Deck 2: Money and the Payments System

Question 1

In Moscow in 1989,what were taxi drivers using as a medium of exchange?

A) Russian rubles
B) Marlboro cigarettes
C) gold coins
D) caviar

Answer 1

Marlboro cigarettes

Question 2

Which of the following is NOT a significant cost that a barter system imposes on an economy?

A) Many prices must be maintained for each good.
B) Only agricultural goods may be traded.
C) Specialization of labor is hindered.
D) The costs arising from the problem of finding two people who each want what the other produces.

Answer 2

Only agricultural goods may be traded.

Question 3

Fundamentally,to reap the benefits of specialization,an economy must

A) be heavily industrial.
B) be heavily agricultural.
C) have an extensive system of higher education.
D) develop ways for individuals to trade goods with one another.

Answer 3

develop ways for individuals to trade goods with one another.

Question 4

How many prices would there be in a barter economy with 100 goods?

A) 100
B) 1,000
C) 4,950
D) 10,000

Question 5

Under a system of barter

A) each individual trades output directly with another.
B) only agricultural goods may be traded.
C) goods may be traded for money, but money may not be traded for goods.
D) currency is accepted for purchases, but personal checks are not.

Question 6

By "specialization" economists mean a situation where

A) individuals produce the goods or services for which they have relatively the best ability.
B) goods are traded directly for goods and money is not used.
C) individuals who produce goods do not also produce services and individuals who produce services do not also produce goods.
D) individuals are assigned to occupations on the basis of tests that gauge their relative abilities.

Question 7

Commodity money can best be described as

A) money used to purchase agricultural products.
B) a good used as money that also has value independent of its use as money.
C) standardized goods like gold that trade in a financial market.
D) the form of money used in a barter system.

Question 8

The most important economic benefit from specialization is that it

A) makes it possible for an economy to begin using money.
B) leads to an increase in the standard of living in an economy.
C) makes barter possible.
D) eliminates the need for financial markets.

Question 9

Barter is

A) another name for money.
B) an exchange of goods and services directly for goods and services.
C) the basis for economic specialization.
D) the main system of exchange in the United States today.

Question 10

Which of the following is an example of a barter transaction?

A) An individual pays her electric bill with a check.
B) An individual pays her electric bill with currency.
C) An individual provides three light bulbs to her neighbor in exchange for two gallons of milk.
D) An individual deposits three twenty-dollar bills in her checking account.

Question 11

Using a good as a medium of exchange confers the benefit that

A) the need to quote so many prices in trade is reduced.
B) the need for a double coincidence of wants is greatly increased.
C) the need for specialization is reduced.
D) transactions costs are increased, but they now may be paid in money terms.

Question 12

When an economy relies on specialization

A) the economy will generally produce only one product.
B) the economy will usually be heavily agricultural.
C) each individual in the economy produces the goods or services for which he or she has relatively the best ability.
D) each individual will be assigned by the government to produce that good or service the government believes the economy should specialize in.

Question 13

Which of the following is the most efficient means of trade?

A) barter
B) money
C) government rationing
D) the combination of barter with some government rationing

Question 14

Andy can't make a deal with Danny.Andy has an Alex Rodriguez baseball card and would like to trade it to Danny for Danny's Albert Pujols card,but Danny doesn't want an Alex Rodriguez card.Andy's problem illustrates the drawback to a barter system known as

A) the specialization problem.
B) the double coincidence of wants problem.
C) the many prices problem.
D) the transactions problem.

Question 15

A system of barter has substantial transactions costs because

A) taxes under such a system are generally a large fraction of the value of output.
B) traders must spend considerable time searching for trading partners.
C) the uncertainties of trade result in high legal fees being incurred to draw up binding contracts.
D) the uncertainties of trade result in high insurance premiums.

Question 16

The problem of a double coincidence of wants refers to

A) the insatiability of wants in a free market economy.
B) poorly-managed companies producing what consumers want only by coincidence.
C) the necessity in a barter system of each trading partner wanting what the other has to trade.
D) the likelihood that needs will not be the same as wants.

Question 17

Money eliminates the need for

A) any government role in the economy.
B) specialization.
C) people to have a double coincidence of wants.
D) the market system.

