the money supply?

Question 78

Why do economists say that money helps to increase specialized production?

Question 79

Who is more likely to be unable to pay as promised in fractional reserve banking?

Question 80

How would the introduction of automatic transfer accounts have affected the money supply?