Question 1

An intrinsically useful good that plays the role of money is called

Accepted Answer

Commodity money refers to an intrinsically valuable good, like gold or silver, that is used as a medium of exchange. This differs from fiat money, which has no intrinsic value and derives its value only from government regulation, legal tender laws, and public acceptance. Legal tender refers to currency that the government has declared must be accepted as payment for debts, while a medium of exchange simply facilitates the exchange of goods and services.

Question 2

In today's economy,dollar bills serve as money because

Accepted Answer

The value of dollar bills as money is based on the faith and confidence that people have in each other and in the government's ability to support the currency. It is a fiat currency, meaning it has no intrinsic value in itself and is not backed by any physical commodity. Therefore, option B is incorrect. Option C is also incorrect as the value of the currency is determined solely by its use as money. Finally, option D is incorrect as the United States is not under the purview of the Bank of Canada.

Question 3

Which of the following functions of money would be least affected if the economy experiences high rates of inflation?

Accepted Answer

The unit of account function of money is least affected by inflation because it simply measures the value of goods and services in terms of a common unit, such as the dollar. Inflation does not change the unit of account, it just changes the value of the unit.

Question 4

Suppose you purchase a bottle of vitamin water with a price of $3.The price of $3 best reflects the function of money as a ________,and when you take $3 out of your wallet to purchase the bottle,money is functioning as a ________.

Accepted Answer

The price of $3 reflects the function of money as a unit of account, as it is used to measure the value of goods and services. When the $3 is taken out of the wallet to purchase the bottle, money is functioning as a medium of exchange, as it is being used to facilitate the transaction.

Question 5

The M1+ measure of the money supply equals

Accepted Answer

The M1+ measure of the money supply includes currency outside banks and chequable deposits at chartered banks and other financial institutions, but does not include non-chequable and personal term deposits. Therefore, option C is the correct choice as it includes both currency outside banks and chequable deposits.

Question 6

If bananas were used as money,which of the following functions of money would be the hardest for bananas to satisfy?

Accepted Answer

Bananas would not be a good store of value as they have a short shelf life and easily spoil, making it difficult to hold onto them as a form of savings or investment.

Question 7

If Jennifer withdraws $750 from her savings account and deposits it in her chequing account,then M1+ will ________ and M2+ will ________.

Accepted Answer

M1+ includes currency in circulation and chequable deposits, so moving money from savings to chequing increases M1+. M2+ includes M1+ plus savings accounts, so the total amount in M2+ remains unchanged.

Question 8

Which of the following is one of the most important benefits of money in an economy?

Accepted Answer

Money serves as a medium of exchange, making transactions easier and allowing for specialization, which leads to increased productivity in the economy.

Question 9

A major shortcoming of a barter economy is

Accepted Answer

The requirement of a double coincidence of wants means that two individuals must have a good or service that the other person wants in order for a trade to take place. This requirement can be very difficult to meet, which makes exchanging goods and services in a barter economy inefficient and impractical.

Question 10

The government's profit from issuing fiat money is known as

Accepted Answer

Seigniorage is the profit earned by the government by issuing fiat money, which is not backed by any commodity. When the government prints more money than required, the value of money decreases, which results in inflation. The government earns profit in the form of increased revenues from taxes due to inflation, and this profit is known as seigniorage.

Question 11

Describe the three functions of money.Must all money fulfill all three functions?

Accepted Answer

The answer of Describe the three functions of money.Must all...

Question 12

If Jennifer withdraws $750 from her chequing account and holds it as currency,then M1+ will ________ and M2+ will ________.

Accepted Answer

Withdrawing cash from a chequing account does not change the total amount of money in the economy, so both M1+ and M2+ remain unchanged.

Question 13

Explain why gold,despite its value,is difficult to use as a medium of exchange.

Accepted Answer

The answer of Explain why gold,despite its value,is difficult to...

Question 14

Which of the following statements regarding the use of gold as money is false?

Accepted Answer

Gold does not have a standardized quality as its purity can vary, requiring assessment and certification.

Question 15

Changes in the money supply are ________ to other economic variables,and since late 1981,the Bank of Canada has ________ in monetary policymaking.

Accepted Answer

Since late 1981, the Bank of Canada has shifted its focus away from strict monetary aggregates like M1+ and M2+ in its monetary policy, indicating that changes in the money supply are no longer as closely connected to other economic variables as they once were.

Question 16

Money's most narrow definition is based on its function as a

Accepted Answer

Money's most narrow definition is based on its function as a medium of exchange, which means it is widely accepted as a means of payment for goods and services. This function distinguishes money from other assets such as stocks and bonds, which may have value but are not easily and universally exchanged for goods and services.

Question 17

Fiat money has

Accepted Answer

Fiat money has little to no intrinsic value and is authorized by the central bank or governmental body. It is not backed by gold or any other commodity, but its value is determined by supply and demand in the market.

Question 18

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Table 4.1 $$\begin{array} { l r } \text { Chequing Account Deposits } & \$ 2200 \ \text { Currency } & 2500 \ \text { Money Market Mutual Fund Shares } & 1600 \ \text { Savings Deposits } & 7600 \ \text { Small Time Deposits } & 2800 \ \text { Traveller's Cheques } & 100 \end{array}$$ -Refer to Figure 4.1In this simple economy,M2+ equals

Accepted Answer

M2+ includes chequing account deposits, currency, money market mutual fund shares, savings deposits, small time deposits, and traveler's cheques. Adding these amounts gives $2200 + $2500 + $1600 + $7600 + $2800 + $100 = $16,800.

Question 19

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Table 4.1 $$\begin{array} { l r } \text { Chequing Account Deposits } & \$ 2200 \ \text { Currency } & 2500 \ \text { Money Market Mutual Fund Shares } & 1600 \ \text { Savings Deposits } & 7600 \ \text { Small Time Deposits } & 2800 \ \text { Traveller's Cheques } & 100 \end{array}$$ -Refer to Figure 4.1In this simple economy,M1+ equals

Accepted Answer

M1+ includes all currency (which is $2500 in this economy) and all deposits that can be used as a means of payment, such as chequing account deposits, savings deposits, and small time deposits. Adding up these items results in a total of $4800. Money market mutual fund shares and traveller's cheques are not included in M1+.

Question 20

Reserves are a bank ________ consisting of ________.

Accepted Answer

Reserves are an asset for banks and include both vault cash (i.e. physical currency held by the bank) and deposits held by the central bank, also known as the Federal Reserve in the United States. These reserves serve as a buffer to help banks meet liquidity needs and fulfill withdrawal requests from customers.

Quiz 4: Money and Inflation