Question 1

Which of the following is a store of value?
A) cash and stocks
B) cash but not stocks
C) stocks but not cash
D) neither cash nor stocks

Accepted Answer

Cash and stocks can both serve as a store of value. Cash can be easily stored and preserved over time, while stocks represent ownership in a company that can appreciate in value over the long term.

Question 2

Which list ranks assets from most to least liquid?
A) money, bonds, cars, houses
B) money, cars, houses, bonds
C) bonds, money, cars, houses
D) bonds, cars, money, houses

Accepted Answer

Liquidity refers to the ease with which an asset can be converted into cash. Money is the most liquid asset as it can easily be used to purchase goods and services or can be deposited into a bank account. Bonds are also relatively liquid, but they may take some time to sell and realize cash. Cars and houses are less liquid as they may take longer to sell and may not sell for the desired price. Therefore, the correct order from most to least liquid is money, bonds, cars, houses, making option A the best choice.

Question 3

Most financial assets other than money function as
A) a medium of exchange, a unit of account, and a store of value.
B) a medium of exchange and a store of value, but not a unit of account.
C) a store of value and a unit of account, but not a medium of exchange.
D) a store of value, but not a unit of account nor a medium of exchange

Accepted Answer

The answer of Most financial assets other than money function...

Question 4

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money
A) being a unit of account.
B) being a medium of exchange.
C) serving as a store of value.
D) having intrinsic value.

Accepted Answer

The confidence that a retailer will accept dollars in exchange for goods is based primarily on money being a medium of exchange, which means that it can be used to buy and sell goods and services. Money being a unit of account and a store of value are also important functions of money, but they do not directly relate to the retailer's willingness to accept dollars. Money does not have intrinsic value, as its value is based on the trust and confidence of those who use it.

Question 5

Which of the following is a store of value?
A) currency
B) U.S. government bonds
C) fine art
D) All of the above are correct.

Accepted Answer

All of the options (currency, U.S. government bonds, and fine art) can serve as a store of value. A store of value is any asset that holds its value over time and can be used to preserve wealth. While currency can lose value due to inflation, U.S. government bonds and fine art have historically retained their value and even appreciated over time. Therefore, all the given options are correct.

Question 6

Money is the most liquid asset available because
A) it is a store of value.
B) it is a medium of exchange.
C) it is a unit of account.
D) it has intrinsic value.

Accepted Answer

Money is considered the most liquid asset as it is widely accepted as a medium of exchange, enabling transactions to easily take place. Money is easily convertible into goods and services, making it highly liquid. While money does serve as a store of value and unit of account, its primary function as a medium of exchange is what makes it the most liquid. Money does not have intrinsic value, as its value is based on the trust people place in it as a medium of exchange.

Question 7

Money is
A) the most liquid asset and a perfect store of value.
B) the most liquid asset but an imperfect store of value.
C) not the most liquid asset but a perfect store of value.
D) neither the most liquid asset and nor a perfect store of value.

Accepted Answer

Money is the most liquid asset, meaning it can be easily and quickly converted into goods or services. However, it is not a perfect store of value as inflation can erode its purchasing power over time.

Question 8

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?
A) medium of exchange
B) unit of account
C) store of value
D) liquidity

Accepted Answer

The transaction of paying for cheese and bread with currency demonstrates the function of money as a medium of exchange, which refers to the ability of money to be used as a means of payment in exchange for goods and services.

Question 9

Liquidity refers to
A) the ease with which an asset is converted to the medium of exchange.
B) the measurement of the intrinsic value of commodity money.
C) the measurement of the durability of a good.
D) how many time a dollar circulates 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. A highly liquid asset is one that can be easily sold or exchanged for cash, such as currency or stocks. The concept of liquidity is important in finance and investments, as it affects the ability to quickly and easily buy or sell assets without affecting their market price.

Question 10

The ease with which an asset can be
A) traded for another asset determines whether or not that asset is a unit of account.
B) transported from one place to another determines whether or not that asset could serve as fiat money.
C) converted into a store of value determines the liquidity of that asset.
D) converted into the economy's medium of exchange determines the liquidity of that asset.

Accepted Answer

The liquidity of an asset refers to the ease with which it can be converted into the economy's medium of exchange (typically currency). Therefore, the option stating that the conversion of an asset into the economy's medium of exchange determines its liquidity is the correct one. Option A is incorrect because the unit of account refers to the standard unit in which prices are quoted, not the ease of trading one asset for another. Option B is incorrect because the ease of transportation is not a determining factor for fiat money, which derives its value from the government's backing rather than physical properties. Option C is incorrect because the store of value refers to the ability of an asset to maintain its purchasing power over time, not its liquidity.

