Deck 11: The Monetary System

Question 1

Consider four survivors on an island.

Which of the following pairs of survivors has a double-coincidence of wants?

A) Ron with Alice, and Ron with Lee
B) Alice with Lee
C) Ron with Raymond
D) None of the above are correct.

Answer 1

C

Question 2

Consider five high school students working on homework in study hall.

Which of the following pairs of students has a double coincidence of wants?

A) Rosie and Piper
B) Piper and Molly
C) Dewey and Molly
D) Bob and Dewey

Answer 2

B

Question 3

Consider five individuals with different occupations.

Which of the following pairs of individuals has a double coincidence of wants?

A) Mary and Clark
B) Clark and Nathan
C) Nathan and Polly
D) Polly and Paul

Answer 3

D

Question 4

You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency

A) has no intrinsic value. The exchange is an example of barter.
B) has no intrinsic value. The exchange is not an example of barter.
C) has intrinsic value. The exchange is not an example of barter.
D) has intrinsic value. The exchange is not an example of barter.

Question 5

The existence of money leads to

A) greater specialization in production, but not to a higher standard of living.
B) a higher standard of living, but not to greater specialization.
C) greater specialization and to a higher standard of living.
D) neither greater specialization nor to a higher standard of living.

Question 6

A double coincidence of wants

A) is required when there is no item in an economy that is widely accepted in exchange for goods and services.
B) is required in an economy that relies on barter.
C) is a hindrance to the allocation of resources when it is required for trade.
D) All of the above are correct.

Question 7

Economists use the term "money" to refer to

A) all wealth.
B) all assets, including real assets and financial assets.
C) all financial assets, but not real assets.
D) those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Question 8

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.

Question 9

The existence of money

A) reduces specialization.
B) makes trade easier.
C) allows for barter.
D) hinders production.

Question 10

Consider five individuals with different occupations.

If this economy has money

A) Allen will buy from Betty
B) Betty will buy from Calvin
C) Eric will buy from Allen
D) None of the above are correct.

Question 11

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 are correct.

Question 12

Economists use the word "money" to refer to

A) income generated by the production of goods and services.
B) those assets regularly used to buy goods and services.
C) financial assets such as stocks and bonds.
D) any type of wealth.

Question 13

As opposed to a payments system based on barter, a payments system based on money

A) requires a double coincidence of wants.
B) leads to less specialization.
C) makes trades less costly.
D) None of the above is correct.

Question 14

Money

A) is more efficient than barter.
B) makes trades easier.
C) allows greater specialization.
D) All of the above are correct.

Question 15

In an economy that relies upon barter,

A) trade does not require a double coincidence of wants.
B) scarce resources are allocated just as easily as they are in economies that do not rely upon barter.
C) there is no item in the economy that is widely accepted in exchange for goods and services.
D) All of the above are correct.

Question 16

Consider five individuals with different occupations.

In a barter system which of the following pairs has a double coincidence of wants?

A) Allen and Eric
B) Diedre and Calvin
C) Both A and B are correct.
D) None of the above are correct.

Question 17

Consider the following traders who meet.

Which, if any, pairs of traders has a double coincidence of wants?

A) Bill with Mike
B) Time with Amy
C) Bill with Mike, and Tim with Amy
D) Bill with Tim, and Mike with Amy

Question 18

Economists equate money with

A) individual wealth.
B) income regularly earned.
C) assets people use regularly to buy goods and services.
D) individual saving.

Question 19

Which of the following lists is included in what economists call "money"?

A) cash
B) cash and stocks and bonds
C) cash and stocks and bonds and real estate
D) cash and stocks and bonds and real estate and all other assets

Question 20

Which of the following is an example of barter?

A) A parent gives a teenager a $10 bill in exchange for her babysitting services.
B) A homeowner gives an exterminator a check for $50 in exchange for extermination services.
C) A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.
D) All of the above are examples of barter.

Question 21

Which of the following best illustrates the concept of a store of value?

A) You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold.
B) You sell items on eBay, and your prices are stated in terms of dollars.
C) You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.
D) None of the above is correct.

Question 22

Which of the following is a store of value?

A) cash and stocks
B) cash but not stocks
C) stocks but not cash
D) neither cash nor stocks

Question 23

Any 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.

Question 24

Money

A) is a perfect store of value.
B) is the most liquid asset.
C) has intrinsic value, regardless of which form it takes.
D) All of the above are correct.

