Deck 18: Money and the Monetary System

Question 1

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

A)medium of exchange
B)unit of account
C)store of value
D)barter system
E)money supply

Answer 1

A

Question 2

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)issued by the government.
E)a store of value.

Answer 2

C

Question 3

For a commodity or token to be money it must

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

Answer 3

A

Question 4

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

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

Question 5

A barter system of payment is

A)similar to a money system of payment because both require a double coincidence of wants.
B)similar to a money system of payment because both use one asset as a unit of account.
C)different from a money system of payment because the barter system is a better unit of account.
D)different from a money system of payment because money does not require a double coincidence of wants.
E)similar to a money system of payment because both are used as stores of value and units of account.

Question 6

The medium of exchange is defined as

A)barter.
B)the exchange of goods and services directly for goods and services.
C)an object that is accepted in return for goods and services.
D)credit cards.
E)an item that can be stored and hold its value over time.

Question 7

Barter requires the

A)use of commodity money as a medium of payment.
B)use of fiat money as a medium of exchange.
C)the triple non-coincidence of wants.
D)exchange of goods and services directly for other goods and services.
E)use of money as a unit of account.

Question 8

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

A)unit of account.
B)store of value
C)indicator of supply
D)medium of exchange
E)an object that is generally accepted in return for goods and services

Question 9

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

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

Question 10

For anything to be considered money it must be

A)a valuable commodity, such as gold.
B)a token, such as a green piece of paper.
C)either a commodity or a token, as long as it is generally accepted as a means of payment.
D)a mystical token, such as whale teeth.
E)used in barter transactions.

Question 11

Money is best defined as

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

Question 12

The functions of money are

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

Question 13

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

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

Question 14

Money must be ________ which includes the fact that is should ________.

A)in physical form; not be transferable using electronic means
B)accepted as a means of payment across countries' borders; not be fiat money
C)generally accepted as a means of payment; be recognizable and divisible into small parts
D)whatever is used in a barter system; transferable across countries' borders
E)backed by gold; not decrease in value over time

Question 15

Money performs all of the following functions EXCEPT serving as a i. medium of exchange.
Ii. unit of account.
Iii. barter mechanism.

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

Question 16

Money is any commodity or token that

A)is generally accepted as a means of payment.
B)is backed up and controlled by the government.
C)is naturally accepted by households to accumulate wealth.
D)does not change in value over time.
E)is backed by gold.

Question 17

Money serves as a

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

Question 18

When you join the local organic food market and then buy produce each month, money is used as

A)only a store of value.
B)only a unit of account.
C)a medium of exchange and a store of value.
D)a medium of exchange and a unit of account.
E)a store of value and a unit of account.

Question 19

The "double coincidence of wants" is

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

Question 20

Which statement about money is most correct?

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

Question 21

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

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

Question 22

Which statement most accurately captures the state of money today?

A)Money today includes currency, bank deposits and checks.
B)Money today includes currency and checks but not bank deposits.
C)Money today includes bank deposits and currency but not checks.
D)Money today includes bank deposits and checks but not currency.
E)Money today includes checks and credit cards.

Question 23

The store of value function is defined as the

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

Question 24

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

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

Question 25

The unit of account is defined as

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

Question 26

When we put a price tag on goods and services, we are using money as a

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

Question 27

The objects that we use as money today are

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

Question 28

The word "fiat" is

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

Question 29

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

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

Question 30

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)medium of exchange
B)unit of account
C)store of value
D)means of payment
E)method of avoiding barter

Question 31

Money today

A)is the demand for loanable funds.
B)is the supply of loanable funds.
C)is only currency inside banks.
D)is fiat money.
E)in the United States, is only dollar bills and coins .

Question 32

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

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

Question 33

When money is used to compare the relative price of a burrito and a taco, money is being used as a

A)medium of exchange.
B)store of value.
C)measurement of inflation.
D)unit of account.
E)token of bartering.

Question 34

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

A)medium of exchange
B)unit of account
C)store of value
D)barter mechanism
E)symbol of fiat

Question 35

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

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

Question 36

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

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

Question 37

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

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

Question 38

The U.S. dollar is called

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

Question 39

Fiat money means

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

Question 40

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

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

Question 41

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

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

Question 42

Which of the following is money?

A)credit card
B)debit card
C)e-checks
D)checkable deposit
E)checks

Question 43

Debit cards and e-checks are not money because

A)they can be forged easily.
B)they can fail their purpose of being mediums of exchange as a result of technical difficulties.
C)they are just instruments to transfer money between people.
D)not all banks offer them and not all businesses accept them.
E)they are not regulated by the government.