Question 18

In a barter system individuals

A) find it impossible to specialize.
B) must be entirely self-sufficient.
C) find it difficult to specialize, but may be able to do so.
D) will almost invariably specialize.

Question 19

An important reason why economies at an early stage of development tend to operate inefficiently is

A) they tend to be dominated by the agricultural sector, where productivity is usually low.
B) they tend to have authoritarian governments that stifle innovation.
C) they tend to be plagued by superstitious beliefs that stifle innovation.
D) the high transactions costs associated with barter.

Question 20

Under a barter system

A) each good has many prices.
B) each good has a single price.
C) no prices for goods exist.
D) prices for goods are very stable.

Question 21

What are four inefficiencies of a barter system?

Question 22

An asset is

A) the same thing as a liability.
B) a thing of value that can be owned.
C) money, as opposed to stock or bonds.
D) anything that never declines in value.

Question 23

How does the existence of money affect economic growth?

Question 24

When economists refer to the role of money as a standard of deferred payment,they mean that

A) payments by checks are usually deferred until the checks clear the bank.
B) money earns interest while loan payments are deferred.
C) money provides a standard for payments that will occur in the future.
D) money today is worth less than money tomorrow.

Question 25

Money can BEST be described as

A) anything that is generally accepted as payment for goods and services or in the settlement of debts.
B) paper that can be used to purchase goods and services.
C) commodities that have intrinsic value.
D) any form of wealth possessed by consumers.

Question 26

The attribute that distinguishes money from other assets is that only money

A) retains its value during times of inflation.
B) is counted in determining the size of an individual's wealth.
C) serves as a medium of exchange.
D) may be used as collateral for a bank loan.

Question 27

When economists refer to the role of money as a store of value,they mean that

A) money never loses its value, unlike other assets.
B) money allows value to be stored easily.
C) the value of money falls only when the quantity of money in circulation falls.
D) the value of money falls only when the quantity of money in circulation rises.

Question 28

The difference between money and income is that whereas income is an individual's

A) flow of earnings over a period of time, money is an individual's stock of currency and currency substitutes.
B) stock of all assets, money is an individual's stock of currency and currency substitutes.
C) flow of earnings over a period of time, money is an individual's stock of all assets.
D) stock of currency and currency substitutes, money is an individual's stock of all assets.

Question 29

Money as a medium of exchange refers only to

A) currency.
B) gold coins.
C) anything that is generally accepted as payment for goods and services.
D) checks at commercial banks.

Question 30

The introduction of money to an economy results in

A) higher incomes.
B) higher productivity.
C) increased specialization.
D) all of the above.

Question 31

If prices increase rapidly

A) money's usefulness as a store of value is diminished.
B) money increases in value.
C) deflation is likely.
D) prices will decline to their normal level.

Question 32

Suppose $100 buys less in the year 2017 than in 2000.Then we can say that

A) money's store of value has decreased.
B) money's store of value has increased.
C) the economy must have been growing rapidly between 2000 and 2017.
D) the economy must have been growing slowly between 2000 and 2017.

Question 33

In comparing money to shares of Apple stock,we can say that

A) money is a store of value, but shares of Apple stock are not.
B) shares of Apple stock are a store of value, but money is not.
C) both money and shares of Apple stock are stores of value.
D) neither money nor shares of Apple stock are stores of value.

Question 34

Which of the following is NOT a problem with barter?

A) Each good has multiple prices.
B) high transactions costs
C) the commodity money having value for other uses besides money
D) lack of standardization of products exchanged

Question 35

Which of the following is NOT an important criterion for whether a good will be usable as a medium of exchange?

A) The good must be of standardized quality.
B) The good must be valuable relative to its weight.
C) The good must have value even if it were not being used as money.
D) The good must be durable so that value is not lost through product spoilage.

Question 36

Other assets are inferior to money in the sense that

A) they increase in value more slowly than does money.
B) they have a lower overall return than money.
C) they are more vulnerable to losing their real value as inflation increases.
D) they generate transactions costs when they are exchanged for money.

Question 37

Money is a medium of exchange in that

A) money is generally accepted for buying and selling goods and services.
B) currency may be exchanged for gold at any national bank.
C) other assets may be better or worse in facilitating exchange than money.
D) it must maintain most of its value over time.

Question 38

Wealth is

A) the sum of the value of assets.
B) equal to income.
C) a flow variable.
D) the sum of the value of assets minus the sum of the value of liabilities.