Question 25

The ease with which an asset can be

A) traded for another asset determines whether or not that asset is a unit of account.
B) transported from one place to another determines whether or not that asset could serve as fiat money.
C) converted into a store of value determines the liquidity of that asset.
D) converted into the economy's medium of exchange determines the liquidity of that asset.

Question 26

Money is the most liquid asset available because

A) it is a store of value.
B) it is a medium of exchange.
C) it is a unit of account.
D) it has intrinsic value.

Question 27

Which list ranks assets from most to least liquid?

A) money, bonds, cars, houses
B) money, cars, houses, bonds
C) bonds, money, cars, houses
D) bonds, cars, money, houses

Question 28

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

A) being a unit of account.
B) being a medium of exchange.
C) serving as a store of value.
D) having intrinsic value.

Question 29

Liquidity refers to

A) the ease with which an asset is converted to the medium of exchange.
B) the measurement of the intrinsic value of commodity money.
C) the measurement of the durability of a good.
D) how many time a dollar circulates in a given year.

Question 30

Most financial assets other than money function as

A) a medium of exchange, a unit of account, and a store of value.
B) a medium of exchange and a store of value, but not a unit of account.
C) a store of value and a unit of account, but not a medium of exchange.
D) a store of value, but not a unit of account nor a medium of exchange

Question 31

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.

Question 32

Money is

A) the most liquid asset and a perfect store of value.
B) the most liquid asset but an imperfect store of value.
C) not the most liquid asset but a perfect store of value.
D) neither the most liquid asset and nor a perfect store of value.

Question 33

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.

Question 34

Dollar bills, rare paintings, and emerald necklaces are all

A) media of exchange.
B) units of account.
C) stores of value.
D) All of the above are correct.

Question 35

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.

Question 36

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

Question 37

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 oil change using currency.
D) None of the above is correct.

Question 38

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

A) medium of exchange
B) unit of account
C) store of value
D) liquidity

Question 39

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

A) medium of exchange
B) unit of account
C) store of value
D) liquidity

Question 40

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.

Question 41

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a . The laptop's price is posted as $500. The $500 price illustrates money's function as a . You use the $500 to purchase the laptop. This transaction illustrates money's function as a
______.

A) store of value, medium of exchange, unit of account
B) store of value, unit of account, medium of exchange
C) medium of exchange, unit of account, store of value
D) medium of exchange, store of value, unit of account

Question 42

Currently, 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.

Question 43

Fiat money

A) has no intrinsic value.
B) is backed by gold.
C) is a medium of exchange but not a unit of account.
D) is any close substitute for currency such as checkable deposits.

Question 44

Imagine an economy in which: 1) pieces of paper called dollars are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 dollars to buy a pair of shoes; 2) prices are posted in terms of yardsticks, so you might walk into a grocery store and see that, today, an apple is worth 2 yardsticks; and 3) yardsticks disintegrate overnight, so no yardstick has any value for more than 24 hours. In this economy,

A) the yardstick is a medium of exchange but it cannot serve as a unit of account.
B) the yardstick is a unit of account but it cannot serve as a store of value.
C) the yardstick is a medium of exchange but it cannot serve as a store of value, and the yollar is a unit of account.
D) the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid asset.

Question 45

Many societies used gold as money, because

A) it is relatively rare.
B) it is durable.
C) it has a relatively low melting point.
D) All of the above are correct.

Question 46

When in France you notice that prices are posted in euros, this best illustrates money's function as

A) a store of value.
B) a medium of exchange.
C) a unit of account.
D) a method of barter.

Question 47

Which of the following best illustrates the unit of account function of money?

A) You list prices for candy sold on your Web site, HYPERLINK "http://www.sweettooth.com/" www.sweettooth.com, in dollars.
B) You pay for your theater tickets with dollars.
C) You hold currency even though you don't intend to spend it right away.
D) None of the above is correct.

Question 48

According to the article "Why Gold?', silver may be used as money. One problem with using silver as money is that

A) silver is too abundant.
B) silver tarnishes over time.
C) it is not a precious metal.
D) it has a high melting point.

Question 49

Which of the following is both a store of value and regularly used as a medium of exchange?

A) cash and stocks
B) cash but not stocks
C) stocks but not cash
D) neither cash nor stocks

Question 50

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.

Question 51

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.

Question 52

When colonists in Virginia used tobacco as money, their money

A) was commodity money.
B) had no intrinsic value.
C) was fiat money.
D) had no store of value.

Question 53

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

A) The U.S. operates under the gold standard.
B) U.S. paper money is commodity money.
C) U.S. paper money is fiat money.
D) U.S. paper money is a convenient store of wealth.