Question 11

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?
A) medium of exchange
B) unit of account
C) store of value
D) liquidity

Accepted Answer

Babysitting neighbors' children and receiving money as payment is an example of using money as a medium of exchange, as the money is being used to facilitate a transaction of goods/services (babysitting).

Question 12

Which of the following best illustrates the medium of exchange function of money?
A) You keep some money hidden in your shoe.
B) You keep track of the value of your assets in terms of currency.
C) You pay for your oil change using currency.
D) None of the above is correct.

Accepted Answer

The medium of exchange function of money refers to its ability to be used to facilitate transactions. Example C illustrates this function as currency is being used to pay for a service, the oil change. Examples A and B do not involve the use of currency as a means of exchange.

Question 13

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
A) store of value
B) medium of exchange
C) unit of account
D) None of the above is correct.

Accepted Answer

Putting money into a piggy bank for later spending is an example of using money as a store of value, which is one of the three main functions of money (along with being a medium of exchange and unit of account).

Question 14

Treasury Bonds are
A) liquid, but not a store of value.
B) a store of value, but not liquid.
C) both liquid and a store of value.
D) neither liquid nor a store of value.

Accepted Answer

Treasury bonds are widely considered to be both liquid and a store of value. They are highly traded and can be easily bought or sold, providing liquidity, while at the same time they are considered a low-risk investment that can preserve the value of one's capital over time.

Question 15

Which of the following functions of money is also a common function of most other financial assets?
A) a unit of account
B) a store of value
C) medium of exchange
D) None of the above is correct.

Accepted Answer

A store of value is a function common to both money and other financial assets such as stocks, bonds, and real estate.

Question 16

Dollar bills, rare paintings, and emerald necklaces are all
A) media of exchange.
B) units of account.
C) stores of value.
D) All of the above are correct.

Accepted Answer

Dollar bills, rare paintings, and emerald necklaces can all be used as a means of storing value. However, not all of them are widely accepted as a medium of exchange or unit of account. For example, while a rare painting may be valuable, it may not be easily exchangeable for goods and services. Similarly, an emerald necklace is unlikely to be used as a unit of account.

Question 17

Money
A) is a perfect store of value.
B) is the most liquid asset.
C) has intrinsic value, regardless of which form it takes.
D) All of the above are correct.

Accepted Answer

While money can maintain its value over time, it may not be a "perfect" store of value as inflation can decrease its purchasing power. Money is also not inherently valuable, as its worth is determined by its acceptance as a medium of exchange. However, money is highly liquid, meaning it can easily be converted into other assets or used for transactions, making choice B the most correct option.

Question 18

Any item that people can use to transfer purchasing power from the present to the future is called
A) a medium of exchange.
B) a unit of account.
C) a store of value.
D) None of the above is correct.

Accepted Answer

A medium of exchange is something used to facilitate transactions in the present. A unit of account is a standard measure of value used to express prices and make economic calculations. However, a store of value is an item that can be saved and used to transfer purchasing power from the present to the future, such as money in a savings account, gold, or real estate. Therefore, the correct answer is C.

Question 19

Which of the following best illustrates the concept of a store of value?
A) You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold.
B) You sell items on eBay, and your prices are stated in terms of dollars.
C) You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.
D) None of the above is correct.

Accepted Answer

Keeping gold in a safe-deposit box for emergencies illustrates the concept of a store of value, as gold is considered a valuable asset that can be stored for future use or exchange. Option A illustrates the concept of exchange value, as it involves trading one valuable metal for another. Option B illustrates the concept of unit of account, as prices are stated in terms of a common currency.

Question 20

Which list ranks assets from most to least liquid?
A) currency, fine art, stocks
B) currency, stocks, fine art
C) fine art, currency, stocks
D) fine art, stocks, currency

Accepted Answer

The most liquid asset is currency because it can be easily and quickly converted to cash. Stocks are also fairly liquid because they can be sold easily on a stock exchange. Fine art, on the other hand, is generally not a liquid asset because it can take time to find a buyer and there can be significant variations in the value of fine art depending on market demand. Therefore, the list ranking the assets from most to least liquid is currency, stocks, and fine art, which is option B.

Quiz 29: The Monetary System

Which of the following is a store of value?

Which list ranks assets from most to least liquid?

Most financial assets other than money function as

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Which of the following is a store of value?

Money is the most liquid asset available because

Money is

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Liquidity refers to

The ease with which an asset can be

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

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

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

Treasury Bonds are

Which of the following functions of money is also a common function of most other financial assets?

Dollar bills, rare paintings, and emerald necklaces are all

Money

Any item that people can use to transfer purchasing power from the present to the future is called

Which of the following best illustrates the concept of a store of value?

Which list ranks assets from most to least liquid?