Question 1

The use of checks in transactions

Accepted Answer

A) entails lower information costs than the use of currency. 
B) entails fewer steps than settling transactions with currency. 
C) avoids the cost of shipping currency back and forth. 
D) entails lower information and fewer steps than settling transactions with currency. 
A) entails lower information costs than the use of currency. 
B) entails fewer steps than settling transactions with currency. 
C) avoids the cost of shipping currency back and forth. 
D) entails lower information and fewer steps than settling transactions with currency. C

Question 2

One advantage of using checks to settle transactions is

Accepted Answer

A) they are more difficult to use fraudulently than currency or precious metals are. 
B) there is effectively no cost to using them. 
C) they are as liquid as cash. 
D) there is no information cost involved in accepting them. 
A) they are more difficult to use fraudulently than currency or precious metals are. 
B) there is effectively no cost to using them. 
C) they are as liquid as cash. 
D) there is no information cost involved in accepting them. A

Question 3

Which of the following is an example of a commodity money?

Accepted Answer

A) Gold coins 
B) Dollar bills 
C) British pound notes 
D) Japanese yen notes 
A) Gold coins 
B) Dollar bills 
C) British pound notes 
D) Japanese yen notes A

Question 4

Movements in the money supply are associated with

Accepted Answer

A) changes in interest rates and inflation, but not with changes in output. 
B) changes in inflation and output, but not with changes in interest rates. 
C) changes in interest rates and output, but not with changes in inflation. 
D) changes in interest rates, inflation, and output. 
A) changes in interest rates and inflation, but not with changes in output. 
B) changes in inflation and output, but not with changes in interest rates. 
C) changes in interest rates and output, but not with changes in inflation. 
D) changes in interest rates, inflation, and output.

Question 5

The payments system is

Accepted Answer

A) the mechanism for conducting economic transactions. 
B) another name for the system of foreign exchange rates. 
C) the phrase used to describe how transactions are carried out in an economy that does not use money. 
D) the way in which economic transactions are carried out in a government-controlled economy, such as the former Soviet Union. 
A) the mechanism for conducting economic transactions. 
B) another name for the system of foreign exchange rates. 
C) the phrase used to describe how transactions are carried out in an economy that does not use money. 
D) the way in which economic transactions are carried out in a government-controlled economy, such as the former Soviet Union.

Question 6

A hyperinflation occurs when

Accepted Answer

A) inflation persists for more than two years. 
B) inflation persists for more than five years. 
C) the inflation rate exceeds 1% per month. 
D) the inflation rate exceeds 50% per month. 
A) inflation persists for more than two years. 
B) inflation persists for more than five years. 
C) the inflation rate exceeds 1% per month. 
D) the inflation rate exceeds 50% per month.

Question 7

In 2006, the Fed stopped reporting data on which monetary aggregate?

Accepted Answer

A) M1 
B) M2 
C) M3 
D) M4 
A) M1 
B) M2 
C) M3 
D) M4

Question 8

Definitive money

Accepted Answer

A) is used only in primitive economies. 
B) does not have to be converted into a more basic medium of exchange. 
C) can be either gold or silver, but cannot be both. 
D) is useful mainly for making purchases in foreign countries. 
A) is used only in primitive economies. 
B) does not have to be converted into a more basic medium of exchange. 
C) can be either gold or silver, but cannot be both. 
D) is useful mainly for making purchases in foreign countries.

Question 9

The experience of Argentina in the late 1980s illustrates the point that

Accepted Answer

A) to be acceptable as a medium of exchange, households and firms must believe that money has value and will be acceptable. 
B) any money not backed by gold will eventually become worthless. 
C) even a country with very low inflation rates may have severe economic problems. 
D) there is only a very slight link between rates of growth of the money supply and the inflation rate. 
A) to be acceptable as a medium of exchange, households and firms must believe that money has value and will be acceptable. 
B) any money not backed by gold will eventually become worthless. 
C) even a country with very low inflation rates may have severe economic problems. 
D) there is only a very slight link between rates of growth of the money supply and the inflation rate.

Question 10

Fundamentally, to reap the benefits of specialization, an economy must

Accepted Answer

A) be heavily industrial. 
B) be heavily agricultural. 
C) have an extensive system of higher education. 
D) develop ways for individuals to trade goods with one another. 
A) be heavily industrial. 
B) be heavily agricultural. 
C) have an extensive system of higher education. 
D) develop ways for individuals to trade goods with one another.

Question 11

In what sense do self-fulfilling expectations determine the acceptability of a medium of exchange?

Accepted Answer

A) People like to do what the government expects them to do. 
B) People value something as money only if they believe others will accept it from them as payment. 
C) People expect that money will never lose its value. 
D) People expect that eventually every country will use the same medium of exchange. 
A) People like to do what the government expects them to do. 
B) People value something as money only if they believe others will accept it from them as payment. 
C) People expect that money will never lose its value. 
D) People expect that eventually every country will use the same medium of exchange.

Question 12

What do many economists blame for the severity of the Great Depression?

