Question 1

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 the ease with which an asset can be converted to cash or the medium of exchange. It is a measure of how quickly an asset can be bought or sold without significantly affecting its price. Choice B refers to the concept of intrinsic value, while choice C describes purchasing power, and choice D refers to velocity of money.

Question 2

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

Accepted Answer

A

Question 3

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

Accepted Answer

Currency, which is typically in the form of banknotes or coins, is the most widely accepted medium of exchange because it is easily recognizable, easy to carry around, and has a widely agreed-upon value. A, B, and C are not typically used as mediums of exchange.

Question 4

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 has no intrinsic value and its value is based solely on the faith and credit of the government or central authority that issues it. It is not backed by any commodity, such as gold or silver.

Question 5

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 currency, coins, and bank deposits that can be easily exchanged for these goods and services. While income generated by the production of goods and services can be used to acquire money, it is not the same as money itself. The value of a person's assets, including stocks and bonds, are not necessarily considered money unless they can be readily traded for currency or an equivalent.

Question 6

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 (such as paper bills and metal coins) has no intrinsic value and is only valuable as a medium of exchange because it is widely accepted as a means of payment for goods and services.

Question 7

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 plays an important role in the economy by allowing greater specialization. Since people can use money to purchase goods and services, they can focus on a narrower range of skills and trades and exchange their earnings for whatever else they need. This allows for greater productivity and efficiency, ultimately leading to economic growth. While money can serve as a person's wealth and can be used for saving and investing, its primary role in the economy is to facilitate transactions and exchange.

Question 8

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 records his income and expenses in dollars, he is using money as a unit of account. This means that he is using it as a standard measure to quantify the value of goods, services, and transactions. Money as a unit of account allows for easy comparability between different goods and services, making it easier for individuals to make informed decisions about spending and saving.

Question 9

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 as it can be easily used for transactions. Stocks are less liquid than currency as selling them can take some time and there can be a difference in price. Diamonds are the least liquid asset as they are not frequently traded and finding a buyer can be difficult. Therefore, option B (currency, stocks, diamonds) ranks assets from most to least liquid.

Question 10

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 direct exchange of goods and services without the use of money. It requires a double coincidence of wants, where both parties involved in the transaction must have something the other wants.

Question 11

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 is made of a valuable metal. Its worth is not dependent on external factors such as the stability of a particular government or financial institution. The other options listed do not have intrinsic value and their worth is dependent on external factors.

Question 12

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 a fiat money with no intrinsic value. It is not backed by a physical commodity like gold or silver and derives its value solely from the government's decree that it is legal tender for all transactions.

Question 13

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

The unit of account function of money refers to the ability to measure the value of goods and services in terms of a common unit, which in most modern economies is their currency. Listing prices for candy in dollars on a website demonstrates the use of money as a unit of account. The other choices involve the use of money for different functions, such as medium of exchange (B), store of value (C), and means of payment (D).

Question 14

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 a type of money that has intrinsic value, meaning that the item itself has value beyond its use as a medium of exchange. Examples of commodity money include gold, silver, and other precious metals, as well as certain types of precious stones and shells.

Question 15

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 16

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

By putting money into a piggy bank, Mia is using money as a store of value, which means holding onto it for later use.

Question 17

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 describes its ability to be used as a method of payment for goods and services. Paying for a coffee with currency exemplifies this function. The other choices do not involve the direct use of money as a method of payment.

Question 18

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

Accepted Answer

M2 includes all components of M1 but also includes savings deposits, time deposits of less than $100,000, and money market funds. Therefore, option C, savings deposits, is included in M2 but not in M1+.

Question 19

What is a characteristic of paper money?
A) It has a high intrinsic value.
B) It hinders 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

Paper money is valuable mainly because of its use as a medium of exchange and its generally accepted status in transactions. It is not because of its intrinsic value, which is usually much lower than its face value. While it is true that paper money is legally recognized as a valid way of settling debts, its value is ultimately determined by market forces and the trust and confidence of users in its viability and reliability.

Question 20

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 dollar as payment for debts or obligations, which makes it more likely for people to accept it as a medium of exchange. It does not require the government to hold enough gold to redeem all currency or prohibit trades with anything else. It also does not make it illegal to hold foreign currencies.

Quiz 10: The Monetary System

Which statement best defines liquidity?

Which of the following does M1+ include?

What is a generally accepted medium of exchange?

What characterizes fiat money?

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

What characterizes currency?

What is the role of money in an economy?

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

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

Which statement best defines barter?

Which of the following has intrinsic value?

What is current Canadian currency?

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

What characterizes commodity money?

Which of the following is included in M1+?

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

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

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

What is a characteristic of paper money?

What does the legal tender requirement imply?