Question 54

Treasury Bonds are

A) both a store of value and a medium of exchange.
B) a store of value, but not a medium of exchange
C) a medium of exchange, but not a store of value.
D) neither a store of value nor a medium of exchange.

Question 55

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) refers to highly liquid assets that do not serve as a medium of exchange.

Question 56

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept

A) cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by.
B) American dollars in exchange for goods and services, because rubles were extremely hard to come by.
C) goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money.
D) All of the above are correct.

Question 57

Prisoners sometimes determine a single good to be used as money. This good becomes

A) a medium of exchange and a unit of account.
B) a medium of exchange, but not a unit of account.
C) a unit of account, but not a medium of exchange.
D) neither a unit of account nor a medium of exchange.

Question 58

If an economy uses silver as money, then that economy's money

A) serves as a store of value but not as a medium of exchange.
B) serves as a medium of exchange but not as a unit of account.
C) is commodity money.
D) has no intrinsic value.

Question 59

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.

Question 60

When we measure and record economic value, we use money as the

A) liquid asset.
B) medium of exchange.
C) unit of account.
D) store of value.

Question 61

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

A) those items that can be readily accessed and used to buy goods and services.
B) currency only.
C) currency plus all bank accounts.
D) currency plus all bank accounts plus bonds.

Question 62

Which of the following is not included in M1?

A) currency
B) demand deposits
C) savings deposits
D) traveler's checks

Question 63

Currency includes

A) paper bills and coins.
B) demand deposits.
C) credit cards.
D) Both a) and b) are correct.

Question 64

Which type of money has intrinsic value?

A) commodity money
B) fiat money
C) both commodity money and fiat money
D) neither commodity money nor fiat money

Question 65

The measure of the money stock called M1 includes

A) wealth held by people in their checking accounts.
B) wealth held by people in their savings accounts.
C) wealth held by people in money market mutual funds.
D) everything that is included in M2 plus some additional items.

Question 66

Which list ranks assets from most to least liquid?

A) currency, demand deposits, money market mutual funds
B) currency, money market mutual funds, demand deposits
C) money market mutual funds, demand deposits, currency
D) demand deposits, money market mutual funds, currency

Question 67

M1 includes

A) currency.
B) demand deposits.
C) traveler's checks.
D) All of the above are correct.

Question 68

Paper dollars

A) are commodity money and gold coins are fiat money.
B) are fiat money and gold coins are commodity money.
C) and gold coins are both commodity monies.
D) and gold coins are both fiat monies.

Question 69

Which of the following is not included in M1?

A) currency
B) demand deposits
C) traveler's checks
D) credit cards

Question 70

The primary difference between commodity money and fiat money is that

A) commodity money is a medium of exchange but fiat money is not.
B) fiat money is a medium of exchange but commodity money is not.
C) commodity money has intrinsic value but fiat money does not.
D) fiat money has intrinsic value but commodity money does not.

Question 71

M1 equals currency plus demand deposits plus

A) nothing else.
B) other checkable deposits.
C) traveler's checks plus other checkable deposits.
D) traveler's checks plus other checkable deposits plus savings deposits.

Question 72

Demand deposits are a type of

A) checking account.
B) time deposit.
C) money market mutual fund.
D) savings deposit.

Question 73

M1 includes

A) small time deposits.
B) savings deposits.
C) other checkable deposits.
D) money market mutual funds.

Question 74

When prisoners use cigarettes or some other good as money, cigarettes become

A) commodity money, but do not function as a unit of account.
B) commodity money and function as a unit of account.
C) fiat money, but do not function as a unit of account.
D) fiat money and function as a unit of account.

Question 75

People can write checks against

A) demand deposits and money market mutual funds
B) demand deposits but not money market mutual funds
C) money market mutual funds but not demand deposits
D) neither demand deposits nor money market mutual funds

Question 76

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.

Question 77

In measuring the stock of money in the U.S., M1 includes

A) traveler's checks.
B) savings deposits.
C) credit cards
D) none of the above.

Question 78

The set of items that serve as media of exchange clearly includes

A) demand deposits.
B) short-term bonds.
C) credit cards.
D) All of the above are correct.

Question 79

The set of items that serve as media of exchange clearly includes

A) balances that lie behind debit cards.
B) demand deposits.
C) other checkable deposits.
D) All of the above are correct.

Question 80

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) functioning as a store of value and as a unit of account, but not as a medium of exchange.