Question 1

What characterizes commodity money?
A) It is money that is backed by gold.
B) It is the principal type of money in use today.
C) It is money with intrinsic value.
D) It is comprised of receipts created in international trade that are used as a medium of exchange.

Accepted Answer

Commodity money is money that has intrinsic value, meaning that it is made of a valuable commodity such as gold, silver, or other precious metals. This is in contrast to fiat money, which has no intrinsic value and is only valuable because the government declares it to be so. Commodity money has been used throughout history, but it is not the principal type of money in use today, as most modern economies use fiat money. Additionally, commodity money is not comprised of receipts created in international trade.

Question 2

Which of the following is included in M2 but not in M1+?
A) currency
B) demand deposits
C) savings deposits
D) gold

Accepted Answer

Savings deposits are included in M2, which is a broader definition of the money supply than M1+. M2 includes all of M1+ (currency and demand deposits), as well as savings deposits, small-denomination time deposits, and retail money market funds. Gold is not considered part of the money supply in either M1+ or M2.

Question 3

What is a characteristic of paper money?
A) It has a high intrinsic value.
B) Ithinders efficient allocation of resources.
C) It is valuable because it is generally accepted in trade.
D) It is valuable only because of the legal tender requirement.

Accepted Answer

The value of paper money comes from its general acceptance in trade rather than its intrinsic value, which is often very low. Paper money also facilitates efficient allocation of resources by providing a widely accepted medium of exchange. Legally, paper money is required to be accepted as payment for debts, but this is not the sole source of its value. Therefore, the correct option is C.

Question 4

Which of the following has intrinsic value?
A) a gold coin
B) a twenty-dollar bill
C) a bank account
D) a personal cheque

Accepted Answer

A gold coin has intrinsic value because it has value in and of itself, as it is made of a valuable metal. The other options are forms of currency or financial instruments, which only have value because society has agreed to give them value.

Question 5

Which statement best illustrates the unit of account function of money?
A) You list prices for candy sold on your website, www.sweettooth.com, in dollars.
B) You pay for your NHL tickets with dollars.
C) You keep $10 in your backpack for emergencies.
D) You sell a used copy of your textbook for $40.

Accepted Answer

Listing prices in a specific currency is a clear indication of money being used as a unit of account.

Question 6

What does the legal tender requirement imply?
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) It is illegal to hold foreign currencies.

Accepted Answer

The legal tender requirement implies that people are legally obligated to accept the currency (such as the dollar) as a medium of exchange for transactions, thus making it more likely for people to accept it as payment. However, this does not mean that people cannot make trades with anything else, nor does it require the government to hold enough gold to redeem all currency, or make it illegal to hold foreign currencies.

Question 7

Which statement best defines barter?
A) It is an exchange of goods for money.
B) It is an exchange of money for foreign currency.
C) It is a generally accepted legal tender.
D) It is a transaction that requires a double coincidence of wants.

Accepted Answer

Barter is a system of trade where goods or services are directly exchanged without the use of money. In this system, for a transaction to take place, there must be a double coincidence of wants, meaning both parties must want what the other is offering.

Question 8

Mia puts money into a piggy bank so she can spend it later. Which function of money does this illustrate?
A) store of value
B) medium of exchange
C) unit of account
D) wealth

Accepted Answer

Putting money into a piggy bank demonstrates the function of money as a store of value, as Mia is intentionally saving the money for future use.

Question 9

When Arnold uses dollars to record his income and expenses, how is he using money?
A) as a unit of account
B) as a means of payment
C) as a store of value
D) as a medium of exchange

Accepted Answer

When Arnold uses dollars to record his income and expenses, he is using money as a unit of account. A unit of account is a standard unit in which prices can be expressed and values of goods and services can be compared.

Question 10

Which statement best defines liquidity?
A) It is the ease with which an asset is converted to the medium of exchange.
B) It is a measurement of the intrinsic value of commodity money.
C) It is the ability of an asset to retain purchasing power.
D) It refers to how many times a dollar changes hands in a given year.

Accepted Answer

Liquidity refers to how easily an asset can be converted to cash or the medium of exchange. The more liquid an asset is, the easier it is to buy and sell it quickly without affecting its price. The other options given do not correctly define liquidity.

Question 11

What is current Canadian currency?
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

Accepted Answer

The current Canadian currency is fiat money, meaning it has no intrinsic value and is backed by the government's guarantee of stability and value. This is different from commodity money, which has intrinsic value due to the underlying commodity (such as gold or silver).

