Deck 10: Money,the Price Level and Inflation

Question 1

Money serves as a

A)means of payment,legal obligation and public tax.
B)means of settling debts,transaction lubricant and private commodity.
C)means to conduct barter transactions.
D)medium of exchange,unit of account and store of value.
E)means of worker exploitation and capitalist enrichment.

Answer 1

D

Question 2

What is a problem with barter that makes it so difficult to use?

A)Barter omits the store of value role for money.
B)Barter requires the use of only fiat money.
C)Individuals have to produce something to trade with.
D)Barter is very efficient but illegal because it avoids taxation.
E)Barter requires a double coincidence of wants.

Answer 2

E

Question 3

For a commodity or token to be money,it must

A)be paper.
B)be issued by the government or a government agency.
C)have a double coincidence of wants.
D)be backed by government precious metals,like gold.
E)be accepted in exchange for all other goods and services.

Answer 3

E

Question 4

Money is best defined as

A)anything that can be sold to pay for something.
B)anything that is backed by gold.
C)currency.
D)anything that has value.
E)anything accepted as a means of payment.

Question 5

For an asset to be a "means of payment," the asset

A)requires a double coincidence of wants.
B)must be able to be used to settle a debt.
C)must be valuable and backed by the government.
D)must be used when bartering.
E)must be valuable and backed by gold.

Question 6

Which of the following best describes a double coincidence of wants?

A)You have what another wants and you want what they have.
B)Two buyers want the same good.
C)Neither buyer wants a good.
D)A buyer and a seller rather than two buyers or two sellers must meet.
E)None of the above answers is correct.

Question 7

Which of the following is NOT among the primary functions of money?

A)Store of value
B)Unit of account
C)An object that is generally accepted in return for goods and services
D)Medium of exchange
E)Indicator of supply

Question 8

If you shop for a car online and compare car prices across dealerships,money is functioning as a

A)barter mechanism.
B)means of payment.
C)unit of account.
D)medium of exchange.
E)store of value.

Question 9

Which statement about money is most correct?

A)Money has been around for a long time and only includes cheque and savings accounts.
B)Money has been around for a long time and only includes dollar bills and coins.
C)Money is a new invention and only includes dollar bills and coins.
D)Money is a new invention and can include anything that is accepted as a means of payment.
E)Money has been around for a long time and can include anything that is accepted as a means of payment.

Question 10

When you see a mansion and think to yourself that it must be worth a million dollars,you are using money to perform which function?

A)Unit of account
B)Store of value
C)Method of avoiding barter
D)Medium of exchange
E)Means of payment

Question 11

When we use money to purchase goods and services,we are using money as a

A)store of value.
B)unit of account.
C)reserve of wealth.
D)medium of exchange.
E)bartering tool.

Question 12

The "double coincidence of wants" is

A)how value is stored when we transact with money.
B)eliminated when we barter instead of using money.
C)what is needed to use money.
D)money's role as a unit of account.
E)eliminated with the use of money.

Question 13

Money is any commodity or token that is

A)backed by gold.
B)generally accepted as a means of measurement.
C)generally accepted as a means of payment.
D)a store of value.
E)issued by the government.

Question 14

The functions of money are

A)medium of exchange,unit of account and store of value.
B)credit cards,cheque accounts,currency and coins.
C)store of value,use as a barter mechanism,and unit of account.
D)medium of exchange,the ability to buy goods and services,and cheque accounts.
E)medium of exchange,the ability to buy goods and services,and the ability to pay off debts.

Question 15

When you use currency to buy lunch,money is performing which function?

A)Store of value
B)Barter token
C)Unit of purchase
D)Unit of currency
E)Medium of exchange

Question 16

In performing which of its primary functions does money solve the problem of the double coincidence of wants?