Question 39

When economists refer to the role of money as a unit of account,they mean that

A) most accounting systems reflect that goods are purchased with currency.
B) most accounting systems reflect that goods are purchased with checks.
C) money gives traders a way of measuring value in the economy.
D) money makes it possible for specialization to take place.

Question 40

Why do individuals hold money when it does NOT provide the services that,say,a house does?

A) Money is the most liquid asset.
B) Money is the only form in which wealth may be held.
C) Money increases in value faster than other assets.
D) Money is useful in avoiding taxes on certain transactions.

Question 41

Economic studies have shown that countries that have high inflation rates have lower rates of economic growth than do countries with low inflation rates.Explain what underlies this relationship between inflation and economic growth.

Question 42

What are the five characteristics that make an asset suitable to be used as a medium of exchange?

Question 43

What is the difference between money,income,and wealth?

Question 44

As of late 2016,approximately what portion of U.S.currency is held outside of the United States?

A) 1/10
B) 1/3
C) 1/2
D) 2/3

Question 45

What is the most important factor for Federal Reserve currency to be accepted as money?

A) its acceptance by businesses and households in the United States in exchange for goods and services
B) its designation as legal tender by the federal government
C) the willingness of the federal government to accept it in exchange for an equivalent amount of gold or silver coins
D) the willingness of foreign businesses and banks to accept it in exchange for goods and services

Question 46

In what way are other assets less liquid than money?

Question 47

If money is declared to be legal tender,it must be

A) minted from a precious metal.
B) acceptable to citizens of foreign countries.
C) possible to exchange it for an equivalent amount of precious metal.
D) accepted to settle private transactions and it must be accepted for the payment of taxes.

Question 48

Money that has no value apart from its use as money

A) is known as commodity money.
B) is known as fiat money.
C) will result in a return to a barter system.
D) will result in rapid inflation.

Question 49

Which function of money allows for specialization to take place?

A) medium of exchange
B) unit of account
C) store of value
D) standard of deferred payment

Question 50

Which function of money eliminates the need for multiple prices for each good as in a barter system?

A) store of value
B) standard of deferred payment
C) unit of account
D) valuable relative to its weight

Question 51

If fiat money has no value apart from its use as money,how can it be used as a medium of exchange?

Question 52

In what sense do self-fulfilling expectations determine the acceptability of a medium of exchange?

A) People like to do what the government expects them to do.
B) People value something as money only if they believe others will accept it from them as payment.
C) People expect that money will never lose its value.
D) People expect that eventually every country will use the same medium of exchange.

Question 53

Since the year 2000,total currency in circulation

A) has fallen by 20 percent.
B) has remained essentially the same.
C) has more than tripled.
D) has increased tenfold.

Question 54

Fiat money

A) is money that would have no value if it were not usable as money.
B) is illegal in most advanced, industrial countries.
C) is usually some type of precious metal.
D) will generally be accepted in trade for less than its face value.

Question 55

Which criterion for suitability as a medium of exchange do Federal Reserve Notes meet?

A) They are of standardized quality.
B) They are durable.
C) They are acceptable to most traders.
D) Federal Reserve Notes meet all of the criteria for suitability as a medium of exchange.

Question 56

What determines the acceptability of dollar bills as a medium of exchange?

A) our society's willingness to use green paper notes issued by the Federal Reserve as money
B) the willingness of the Federal Reserve to redeem dollar bills for gold
C) the willingness of the U.S. Treasury to redeem dollar bills for gold
D) the public's fear that failing to accept dollar bills will trigger a hyperinflation

Question 57

More than three-quarters of the value of all U.S.currency consists of

A) $1 bills.
B) $20 bills.
C) $50 bills.
D) $100 bills.

Question 58

By designating Federal Reserve currency as legal tender,the federal government

A) has ensured that Federal Reserve currency will serve as money.
B) has guaranteed that Federal Reserve currency may be exchanged for an equivalent amount of gold or silver.
C) has mandated that Federal Reserve currency be accepted for payment of debts.
D) has mandated that Federal Reserve currency be accepted by citizens of foreign countries in exchange for their countries' currencies.

Question 59

Which function of money enhances the ability of households to accumulate wealth?

