Deck 10: Money, the Federal Reserve, and the Interest Rate

Question 1

The liquidity property of money is the property that makes money

A) a good medium of exchange and a good unit of account.
B) a good store of value and a good unit of account.
C) a good medium of exchange and a good store of value.
D) a good store of value and a good standard of deferred payment.

Answer 1

C

Question 2

When Mexico experiences a period of high inflation and Mexicans lose confidence in their peso as a store of value, which of the following would be most likely to occur?

A) The demand for pesos would increase.
B) The buying power of the peso would increase.
C) The value of foreign currencies would depreciate relative to the peso.
D) Mexicans would use a different currency as a medium of exchange.

Answer 2

D

Question 3

After World War II, cigarettes were used as money in Germany. This is an example of

A) fiat money.
B) legal money.
C) token money.
D) commodity money.

Answer 3

D

Question 4

Jacob makes excellent tamales and Amanda is very good at mowing lawns. Amanda agrees to mow Jacob's lawn, if he makes her a dozen tamales. This is an example of

A) legal tender.
B) barter.
C) commodity money.
D) fiat money.

Question 5

When you pay $8 for salad you ordered for lunch, you are using money as a(n)

A) store of value.
B) investment good.
C) medium of exchange.
D) unit of account.

Question 6

When the manager of a department store attaches price tags to his/her products, he/she is using money as a

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

Question 7

Money is

A) the same as income.
B) anything that is generally accepted as a medium of exchange.
C) the value of all coins and currency in circulation at any time.
D) backed by gold in Fort Knox.

Question 8

When you keep your savings in a saving account, you are using money as a(n)

A) investment good.
B) store of value.
C) medium of exchange.
D) unit of account.

Question 9

The main disadvantage of using money as a store of value is that

A) money is not portable.
B) it requires a double coincidence of wants.
C) currency is intrinsically worthless.
D) the value of money actually falls when the prices of goods and services rise.

Question 10

Electro City, a retailer of electronics, has 2,000 different products in inventory. Electro City reports its inventory is worth $12 million. This is an example of using money as a

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

Question 11

Any transaction that involves exchanging one good for another without using money is considered a

A) liquidity transaction.
B) barter transaction.
C) deferred payment.
D) black market exchange.

Question 12

The U.S. dollar is an example of fiat money because

A) it is the strongest currency in the world.
B) it is the most widely used currency in international trade.
C) it is backed by a large reserve of gold and silver.
D) by law, it is decreed as money.

Question 13

A currency that is not backed by gold, silver, or any other precious commodity equal to the face value of the money is known as

A) fake money.
B) weak money.
C) token money.
D) commodity money.

Question 14

Veronica received a federal income tax refund of $600 in May 2016. Veronica put this money in a saving account so that she could spend it when she went on vacation in July 2016. This is an example of money serving as a(n)

A) store of value.
B) medium of exchange.
C) unit of account.
D) investment good.

Question 15

The development of money as a medium of exchange has facilitated the expansion of trade because

A) holding money increases people's wealth.
B) holding money increases people's income.
C) money eliminates the "double coincidence of wants" problem.
D) no other mediums of exchange are available.

Question 16

Betty won $500 in a poker tournament. She deposits her $500 winnings into a money market fund so that she can use the money next year to help her pay for a trip to Las Vegas. This is an example of money serving as a(n)

A) unit of account.
B) medium of exchange.
C) store of value.
D) investment good.

Question 17

Which of the following factors causes the barter system to be inefficient?

A) Its cost of transaction is too low.
B) The cost associated with information search is too low.
C) It requires a double coincidence of wants.
D) It requires high liquidity.

Question 18

Denny's lists the price of a Grand Slam Breakfast at $4.99 a plate. Listing the price on the menu is an example of money serving as a(n)

A) store of value.
B) unit of account.
C) medium of exchange.
D) investment good.

Question 19

Josie wants to trade swimming lessons for cooking lessons. Maria wants to trade cooking lessons for swimming lessons. Josie and Maria have

A) the basis for a liquidity exchange.
B) a double incidence of demand.
C) the basis for a double fiat exchange.
D) a double coincidence of wants.

Question 20

When money is used as a medium of exchange

A) the need for a barter system diminishes.
B) the cost of transactions increases.
C) the need for a banking system in the economy decreases.
D) it reduces the number of transactions in the economy.

Question 21

Included in M2 are

A) bank loans.
B) credit cards.
C) bank capital.
D) demand deposits.

Question 22

Which of the following would not be counted as part of M1?

A) demand deposits
B) traveler's check
C) money market accounts
D) currency

Question 23

Ruby transfers $700 from her saving account to her checking account. This transaction will

A) increase M1 and not change M2.
B) not change M1 and decrease M2.
C) increase both M1 and M2.
D) decrease both M1 and M2.

Question 24

Teddy transfers $175 from his money market fund to his checking account. This transaction will

A) decrease M2 and increase M1.
B) increase M1, but leave M2 unchanged.
C) decrease M1 and increase M2.
D) decrease both M1 and M2.

Question 25

Jaime transfers $2,500 from his checking account to his savings account. This transaction will

A) decrease both M1 and M2.
B) not change M1 and decrease M2.
C) decrease M1 and not change M2.
D) increase both M1 and M2.

Question 26

Assume that in the country of Salmon, the government tripled the money supply overnight. As a result of this action, the price of a loaf of bread increased from 1 bill to 100 bills. This is an example of

A) a change in the legal tender.
B) a change from commodity money to fiat money.
C) currency debasement.
D) deflation.

Question 27

Currency debasement occurs when

A) the value of money falls as a result of a rapid increase in its supply.
B) the government requires that a certain form of money must be accepted in settlement of debts.
C) items are designated as money that are intrinsically worthless.
D) items are used as money that also have intrinsic value in some other use.

Question 28

Close substitutes for transactions money are known as

A) fiat monies.
B) near monies.
C) commodity monies.
D) token monies.

Question 29

Currency held outside banks is included in

A) both M1 and M2.
B) M2 only.
C) M1 only.
D) neither M1 nor M2.

Question 30

Which of the following is an example of fiat money?

A) cigarettes
B) an ounce of gold
C) a U.S. one-hundred dollar bill
D) a government bond

Question 31

Currency held outside banks + demand deposits + travelers checks + other checkable deposits =

A) M3.
B) M2 - M1.
C) M3 - M1.
D) M1.

Question 32

Transaction money is

A) M1.
B) M2.
C) M3.
D) M4.

Question 33

To ensure that paper money will be accepted, the U.S. government implicitly promises the public that

A) it will not print money so fast that it loses its value.
B) it will not change the rate at which the dollar is exchanged for other currencies.
C) it will always remain the strongest currency of all industrialized nations.
D) the U.S. monetary system will always be backed by a precious metal.

Question 34

Which of the following would not be included in M1?

A) demand deposits
B) money market accounts
C) checking accounts
D) traveler's checks

Question 35

Traveler's checks are

A) not money.
B) included in M1 and M2.
C) not included in M2.
D) not included in M1.

Question 36

Which of the following is included in M2, but not included in M1?

A) currency held outside banks
B) travelers checks
C) demand deposits
D) savings accounts

Question 37

Which of the following is the best example of a near money?

A) a valuable painting
B) a dollar bill
C) a Treasury bond
D) a money market account

Question 38

Saving account balances are included in

A) M1.
B) M2.
C) neither M1 nor M2.
D) both M1 and M2.

Question 39

Which of the following would not be included in M2?

A) demand deposits
B) money market accounts
C) checking accounts
D) Treasury bonds

Question 40

Money that a government has required to be accepted in settlement of debts is

A) fiat money.
B) commodity money.
C) barter money.
D) legal tender.

Question 41

Target has 12-packs of Pepsi on sale and changes the price tag on the shelf from $6.00 to $2.99. This is an example of money serving as a(n)

A) medium of exchange.
B) store of value.
C) unit of account.
D) investment good.

Question 42

A barter transaction involves exchanging

A) one good for another good.
B) money for a service.
C) one good for money.
D) a service for a promise of a future monetary payment.

Question 43

In order for a barter transaction to be successful, there must be a

A) market for the goods.
B) high demand for a certain item.
C) double coincidence of wants.
D) federal tax law in effect.

Question 44

When a seller on eBay posts a "Buy-It-Now" price on the Vespa scooter she is trying to sell, she is using money as a

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

Question 45

Related to the Economics in Practice on p. 189: In Santa Cruz, the red feathers of the Scarlet Honeyeater bird were used as currency. In this instance, the feathers would be considered

A) fiat money.
B) token money.
C) commodity money.
D) legal tender.

Question 46

The need for a barter system diminishes when money is used as a

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

Question 47

When you pay $6 for breakfast burritos for your drive to work, you are using money as a(n)

A) unit of account.
B) investment good.
C) store of value.
D) medium of exchange.

Question 48

An equation for M1 is

A) M2 + Savings Accounts - Currency Held Outside Banks + Other Near Monies.
B) M2 - Savings Accounts - Money Market Accounts - Other Near Monies.
C) Money Market Accounts + Automatic-transfer Savings Accounts.
D) M2 + Near Monies.

Question 49

When the prices of goods and services rise

A) imports decrease.
B) exports increase.
C) the value of money rises.
D) the value of money falls.

Question 50

Brad details cars and Angelina babysits. Angelina agrees to babysit for Brad's kids if he details her minivan. This is an example of

A) legal tender.
B) barter.
C) commodity money.
D) fiat money.

Question 51

The main advantage of using M2 instead of M1 as the measure for money is that

A) M2 can be measured more accurately.
B) M2 includes only instantly accessible assets.
C) M2 is sometimes more stable.
D) M2 varies as the interest rate varies.

Question 52

Money

A) is anything that is regularly used and generally accepted in economic transactions or exchanges.
B) is necessary to conduct economic transactions.
C) facilitates specialization in production.
D) is anything the government declares to have value.

Question 53

Tippi received a rebate of $2,000 for a hybrid car she purchased in May 2016. Tippi put this money in a saving account so that she could spend it when she went on safari in September 2016. This is an example of money serving as a(n)

A) medium of exchange.
B) store of value.
C) unit of account.
D) investment good.

Question 54

Aster won $5,000 on a slot machine. She deposits her $5,000 winnings into a money market fund so that she can use the money next year to help her pay for a new boat. This is an example of money serving as a(n)

A) medium of exchange.
B) unit of account.
C) investment good.
D) store of value.

Question 55

The property that makes money a good medium of exchange and a good store of value is the

A) transactions demand for money.
B) asset demand for money.
C) liquidity property of money.
D) unlimited supply of money.

Question 56

Kyle wants to trade scuba lessons for surfing lessons. Ike wants to trade surfing lessons for scuba lessons. Kyle and Ike have

A) a double incidence of demand.
B) a double coincidence of wants.
C) the basis for a double fiat exchange.
D) the basis for a liquidity exchange.

Question 57

When you keep your savings under your mattress, you are using money as a(n)

A) investment good.
B) unit of account.
C) medium of exchange.
D) store of value.

Question 58

Gerald wants to take out an insurance policy on his Pez dispenser collection, and reports to his insurance company that the collection is worth $25,000. This is an example of using money as a

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

Question 59

Related to the Economics in Practice on p. 189: In Santa Cruz, the red feathers of the Scarlet Honeyeater bird were used as currency. Using feathers to make a purchase would be using the feathers as a(n)

A) medium of exchange.
B) store of value.
C) unit of account.
D) legal tender.

Question 60

Because money eliminates the "double coincidence of wants" problem, the development of money as a ________ has facilitated the expansion of trade.

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

Question 61

Which of the following is not a form of commodity money?

A) checks
B) cigarettes
C) precious stones
D) all of the above

Question 62

When the value of money falls as a result of a rapid increase in its supply, ________ occurs.

A) currency debasement
B) deflation
C) negative exchange
D) all of the above

Question 63

Otis transfers $200 from his savings account to his money market fund. This transaction will

A) decrease M2 and increase M1.
B) decrease both M1 and M2.
C) decrease M1 and increase M2.
D) leave M1 and M2 unchanged.

Question 64

Legal tender is

A) money that must be backed by gold.
B) money that cannot be counterfeited.
C) money that has a value other than as a currency.
D) money that a government has required to be accepted in settlement of debts.

Question 65

What gives money value under a fiat system?

A) Fiat money is backed by gold.
B) The supply of fiat money is controlled by the government.
C) Fiat money is also a commodity.
D) Fiat money is the same as Treasury bonds.

Question 66

Money that has no intrinsic value and is created by a government decree is called

A) barter money.
B) commodity money.
C) fiat money.
D) asset money.

Question 67

Which of the following would be counted as part of M1?

A) demand deposits
B) small time deposits
C) money market accounts
D) large time deposits

Question 68

Demand deposits are included in

A) M1.
B) M2.
C) neither M1 nor M2.
D) both M1 and M2.

Question 69

Which of the following is included in M1, but not included in M2?

A) currency held outside banks
B) travelers checks
C) demand deposits
D) none of the above

Question 70

Serena transfers $8,000 from her home safe to her savings account. This transaction will

A) not change M1 and decrease M2.
B) decrease M1 and not change M2.
C) increase both M1 and M2.
D) decrease both M1 and M2.

Question 71

Which of the following is included in M2?

A) commercial paper
B) U.S. Treasury bonds
C) savings accounts
D) stocks

Question 72

Cowrie shells have been used as money is West Africa. This is an example of

A) fiat money.
B) legal money.
C) token money.
D) commodity money.

Question 73

To ensure that ________ will be accepted, the U.S. government implicitly promises the public that it will not print money so fast that it loses its value.

A) paper money
B) commodity money
C) barter cash
D) exchange rates

Question 74

M1

A) is the sum of currency plus travelers checks.
B) is the narrowest definition of the money supply.
C) includes small time deposits.
D) includes credit cards.

Question 75

Which of the following is not included in M1 or M2?

A) checking account balances
B) currency in circulation outside of commercial banks
C) traveler's checks
D) credit card balances

Question 76

M1 is a

A) stock variable.
B) flow variable.
C) near money.
D) commodity money.

Question 77

When Argentina experiences a period of high inflation and Argentineans lose confidence in their peso as a store of value, which of the following would be least likely to occur?

A) The demand for pesos would decrease.
B) The buying power of the peso would decrease.
C) The value of foreign currencies would depreciate relative to the peso.
D) Argentineans would use a different currency as a medium of exchange.

Question 78

Sarafina withdraws $450 from her saving account and places the money in her wallet. This transaction will

A) not change M1 and decrease M2.
B) increase M1 and not change M2.
C) increase both M1 and M2.
D) decrease both M1 and M2.

Question 79

Which of the following would be included in M2, but not included in M1?

A) demand deposits
B) money market accounts
C) checking accounts
D) none of the above

Question 80

Checking account balances are included in

A) M1 only.
B) M2 only.
C) both M1 and M2.
D) neither M1 nor M2.