A)Money supply
B)Unit of account
C)Medium of exchange
D)Barter system
E)Store of value

Question 17

A common trait of money through history and across cultures is that money

A)was always issued by the local government.
B)was always based on gold or some other precious commodity.
C)was always fiat money.
D)was always generally accepted as a means of payment.
E)always had mystical properties.

Question 18

The function of money that helps assess the opportunity cost of an activity is money's use as a

A)barter tool.
B)unit of account.
C)store of value.
D)medium of exchange.
E)store of debt.

Question 19

The unit of account is defined as

A)the medium of exchange.
B)the exchange of goods and services directly for other goods and services.
C)barter.
D)an object that is accepted in return for goods and services.
E)an agreed upon measure for stating prices of goods and services.

Question 20

In order for any given commodity to be considered money,it has to

A)be issued and controlled by some government institution.
B)have some intrinsic value.
C)be generally acceptable as a means of payment.
D)be convertible into gold or silver.
E)be used in barter transactions.

Question 21

Cheques are not money because they

A)are not always accepted when trying to purchase goods or services.
B)are just instruments to transfer money between banks.
C)are not issued by the government.
D)are not guaranteed by banks.
E)can bounce when there are not enough funds to cash them.

Question 22

M1 is composed of

A)traveller's cheques,credit cards and e-cash.
B)currency inside of banks,traveller's cheques and government-issued cheques.
C)currency held by individuals and businesses and current account deposits owned by individuals and businesses.
D)current account deposits owned by individuals and businesses,saving deposits,and certificates of deposit.
E)currency held by individuals and businesses,traveller's cheques,and the credit line on credit cards.

Question 23

The Australian dollar is called

A)faith money.
B)convertible money because the government stands ready to convert it into gold or silver.
C)commodity money,because it is convertible into gold.
D)frail money because it is ruined by wear and tear.
E)fiat money because the law decrees it is money.

Question 24

Keeping $20 in currency to be able to buy petrol,money is performing which function?

A)Barter mechanism
B)Medium of exchange
C)Store of value
D)Unit of account
E)Symbol of fiat

Question 25

Which of the following items is included in the M1 money supply?

A)A credit card with a $5,000 limit.
B)Coins in a vending machine,waiting to be used as change.
C)$50 notes held at a Westpac branch.
D)$1,500 in a fixed-term savings account.
E)A $5,000 student loan granted to an Australian citizen.

Question 26

The word "fiat" is

A)Latin for "backed by gold."
B)the term used to define the concept of barter.
C)used to describe money from when Kings ruled by decree or fiat.
D)another word to mean the "double coincidence of wants."
E)used to describe today's money because it is money set by law.

Question 27

Credit cards are i.a generally accepted form of payment and therefore part of M1.
Ii)included in M1 because you write a cheque to pay your monthly bill.
Iii)a means of borrowing money.

A)i only
B)ii only
C)iii only
D)i and iii
E)i and ii

Question 28

If Julia deposits $300 in currency into her savings account at ANZ bank,

A)M1 does not change.
B)M1 and M2 both increase.
C)M2 increases.
D)M1 decreases.
E)M2 decreases.

Question 29

An official measure of money in Australia is M1,which includes the sum of

A)currency plus credit card transactions.
B)currency plus traveller's cheques plus cheque account deposits plus small time deposits plus money market funds and other deposits.
C)currency plus traveller's cheques plus time deposits.
D)currency plus current account deposits.
E)current account deposits plus small time deposits.

Question 30

Money is used as a ________ when you visit the local farmers' market and compare prices across different vendors.

A)store of value
B)medium of exchange
C)unit of account
D)means of payment
E)measure of barter

Question 31

The store of value function is defined as the

A)holding of money from one transaction to be used later in another transaction.
B)use of money as a medium of exchange.
C)pricing of goods and services in one measure.
D)exchange of goods and services directly for other goods and services.
E)double coincidence of wants that is used in the debate over barter versus money.

Question 32

A credit card is

A)barter money.
B)fiat money.
C)not money,but the card's credit line is money.
D)money.
E)not money.