Question 44

Which of the following are considered money?
I) electronic checks
Ii) paper checks
Iii) the deposit transferred using an e-check

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

Question 45

When you use a credit card to pay your tuition,

A)you've used the credit card as money because it is a means of payment.
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)the credit card is not money because it is not officially issued by the government.
E)you've used the credit card as money because you received something in return.

Question 46

Checks are not money because they

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

Question 47

Credit cards are

A)a form of money used to make purchases.
B)a special ID card that is not money.
C)a special ID card that is the same as money.
D)a form of money that is not generally accepted.
E)included in the M1 measure of money.

Question 48

A debit card is

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

Question 49

The objects we use as money today include

A)currency inside banks and bank deposits.
B)currency outside the banks and bank deposits.
C)only currency outside the banks.
D)only deposits inside the banks.
E)credit cards and debit cards.

Question 50

A credit card is

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

Question 51

Which of the following is money?

A)a credit card with no credit left
B)the check you write to pay tuition
C)a credit card that still has credit available on it
D)a checkable deposit in your bank
E)the current credit available on a credit card

Question 52

Which of the following is the best example of money?

A)phone card
B)checkable deposit
C)credit card
D)gold
E)share of Intel stock

Question 53

M1 is composed of

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

Question 54

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

A)checkable deposits plus small time deposits.
B)currency plus checkable deposits.
C)currency plus plus credit card transactions.
D)currency plus traveler's checks plus time deposits.
E)currency plus traveler's checks plus checkable deposits plus small time deposits plus money market funds and other deposits.

Question 55

Checkable deposits are money because

A)they are protected by the Federal Reserve.
B)they are guaranteed by banks.
C)checks bounce when there are not enough funds to cash them.
D)they can be converted into currency on demand and are used directly as a means of payment.
E)only banks and other financial institutions can offer them.

Question 56

Which of the following are included in the M1 definition of money?

A)currency and checkable deposits
B)currency and savings deposits
C)traveler's checks and money market mutual funds
D)currency and small time deposits
E)traveler's checks and savings deposits

Question 57

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

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

Question 58

Which of the following is money?

A)debit cards
B)e-checks
C)credit cards
D)checkable deposits
E)checks

Question 59

Which of the following is an example of money?

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

Question 60

If you use a check to pay your monthly rent,

A)the check is considered money because you received something in return.
B)the check is not money because it is just an instruction to your bank to make a payment.
C)you have used money because the landlord accepted it as a means of payment.
D)the check becomes money when it arrives at the landlord's bank.
E)the check is not money because it is not part of M1.

Question 61

If Rob deposits $300 in currency into his savings account at Bank of America,

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

Question 62

In December 2009, currency was $400 billion, traveler's checks were $5 billion; checkable deposits owned by individuals and businesses were $600 billion, saving deposits were $2,00 billion, time deposits were $1,500 billion; and money market funds were $1,200 billion. What was the M1 in December 2009?

A)M1 = $405 billion
B)M1 = $1,005 billion
C)M1 = $3,005 billion
D)M1 = $3500 billion
E)M1 = $3505 billion

Question 63

$$\begin{array} { l c } & \begin{array} { c } \text { Amount } \\\text { (dollars) }\end{array} \\\hline \text { Checkable deposits } & 350 \\\text { Savings deposits } & 900 \\\text { Money market funds } & 500 \\\text { Small time deposits } & 600 \\\text { Traveler's checks } & 10 \\\text { Currency outside of banks } & 250\end{array}$$

-The above table has information about the hypothetical economy of Robotica. Based on the data, the size of M1 is

A)$610 billion.
B)$1,510 billion.
C)$600 billion.
D)$1,110 billion.
E)$2,600 billion.

Question 64

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

A)$10 bills in the Bank of America
B)a $5,000 student loan granted to a U.S. citizen
C)coins in a Pepsi vending machine, waiting to be used as change
D)A $5,000 line of credit on a newly graduated student's credit card
E)$1,500 in a student's saving account

Question 65

Suppose you use your debit card to buy soda from a soda machine. Which of the following is true regarding the transaction?

A)The debit card is not money; it's only an instruction to make a loan.
B)The debit card is money; your use reflects the exchange of a good.
C)The debit card is not money; its use is only a tool to cause money to move from your account.
D)Your use makes the debit card money as funds are transferred between your and the machine owner.
E)Using the debit card is like using a check and is, therefore, money.