Question 12

What do 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) the value of a person's assets
D) the value of stocks and bonds

Accepted Answer

Economists use the word "money" to refer to those assets regularly used to buy goods and services, such as cash, bank deposits, and debit/credit cards. While income generated by the production of goods and services may be used to acquire money, it is not synonymous with money itself. The value of a person's assets and stocks/bonds are also not equivalent to money.

Question 13

What characterizes fiat money?
A) It has no intrinsic value.
B) It is backed by gold.
C) It has intrinsic value equal to its value in exchange.
D) It is an illiquid asset.

Accepted Answer

Fiat money is currency that is not backed by a physical commodity, like gold or silver, and has no intrinsic value. Its value is determined by government regulation and the supply and demand of the market.

Question 14

Which statement best illustrates the medium of exchange function of money?
A) You keep some money hidden in your shoe.
B) Your recent tax assessment has valued your condo at $200,000..
C) You pay for your double latte using currency.
D) You lend $25 to your friend.

Accepted Answer

The medium of exchange function of money refers to the ability to use money to purchase goods and services. Option C best illustrates this function as it describes using currency to pay for a coffee. Option A and B do not provide any information about exchanging money for goods or services, and option D describes a loan, which does not involve exchanging money for goods or services.

Question 15

Which of the following does M1+ include?
A) currency
B) savings deposits
C) travellers' cheques
D) foreign currency accounts

Accepted Answer

The answer of Which of the following does M1+ include?
A)...

Question 16

Which of the following ranks assets from most to least liquid?
A) currency, diamonds, stocks
B) currency, stocks, diamonds
C) diamonds, currency, stocks
D) diamonds, stocks, currency

Accepted Answer

Currency is the most liquid asset since it can be easily exchanged for goods and services, followed by stocks which can be easily traded in the stock market. Diamonds are the least liquid asset as they may not be as easy to sell or trade compared to currency and stocks. Option B ranks the assets in the correct order of liquidity - currency, stocks, and diamonds.

Question 17

What is a generally accepted medium of exchange?
A) a plane ticket
B) federal government bonds
C) diamonds
D) currency

Accepted Answer

Currency is the generally accepted medium of exchange in most economies, as it is widely recognized and accepted as a means of payment for goods and services. While other options such as a plane ticket or diamonds may have some value, they are not universally accepted as a medium of exchange. Federal government bonds are a form of investment, not a means of payment.

Question 18

What is the role of money in an economy?
A) Money serves as a person's wealth.
B) Money allows people to save
C) Money is an investment asset.
D) Money allows greater specialization.

Accepted Answer

Money allows greater specialization by allowing individuals and businesses to specialize in specific goods and services, as they can trade with others using money instead of bartering. This leads to increased productivity and efficiency in the economy. Money also serves as a medium of exchange, a unit of account, and a store of value, facilitating transactions and economic activity. However, money is not necessarily a form of wealth (as in option A), and while it can be used as an investment asset (as in option C), its primary function is to serve as a means of exchange. Option B is also partly correct, as money does allow people to save, but this is not its primary role.

Question 19

Which of the following is included in M1+?
A) government bonds
B) demand deposits
C) savings deposits
D) travellers' cheques

Accepted Answer

The answer of Which of the following is included in...

Question 20

What characterizes currency?
A) It has intrinsic value.
B) It has no intrinsic value.
C) It may be used as a medium of exchange but is not legal tender.
D) It performs all the functions of money except providing a unit of account.

Accepted Answer

Currency has no intrinsic value and derives its value from the trust and confidence placed in it by those using it as a medium of exchange.

Quiz 10: The Monetary System

What characterizes commodity money?

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

What is a characteristic of paper money?

Which of the following has intrinsic value?

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

What does the legal tender requirement imply?

Which statement best defines barter?

Mia puts money into a piggy bank so she can spend it later. Which function of money does this illustrate?

When Arnold uses dollars to record his income and expenses, how is he using money?

Which statement best defines liquidity?

What is current Canadian currency?

What do economists use the word "money" to refer to?

What characterizes fiat money?

Which statement best illustrates the medium of exchange function of money?

Which of the following does M1+ include?

Which of the following ranks assets from most to least liquid?

What is a generally accepted medium of exchange?

What is the role of money in an economy?

Which of the following is included in M1+?

What characterizes currency?