Question 33

The objects that we use as money today are

A)currency and cheques.
B)deposits and cheques.
C)currency,deposits and gold.
D)currency and deposits.
E)cheques and credit cards.

Question 34

Electronic cash (or e-cash),like Bitcoin,

A)is not money because it is not universally accepted as a means of payment.
B)is part of M1 but not M3.
C)is not a secure means of payment.
D)is not money because it is not officially issued by the government.
E)is part of the M3 money supply but not part of the M1 money supply.

Question 35

A debit card is

A)part of the M2 money supply but not part of the M1 money supply.
B)money because it is generally accepted as a means of payment.
C)money because it is a means of payment.
D)not money because it is not officially issued by the government.
E)not money but is used to transfer bank deposits which are money.

Question 36

When you use a credit card to pay your university fees,

A)you've used the credit card as money because you received something in return.
B)the credit card is not money but is an ID card for an instant loan.
C)the credit card is not money because it involves an electronic transaction.
D)you've used the credit card as money because it is a means of payment.
E)the credit card is not money because it is not officially issued by the government.

Question 37

Fiat money means

A)that the money can be converted into gold.
B)only currency counts as money.
C)the government has decreed that something is money.
D)Italian currency.
E)that money's value does not change.

Question 38

Which of the following is an example of money?

A)A debit card.
B)Currency inside the banks.
C)Cheques written as payment for a good or service.
D)A credit card used as a payment for a good or service.
E)Currency in your wallet.

Question 39

When Dale buys a new computer for $1,000 using a credit card,

A)the credit card is performing the function of a unit of account.
B)he is taking out a loan for $1,000.
C)his bank account decreases by $1,000.
D)the money supply decreases by $1,000.
E)the credit card is acting as money.

Question 40

When we keep part of our wealth in a bank cheque account,we are using money as a

A)unit of currency.
B)medium of exchange.
C)barter token.
D)unit of account.
E)store of value.

Question 41

A public authority that provides banking services to banks and regulates financial institutions and markets is called a

A)central bank.
B)commercial bank.
C)mint.
D)money market fund.
E)thrift institution.

Question 42

Which of the following is NOT held as an asset by banks?

A)Reserves
B)Loans
C)Currency in the banks' vaults
D)Investment securities
E)Deposits

Question 43

As the central bank,the Reserve Bank of Australia provides banking services to

A)the government and the stock market.
B)foreign corporations and determines the exchange rate.
C)banks and the Australian government.
D)individuals and controls the quantity of money.
E)banks and determines how much the Australian government will borrow.

Question 44

Which of the following are included in the M3 definition of money?

A)Currency outside of banks and credit lines on credit cards
B)Currency inside of banks and banks' reserves
C)Currency both inside and outside of banks
D)Currency outside of banks,current account deposits and other deposits
E)Government bonds

Question 45

M3 consists of

A)M1 plus bank cheques.
B)M1 plus currency at the banks.
C)M1 plus traveller's cheques.
D)M1 plus saving deposits,certificates of deposit and other deposits.
E)M1 plus M2.

Question 46

Banks earn a profit by

A)making loans at a higher interest rate than the rates they offer on their deposits.
B)keeping as many reserves on hand as possible.
C)making loans at a lower interest rate than the rate they offer on their deposits.
D)not paying interest on their reserves.
E)charging an interest rate on their depositors' accounts.

Question 47

Banks generally earn the highest interest rate

A)on service charges on individuals' cheque accounts.
B)by making mortgage loans to individuals.
C)by making loans to business firms.
D)by buying government securities.
E)by making credit card loans.

Question 48

A credit union is

A)a cooperative that receives deposits and makes loans to provide mortgage finance.
B)an institution that accepts only deposits made in money.
C)a private firm that receives deposit and makes loans.
D)a government bank.
E)a non-profit firm that receives deposits from its members and makes loans to them.

Question 49

The smallest category of banks' assets is

A)cheque account deposits.
B)currency.
C)loans.
D)reserves and liquid assets.
E)securities.

Question 50

Which of the following are examples of deposit-taking institutions?
I)Banks
Ii)Western Union
Iii)Building Societies

A)i,ii and ii
B)iii only
C)i and iii
D)i only
E)i and ii

Question 51

A building society is

A)a government bank.
B)a cooperative that receives deposits and makes loans to provide mortgage finance.
C)an institution that accepts only deposits made in money.
D)a non-profit firm that receives deposits from its members and makes loans to them.
E)a private firm that receives deposit and makes loans.

Question 52

Which of the following are sources of funds for banks?
I)Reserves
Ii)Loans
Iii)Deposits

A)i only
B)ii only
C)i and ii
D)ii and iii
E)i,ii and iii

Question 53

A bank is defined as

A)any institution that makes loans.
B)any institution that accepts deposits.
C)a private firm that receives deposits and makes loans.
D)the institution that sets regulations for commercial activities.
E)a firm that obtains funds by selling shares.

Question 54

When goldsmiths issued receipts to gold owners,and those gold receipts circulated while gold stayed in the goldsmiths' safes,

A)the gold receipts were considered money because they were used as a means of payment.
B)an infant banking system developed in sixteenth century Europe.
C)fiat money was created.
D)money was invented.
E)Both A and B are correct.

Question 55

A central bank

A)is a public authority that supervises the government.
B)is a public authority that lends money.
C)is a government-run bank
D)prints money.
E)is a public authority that supervises other banks and financial institutions and financial markets and conducts monetary policy.

Question 56

Which of the following describes the "invention" of banking?

A)The United States government founded the Federal Reserve in 1913.
B)Members of the New York Stock Exchange founded the Bank of America in the 1700s.
C)Clergy in the Renaissance created the banking system to help further the growth of the church.
D)The British Empire created a banking system to fund its exploration of the New World.
E)Goldsmiths in the sixteenth century issued gold receipts which entitled their owners to reclaim their gold on demand.

Question 57

Which of the following best defines what money is now and what it has been in the past?

A)Currency plus cheque account deposits
B)Currency plus credit cards
C)Currency
D)Anything used as a store of value
E)Anything accepted as a means of payment

Question 58

Which of the following is NOT a function of money?
I)Unit of account
Ii)Store of value
Iii)Unit of debt

A)i only
B)ii only
C)iii only
D)i and ii
E)ii and iii

Question 59

Which of the following are assets of banks?
I)Reserves
Ii)Loans
Iii)Deposits

A)i only
B)ii only
C)i and ii
D)ii and iii
E)i,ii and iii

Question 60

The largest category of banks' assets is

A)loans.
B)currency.
C)cheque account deposits.
D)investment securities.
E)reserves and liquid assets.

Question 61

A bank's excess reserves are

A)the deposits that a bank wants to hold to meet daily business requirements.
B)its actual deposits minus desired reserves.
C)determined by actual reserves less desired reserves.
D)its actual desired reserves minus deposits.
E)its actual reserves minus its desired reserves.

Question 62

Banks create money by

A)printing money up to their required reserve limit.
B)printing dollar bills.
C)buying government securities with cash.
D)making loans and creating deposits.
E)creating securities.

Question 63

The monetary base consists of

A)gold and Reserve Bank notes.
B)Australian dollar securities and foreign exchange.
C)Australian dollar reserves and banks' reserve deposits.
D)Reserve Bank notes and banks' reserve deposits.
E)gold and foreign exchange.

Question 64

Banks can make loans as long as they have

A)excess reserves.
B)required reserves.
C)deposits.
D)reserves.
E)excess government securities.

Question 65

What are the two liabilities of the Reserve Bank?

A)Gold and Reserve Bank notes
B)Australian dollar securities and foreign exchange
C)Australian dollar reserves and banks' reserve deposits.
D)Gold and foreign exchange
E)Reserve Bank notes and banks' reserve deposits

Question 66

Because the Reserve Bank of Australia is a central bank,it provides banking services to

A)the government only.
B)consumers and business.
C)banks.
D)businesses only.
E)no one.

Question 67

The amount of loans that a bank can create is limited by

A)the monetary base,the bank's desired reserves and desired currency holding.
B)only the monetary base
C)the real interest rate.
D)the bank's holding of government securities.
E)laws enacted by Parliament.

Question 68

Suppose the desired reserve ratio is 10 per cent.If Urban Bank has total deposits of $1,000 and total assets of $10,000,the amount of desired reserves is

A)$1,000.
B)$100.
C)$900.
D)$1,100.
E)$9,000.

Question 69

The part of a bank's reserves that are larger than desired are called

A)required reserves.
B)non-required reserves.
C)excess reserves.
D)additional reserves.
E)unnecessary reserves.

Question 70

Riley deposits $4,000 cash in her cheque account at Fershur Bank.If the desired reserve ratio is 5 per cent,Fershur Bank's

A)desired reserves increase by $200 and its excess reserves increase by $3,800.
B)assets and liabilities change in opposite directions.
C)desired reserves increase by $4,000.
D)liabilities do not change but its assets increase.
E)excess reserves increase by $4,000.

Question 71

A bank's desired reserve ratio is

A)the ratio of currency to deposits.
B)the ratio of deposits to currency.
C)the ratio of deposits to reserves that a bank wants to hold to meet daily business requirements.
D)the ratio of reserves to deposits that a bank wants to hold to meet daily business requirements.
E)determined by actual reserves less desired reserves.

Question 72

If the desired reserve ratio is 7 per cent and a bank has $10,000 of deposits,then its desired reserves are

A)$7,000.
B)$9,300.
C)$700.
D)$930.
E)$7.

Question 73

The functions of the Reserve Bank of Australia include i.banker to banks and government.
Ii)lender of last resort.
Iii)issuer of bank notes.

A)ii and iii
B)i and ii
C)i only
D)iii only
E)i,ii and iii

Question 74

The two groups of Reserve Bank assets are

A)gold and foreign exchange.
B)Reserve Bank notes and banks' reserve deposits.
C)gold and Reserve Bank notes.
D)Australian dollar securities.
E)A and D.

Question 75

As a lender of last resort,the Reserve Bank

A)makes loans to individuals in need.
B)makes loans to banks when the entire banking system is short of reserves.
C)makes loans to banks that are short of reserves.
D)makes loans to the government.
E)None of the above.

Question 76

The Board of the Reserve Bank of Australia consists of

A)six external members and the secretary to the Treasury.
B)the governor,the vice governor and six external members from business.
C)only the governor and the deputy governor.
D)the governor,the deputy governor,the secretary to the Treasury and six external members.
E)the governor,the deputy governor and six external members.

Question 77

Banks create money by

A)lending to the Reserve Bank.
B)asking the Reserve Bank to print more currency.
C)making loans.
D)buying government securities.
E)printing currency.

Question 78

A bank has $200 of reserves and $4,000 of deposits.It is just meeting its desired reserves and has no excess reserves.Thus the desired reserve ratio is

A)10 per cent.
B)5 per cent.
C)$200.
D)25 per cent.
E)20 per cent.

Question 79

Actual reserves are equal to

A)desired reserves plus excess reserves.
B)government securities plus cash in the bank's vault.
C)minimum balances plus desired reserves.
D)excess reserves plus liabilities.
E)required reserves plus fractional deposits.

Question 80

Assume the First Bank of Townsville makes a loan of $2,500.This loan will

A)increase the First Bank of Townville's liabilities at the Reserve Bank.
B)increase the First Bank of Townville's reserves.
C)decrease the quantity of money initially by $2,500.
D)have no change on the quantity of money,just its composition.
E)increase the quantity of money initially by $2,500.