Question 1

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

The act of changing the price tag on the shelf from $6.00 to $2.99 is an example of money serving as a unit of account. In this scenario, money is being used as a standard measure of the value of the product.

Question 2

A barter transaction involves exchanging

Accepted Answer

Barter transactions involve the exchange of one good or service for another good or service, without the use of money as a medium of exchange. Therefore, option A is the correct choice as it describes the basic nature of barter transactions. Option B involves money, which is not used in barter, while option C indicates a one-way exchange of goods for money, which is not a barter. Option D involves a promise of future monetary payment, which also does not involve an immediate exchange of goods or services, and hence, is not a barter transaction.

Question 3

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

Accepted Answer

A double coincidence of wants is when two parties both want what the other has to offer. This is essential for a barter transaction to take place. Without it, the transaction cannot occur, regardless of the existence of a market, high demand, or federal tax law.

Question 4

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 5

Related to the Economics in Practice on p. 189: 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 a type of currency in which the value of the currency is derived from the value of the commodity used to make it. In this case, the value of the red feathers of the Scarlet Honeyeater bird was used as currency, therefore making it commodity money. Fiat money is money that has value because a government declares it to be legal tender, while token money is money that has no intrinsic value but is readily exchangeable for goods or services. Legal tender refers to the fact that money is legally recognized as a valid form of payment for debts or goods and services.

Question 6

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

Accepted Answer

Money serves as a medium of exchange, meaning that it can be used to buy goods or services in exchange for money. This eliminates the need for a barter system where goods and services are exchanged directly without using money. Money also serves as a store of value, unit of account, and measure of value, but these functions alone do not eliminate the need for a barter system.

Question 7

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, meaning you are exchanging money for goods or services. Money being a store of value means it is a way to save wealth, and investment goods are assets purchased with the intent of generating income or adding value. While money can serve as a unit of account, meaning it is a way to measure the value of goods and services, this is not the case in the scenario presented.

Question 8

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 9

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 decreases the purchasing power of money. As the value of money decreases, it requires more money to purchase the same amount of goods and services, leading to a decrease in the real value of money. Therefore, choice D is the correct answer.

Question 10

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 barter exchange where two parties exchange goods or services without involving money. Brad and Angelina exchange detailing of cars and babysitting services respectively.

Question 11

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

Accepted Answer

M2 includes both liquid and non-liquid assets, which sometimes makes it more stable than M1, which only includes highly liquid assets like cash and demand deposits. This makes M2 a better measure of the money supply over longer periods.

Question 12

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 13

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 is using the rebate as a store of value by saving it in a bank account to be used for future consumption on her safari.

Question 14

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, which allows her to save her winnings until she is ready to use them in the future.

Question 15

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 refers to its ability to be easily converted into goods and services without loss of value. This property makes money highly desirable as a medium of exchange and a store of value, as people can be confident that their money will retain its purchasing power over time. The other options - transactions demand for money, asset demand for money, and unlimited supply of money - are all important factors that influence the demand for money and the overall functioning of the monetary system, but they do not directly explain why money is a good medium of exchange and store of value.

Question 16

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, meaning they both want what the other person is offering. Kyle wants surfing lessons and can provide scuba lessons, while Ike wants scuba lessons and can provide surfing lessons. This allows for a direct exchange without the need for money or a third party intermediary.

Question 17

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

Accepted Answer

When you keep your savings under your mattress, you are using money as a store of value. Money serves as a store of value when it can be held over time without losing its purchasing power.

Question 18

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

Using money as a unit of account involves assigning a numerical value to goods and services, such as Gerald valuing his Pez dispenser collection at $25,000. This differs from using money as a medium of exchange, standard of deferred payment, or store of value.

Question 19

Related to the Economics in Practice on p. 189: 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 make a purchase would categorize them as a medium of exchange, which is defined as anything used to facilitate transactions between buyers and sellers. A store of value refers to something that can be saved and used later as a form of wealth, such as gold. A unit of account is a measurement of value for goods and services, such as a dollar. Legal tender refers to currency that is recognized by law as being valid for payment of debts.

Question 20

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 allows for a seller to accept it in exchange for goods or services without needing to find someone who has the exact goods or services the seller wants in exchange. This facilitates the expansion of trade as it eliminates the need for the "double coincidence of wants," which can be a barrier to trade. The other choices, unit of account, store of value, and measure of value, are also functions of money, but do not directly relate to the elimination of the "double coincidence of wants" problem.

Quiz 10: Money, the Federal Reserve, and the Interest Rate