Accepted Answer

A) The collapse of the banking system 
B) The lack of a definitive money in the U.S. monetary system 
C) The issuing of an excessively large amount of currency by the Federal Reserve 
D) The collapse of the electronic funds transfer system 
A) The collapse of the banking system 
B) The lack of a definitive money in the U.S. monetary system 
C) The issuing of an excessively large amount of currency by the Federal Reserve 
D) The collapse of the electronic funds transfer system

Question 13

Which of the following is an example of fiat money?

Accepted Answer

A) A cowry shell used as money on a South Pacific island 
B) A gold coin used as money in nineteenth century England 
C) A Federal Reserve Note used as money in the twenty-first century United States 
D) A pound of salt used as money in medieval France 
A) A cowry shell used as money on a South Pacific island 
B) A gold coin used as money in nineteenth century England 
C) A Federal Reserve Note used as money in the twenty-first century United States 
D) A pound of salt used as money in medieval France

Question 14

The difference between money and income is that whereas income is an individual's

Accepted Answer

A) flow of earnings over a period of time, money is an individual's stock of currency and currency substitutes. 
B) stock of all assets, money is an individual's stock of currency and currency substitutes. 
C) flow of earnings over a period of time, money is an individual's stock of all assets. 
D) stock of currency and currency substitutes, money is an individual's stock of all assets. 
A) flow of earnings over a period of time, money is an individual's stock of currency and currency substitutes. 
B) stock of all assets, money is an individual's stock of currency and currency substitutes. 
C) flow of earnings over a period of time, money is an individual's stock of all assets. 
D) stock of currency and currency substitutes, money is an individual's stock of all assets.

Question 15

In the United States, the definitive money is

Accepted Answer

A) gold coins. 
B) any coin minted from a precious metal. 
C) Federal Reserve Notes. 
D) Federal Reserve Notes plus checking account balances in commercial banks. 
A) gold coins. 
B) any coin minted from a precious metal. 
C) Federal Reserve Notes. 
D) Federal Reserve Notes plus checking account balances in commercial banks.

Question 16

When economists refer to substitutability in discussing money, they are referring to

Accepted Answer

A) the rate at which households substitute work for leisure in exchange for money. 
B) the rate at which one country's currency can be substituted for another country's currency. 
C) the ease with which an asset can be converted into definitive money with no loss of value. 
D) the ease with which currency can be converted into silver or gold. 
A) the rate at which households substitute work for leisure in exchange for money. 
B) the rate at which one country's currency can be substituted for another country's currency. 
C) the ease with which an asset can be converted into definitive money with no loss of value. 
D) the ease with which currency can be converted into silver or gold.

Question 17

Why do individuals hold money when it does not provide the services that, say, a house does?

Accepted Answer

A) Money is the most liquid asset. 
B) Money is the only form in which wealth may be held. 
C) Money increases in value faster than other assets. 
D) Money is useful in avoiding taxes on certain transactions. 
A) Money is the most liquid asset. 
B) Money is the only form in which wealth may be held. 
C) Money increases in value faster than other assets. 
D) Money is useful in avoiding taxes on certain transactions.

Question 18

A system of barter has substantial transactions costs because

Accepted Answer

A) taxes under such a system are generally a large fraction of the value of output. 
B) traders must spend considerable time searching for trading partners. 
C) the uncertainties of trade result in high legal fees being incurred to draw up binding contracts. 
D) the uncertainties of trade result in high insurance premiums. 
A) taxes under such a system are generally a large fraction of the value of output. 
B) traders must spend considerable time searching for trading partners. 
C) the uncertainties of trade result in high legal fees being incurred to draw up binding contracts. 
D) the uncertainties of trade result in high insurance premiums.

Question 19

Which of the following will lead to the most benefit in terms of greater prosperity?

Accepted Answer

A) Several goods are recognized as mediums of exchange. 
B) The government plays no role in choosing a medium of exchange. 
C) A single good is recognized as a medium of exchange. 
D) The medium of exchange is used only for the settlement of debts. 
A) Several goods are recognized as mediums of exchange. 
B) The government plays no role in choosing a medium of exchange. 
C) A single good is recognized as a medium of exchange. 
D) The medium of exchange is used only for the settlement of debts.

Question 20

Which of the following is NOT a stock?

Accepted Answer

A) Currency 
B) Checking account balances 
C) Income 
D) Wealth 
A) Currency 
B) Checking account balances 
C) Income 
D) Wealth

Exam 2: Money and the Payments System

The use of checks in transactions

One advantage of using checks to settle transactions is

Which of the following is an example of a commodity money?

Movements in the money supply are associated with

The payments system is

A hyperinflation occurs when

In 2006, the Fed stopped reporting data on which monetary aggregate?

Definitive money

The experience of Argentina in the late 1980s illustrates the point that

Fundamentally, to reap the benefits of specialization, an economy must

In what sense do self-fulfilling expectations determine the acceptability of a medium of exchange?

What do many economists blame for the severity of the Great Depression?

Which of the following is an example of fiat money?

The difference between money and income is that whereas income is an individual's

In the United States, the definitive money is

When economists refer to substitutability in discussing money, they are referring to

Why do individuals hold money when it does not provide the services that, say, a house does?

A system of barter has substantial transactions costs because

Which of the following will lead to the most benefit in terms of greater prosperity?

Which of the following is NOT a stock?

Introducing Money and the Financial System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters