Question 1

Money

Accepted Answer

Money is defined as anything that is regularly used and generally accepted in economic transactions or exchanges. This includes physical currency, digital currency, and other forms of payment. Money serves as a medium of exchange, a unit of account, and a store of value, making it essential to modern economic activity.

Question 2

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)

Accepted Answer

By depositing her winnings into a money market fund, Aster is using money as a store of value, meaning she is holding onto it in a way that will allow her to access it later for a specific purpose. The money serves as a way to hold onto her winnings until she is ready to use them for the boat purchase.

Question 3

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

Accepted Answer

Kyle and Ike have a double coincidence of wants, as they both want to trade skills that the other possesses.

Question 4

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

Accepted Answer

M2 includes all the components of M1 (cash, checking accounts, and traveler's checks) but also includes less liquid assets such as savings accounts and money market accounts. These assets are less likely to be quickly withdrawn from the economy, making M2 more stable.

Question 5

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)

Accepted Answer

This is an example of money serving as a unit of account, as the price tag is denominated in dollars and serves to measure the value of the 12-pack of Pepsi.

Question 6

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

Accepted Answer

The "Buy-It-Now" price on eBay serves as a unit of account because it provides a way to measure the value of the Vespa scooter in terms of money, allowing for a clear comparison with the value of other goods or services.

Question 7

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

Accepted Answer

To have a barter transaction, there must be a double coincidence of wants, meaning that both parties must want what the other has to offer. Without this, the transaction cannot occur, regardless of whether there is a market for the goods or a high demand for a certain item. Federal tax law has no bearing on the success of a barter transaction.

Question 8

When the prices of goods and services rise

Accepted Answer

When the prices of goods and services rise, the value of money falls. This is because inflation reduces the purchasing power of money, as it takes more money to buy the same amount of goods or services.

Question 9

An equation for M1 is

Accepted Answer

M1 typically includes funds that are readily accessible for spending and consists of the sum of currency held by the public, demand deposits, and other liquid deposits against which checks can be written. M2 includes M1 plus savings accounts, money market accounts, and other near monies. Therefore, to get M1 from M2, you subtract savings accounts, money market accounts, and other near monies.

Question 10

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

Accepted Answer

Money as a medium of exchange solves the problem of a coincidence of wants, making it easier for people to trade with each other.

Question 11

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

Accepted Answer

The liquidity property of money allows it to be easily traded and accepted by others, making it a good medium of exchange. It also retains its value over time, making it a good store of value. The transactions demand and asset demand for money are factors that contribute to the overall demand for money, but they do not directly determine the properties that make money a good medium of exchange and store of value. The unlimited supply of money can lead to inflation, which can undermine the store of value property of money.

Question 12

A barter transaction involves exchanging

Accepted Answer

Barter transaction involves exchanging goods or services for other goods or services without the use of money. Therefore, option A is the correct answer. Option B involves money, which is not part of a barter transaction. Option C is not barter but a direct exchange of a good for money. Option D also involves a promise of future monetary payment, which is not part of barter but more of a credit transaction.

Question 13

Related to the Economics in Practice on p. 509: 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)

Accepted Answer

Using feathers as a means to exchange goods and services is known as a medium of exchange. It fulfills the basic function of money by providing a widely accepted form of payment. The feathers were used as a form of exchange because they were deemed valuable in the local society.

Question 14

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)

Accepted Answer

Tippi used the money as a store of value because she saved it in a bank account to use later for her safari trip. It was not used as a medium of exchange (like using cash to buy something directly) or a unit of account (like using money to track the value of goods and services). It was also not an investment good since Tippi did not invest the money to earn a return on it.

Question 15

Related to the Economics in Practice on p. 509: In Santa Cruz, the red feathers of the Scarlet Honeyeater bird were used as currency. In this instance, the feathers would be considered

Accepted Answer

Commodity money is any object which has been used as a medium of exchange and has a value independent of its use as money. In this case, the red feathers of the Scarlet Honeyeater bird were used as a medium of exchange and had value due to their decorative nature, making them commodity money. Fiat money (A) is money that has value because a government has declared it to be legal tender, while token money (B) is a type of fiat money where the value is derived from the fact that it can be exchanged for a specific good or service. Legal tender (D) refers to a form of payment that a creditor is required to accept by law.

Question 16

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

Accepted Answer

Gerald is using money as a unit of account by assigning a value to his Pez dispenser collection in dollar terms. Money as a unit of account is the function of money where it serves as a standard measure for expressing the value of goods and services. Money as a medium of exchange involves the use of money to facilitate transactions, money as a store of value involves holding money to have purchasing power in the future, and money as a standard of deferred payment involves using money to settle debts or make payments at a future date.

Question 17

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

Accepted Answer

Keeping savings under the mattress is using money as a store of value, meaning it is being held to preserve its value over time.

Question 18

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

Accepted Answer

When you use money to purchase breakfast burritos, you are using it as a medium of exchange, as you are exchanging money for goods or services. Money functions as a medium of exchange when it is widely accepted as payment for goods and services.

Question 19

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

Accepted Answer

This is an example of a barter system where two parties exchange goods or services without the use of money. Brad and Angelina are exchanging their respective services without exchanging any money.

Question 20

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

Accepted Answer

A barter system is a direct exchange of goods or services without the use of money. Money serves as a medium of exchange, making transactions easier and more efficient. Money is also a store of value, meaning it can be saved for future use, and a unit of account, allowing for the standardization and comparison of prices. Money is also a measure of value, as it can represent the worth of goods and services in terms of a common currency. Therefore, the need for a barter system diminishes when money is used as a medium of exchange, as it provides a more efficient means of conducting trade.

Quiz 25: Money, the Federal Reserve, and the Interest Rate