Question 66

M2 consists of

A)M1 plus traveler's checks.
B)M1 plus saving deposits, small time deposits, and money market funds.
C)M1 plus checkable deposits.
D)M1 plus currency at the banks.
E)M1 plus Federal Reserve notes.

Question 67

________ like a check and ________ considered money.

A)Debit cards work; are not
B)Debit cards work; are
C)E-checks work; are
D)E-cash works; is not
E)E-cash works; is

Question 68

If currency outside of banks is $800 billion; traveler's checks are $10 billion; checkable deposits owned by individuals and businesses are $700 billion; savings deposits are $4,000 billion; small time deposits are $1,000 billion; and money market funds and other deposits are $800 billion, then M2 equals ________ billion.

A)$7,310
B)$5,800
C)$2,510
D)$1,510
E)$710

Question 69

If you deposit $1,000 in cash in your checkable deposit at your bank, the quantity of M1 immediately

A)increases by $1,000.
B)decreases by $1,000.
C)increases by $2,000.
D)does not change in size.
E)changes, but more information about the required reserve ratio is necessary to determine the amount of the change.

Question 70

Which of the following are included in the M2 definition of money?

A)currency outside of banks and checkable deposits
B)currency outside of banks and credit lines on credit cards
C)time deposits and the value of prime grade bonds
D)currency both inside and outside of banks
E)currency inside of banks and banks' reserves

Question 71

M1 is defined as a measure of money including, in part,

A)checkable deposits and currency.
B)time deposits and currency.
C)currency and savings deposits.
D)time deposits and money market fund deposits.
E)the lines of credit on credit cards and currency.

Question 72

If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change?

A)M1 will decrease, but M2 will remain the same.
B)M1 will increase, and M2 will increase.
C)M2 will decrease by $100.
D)Both M1 and M2 will remain the same.
E)M1 will remain the same, and M2 will increase.

Question 73

$$\begin{array} { l c } & \begin{array} { c } \text { Amount } \\\text { (dollars) }\end{array} \\\hline \text { Checkable deposits } & 350 \\\text { Savings deposits } & 900 \\\text { Money market funds } & 500 \\\text { Small time deposits } & 600 \\\text { Traveler's checks } & 10 \\\text { Currency outside of banks } & 250\end{array}$$

-The above table has information about the hypothetical economy of Robotica. Based on the data, the size of M2 is

A)$2,600 billion.
B)$2,610 billion.
C)$610 billion.
D)$600 billion.
E)$1,710 billion.

Question 74

When Maria deposits $100 in currency in her checkable deposit at Bank of America, the immediate effect is that the quantity of M1

A)decreases.
B)does not change.
C)increases.
D)changes, but the direction of the change depends on whether the deposit was accepted by a thrift institution or a commercial bank.
E)changes only if Bank of America does not have excess reserves.

Question 75

Susan just sold her text books for $200 cash and deposited the cash she received in her checking account. This transaction has

A)increased the quantity of M1.
B)decreased the quantity of M1.
C)increased the quantity of M2.
D)decreased the quantity of M2.
E)not changed either M1 or M2.

Question 76

In December 2009, currency outside of banks was $400 billion, traveler's checks were $5 billion; checkable deposits owned by individuals and businesses were $600 billion, saving deposits were $2,000 billion, time deposits were $1,500 billion; and money market funds were $1,200 billion. What was the M2 in December 2009?

A)M2 = $5,705 billion
B)M2 = $3705 billion
C)M2 = $1,005 billion
D)M2 = $2,505 billion
E)M2 = $5,700 billion

Question 77

If we look at the components of M2, we find that

A)money market funds are the largest component.
B)savings deposits are the largest component.
C)currency is the largest component.
D)banks' reserves are the largest component.
E)loans are the largest component.

Question 78

When people make deposits of currency into a bank, the quantity of M1

A)immediately decreases by the amount of the deposit.
B)immediately increases by the amount of the deposit.
C)does not immediately change.
D)immediately changes but whether it increases or decreases depends on whether the bank had excess reserves or did not have excess reserves.
E)changes only if the deposit is an open market operation.

Question 79

Physical currency is ________ popular than e-cash, ________.

A)less; and both are portable and recognizable
B)more; and both are portable and recognizable
C)more; but only physical currency is portable and recognizable
D)more; and both are portable, untraceable and anonymous
E)less; but both are portable, untraceable and anonymous

Question 80

Which of the following is NOT a component of M1?

A)demand deposits
B)traveler's checks
C)savings deposits
D)currency
E)Both answers C and D are correct.