A) medium of exchange
B) store of value
C) valuable relative to its weight
D) does not become worn out too quickly

Question 60

A person's earnings over a period of time is known as

A) money.
B) income.
C) wealth.
D) all of the above.

Question 61

All of the following are characteristics of debit cards EXCEPT

A) payments are deferred until a later date.
B) they can be used like checks.
C) they eliminate the problem of trust since the bank's computer authorizes the transaction.
D) when used at a store, the user's bank instantly credits the store's account with the amount and deducts it from the user's account.

Question 62

All of the following are problems associated with commodity money EXCEPT

A) it is a cumbersome form of payments system.
B) commodities tend to have little value in and of themselves.
C) its value is dependent on its purity.
D) costs are incurred in certifying the purity and weight of commodity money.

Question 63

Automatic teller machines and debit cards are examples of

A) electronic funds transfer systems.
B) commodity monies.
C) legal tender in the United States.
D) modern barter systems.

Question 64

All of the following statements regarding bitcoin transactions are true EXCEPT

A) no permanent record of bitcoin transactions exist.
B) bitcoin transactions are now more prevalent than cash transactions.
C) retailers pay a lower processing cost for bitcoin transactions than for credit card transactions.
D) bitcoin transactions are final and unlike credit card transactions, cannot be disputed by the buyer.

Question 65

Which of the following statements about ACH transactions is FALSE?

A) They reduce the likelihood of missed payments.
B) They reduce transactions costs associated with check processing.
C) They reduce the costs that lenders incur in notifying customers of missed payments.
D) They typically involve digital cash.

Question 66

According to a Federal Reserve study,electronic payments now make up ________ of all noncash payments.

A) 15 percent
B) just under half
C) more than two-thirds
D) just under 90 percent

Question 67

Bitcoin is a form of

A) commodity money.
B) legal tender.
C) e-money.
D) all of the above.

Question 68

All of the following are true in Sweden EXCEPT

A) many branches of Sweden's banks do not accept cash deposits.
B) some stores have stopped accepting cash payments.
C) many churches encourage parishioners to make donations using a mobile banking app.
D) the government no longer issues paper currency.

Question 69

Which of the following is a form of e-money?

A) gold
B) PayPal
C) an American Express card
D) traveler's checks

Question 70

All of the following are examples of electronic funds EXCEPT

A) credit cards.
B) debit cards.
C) ACH transactions.
D) e-money.

Question 71

The payments system is

A) the mechanism for conducting economic transactions.
B) another name for the system of foreign exchange rates.
C) the phrase used to describe how transactions are carried out in an economy that does not use money.
D) the way in which economic transactions are carried out in a government-controlled economy, such as the former Soviet Union.

Question 72

In Sweden,cash accounts for ________ of transactions.

A) only about 2 percent
B) about 10 percent
C) approximately 40 percent
D) just under 90 percent

Question 73

Which of the following is NOT a step involved in using checks?

A) The recipient must present the check to the bank.
B) The bank must present the check to the checkwriter's bank.
C) The funds must be transferred from the checkwriter's bank to the recipient's bank.
D) The funds must be transferred from the recipient's bank to the checkwriter's bank.

Question 74

The use of checks in transactions

A) entails lower information costs than the use of currency.
B) entails fewer steps than settling transactions with currency.
C) avoids the cost of transporting currency back and forth.
D) entails fewer steps and lower information costs than settling transactions with currency.

Question 75

Which of the following is NOT on the Fed's list of the five most desirable outcomes for a payments system?

A) inflation-proof
B) security
C) efficiency
D) speed

Question 76

Which of the following is an example of a commodity money?

A) gold coins
B) dollar bills
C) British pound notes
D) Japanese yen notes

Question 77

Which of the following is an example of fiat money?

A) a cowry shell used as money on a South Pacific island
B) a gold coin used as money in nineteenth century England
C) a Federal Reserve Note used as money in the twenty-first century United States
D) a pound of salt used as money in medieval France

Question 78

Why does the payments system continue to change over time?

Question 79

Checks are

A) not acceptable for settling transactions in most industrialized countries.
B) less important than currency as a means of settling transactions.
C) promises to pay, on demand, money deposited with a financial institution.
D) promises to pay, on demand, coins minted from precious metals.

Question 80

According to the Fed,what are the five most desirable outcomes for a payments system?