Question 1

When prices rise, the purchasing power of money

Accepted Answer

A) rises. 
B) falls. 
C) is unaffected. 
D) may rise, fall, or be unaffected depending upon circumstances. 
A) rises. 
B) falls. 
C) is unaffected. 
D) may rise, fall, or be unaffected depending upon circumstances.

Question 2

The American Civil War lasted from the spring of 1861 to the spring of 1865. During the war the Confederate government issued substantial amounts of fiat paper currency. What do you think happened to the price level (measured in Confederate dollars) in the Confederate states during the final months of the war?

Accepted Answer

During the final months of the war, the

Question 3

The Fed's current position towards the existing monetary aggregates is

Accepted Answer

A) it is convinced that M1 is the best measure of the money supply. 
B) it is convinced that M2 is the best measure of the money supply. 
C) it is experimenting with new monetary aggregates. 
D) it is reverting to considering currency alone as the best measure of the money supply. 
A) it is convinced that M1 is the best measure of the money supply. 
B) it is convinced that M2 is the best measure of the money supply. 
C) it is experimenting with new monetary aggregates. 
D) it is reverting to considering currency alone as the best measure of the money supply.

Question 4

Many economists argue that the gain to European countries from all of them using the same currency

Accepted Answer

A) would be very slight. 
B) would be significant. 
C) is impossible to measure. 
D) would depend upon whether the new currency would be paper money or gold coins. 
A) would be very slight. 
B) would be significant. 
C) is impossible to measure. 
D) would depend upon whether the new currency would be paper money or gold coins.

Question 5

The purchasing power of money

Accepted Answer

A) rises when prices fall. 
B) rises when prices rise. 
C) is set by the Fed in January of each year. 
D) is constant. 
A) rises when prices fall. 
B) rises when prices rise. 
C) is set by the Fed in January of each year. 
D) is constant.

Question 6

An asset is

Accepted Answer

A) the same thing as a liability. 
B) a thing of value that can be owned. 
C) money, as opposed to stock or bonds. 
D) anything that never declines in value. 
A) the same thing as a liability. 
B) a thing of value that can be owned. 
C) money, as opposed to stock or bonds. 
D) anything that never declines in value.

Question 7

Which of the following is NOT included in M1?

Accepted Answer

A) Currency 
B) Savings account deposits 
C) Checking account deposits 
D) Traveler's checks 
A) Currency 
B) Savings account deposits 
C) Checking account deposits 
D) Traveler's checks

Question 8

Which of the following is an example of a barter transaction?

Accepted Answer

A) An individual pays her electric bill with a check. 
B) An individual pays her electric bill with currency. 
C) An individual provides three light bulbs to her neighbor in exchange for two gallons of milk. 
D) An individual deposits three twenty-dollar bills in her checking account. 
A) An individual pays her electric bill with a check. 
B) An individual pays her electric bill with currency. 
C) An individual provides three light bulbs to her neighbor in exchange for two gallons of milk. 
D) An individual deposits three twenty-dollar bills in her checking account.

Question 9

Andy can't make a deal with Danny. Andy has a Barry Bonds baseball card and would like to trade it to Danny for Danny's Albert Pujols card, but Danny doesn't want a Barry Bonds card. Andy's problem illustrates the drawback to a barter system known as

Accepted Answer

A) the specialization problem. 
B) the double coincidence of wants problem. 
C) the many prices problem. 
D) the transactions problem. 
A) the specialization problem. 
B) the double coincidence of wants problem. 
C) the many prices problem. 
D) the transactions problem.

Question 10

Economic studies have shown that countries that have high inflation rates have lower rates of economic growth than do countries with low inflation rates. Explain what underlies this relationship between inflation and economic growth.

Accepted Answer

In terms of the issues discussed in this

Question 11

Which of the following is NOT an important criterion for whether a good will be usable as a medium of exchange?

Accepted Answer

A) The good must be of standardized quality. 
B) The good must be valuable relative to its weight. 
C) The good must have value even if it were not being used as money. 
D) The good must be durable so that value is not lost through product spoilage. 
A) The good must be of standardized quality. 
B) The good must be valuable relative to its weight. 
C) The good must have value even if it were not being used as money. 
D) The good must be durable so that value is not lost through product spoilage.

Question 12

Other assets are inferior to money in the sense that

Accepted Answer

A) they increase in value more slowly than does money. 
B) they have a lower overall return than money. 
C) they are more vulnerable to losing their real value as inflation increases. 
D) they generate transactions costs when they are exchanged for money. 
A) they increase in value more slowly than does money. 
B) they have a lower overall return than money. 
C) they are more vulnerable to losing their real value as inflation increases. 
D) they generate transactions costs when they are exchanged for money.

Question 13

The reason why many economists switched from using M1 to M2 as the best measure of the medium of exchange is that

Accepted Answer

A) during the 1980s, new substitutes for checking accounts appeared and were included in M2. 
B) during the 1980s, the country went off the gold standard and began using fiat money for the first time. 
C) during the 1980s, inflation roared out of control and a better measure of the money supply seemed necessary. 
D) in 1982, the federal government ordered that all income taxes must be paid using M2. 
A) during the 1980s, new substitutes for checking accounts appeared and were included in M2. 
B) during the 1980s, the country went off the gold standard and began using fiat money for the first time. 
C) during the 1980s, inflation roared out of control and a better measure of the money supply seemed necessary. 
D) in 1982, the federal government ordered that all income taxes must be paid using M2.

Question 14

What determines the acceptability of dollar bills as a medium of exchange?

Accepted Answer

A) Our society's willingness to use green paper notes issued by the Federal Reserve as money 
B) The willingness of the Federal Reserve to redeem dollar bills for gold 
C) The willingness of the U.S. Treasury to redeem dollar bills for gold 
D) The public's fear that failing to accept dollar bills will trigger a hyperinflation 
A) Our society's willingness to use green paper notes issued by the Federal Reserve as money 
B) The willingness of the Federal Reserve to redeem dollar bills for gold 
C) The willingness of the U.S. Treasury to redeem dollar bills for gold 
D) The public's fear that failing to accept dollar bills will trigger a hyperinflation

Question 15

The most important reason why economies at an early stage of development tend to operate inefficiently is that

Accepted Answer

A) they tend to be dominated by the agricultural sector, where productivity is usually low. 
B) they tend to have authoritarian governments that stifle innovation. 
C) they tend to be plagued by superstitious beliefs that stifle innovation. 
D) they tend not to have specialization of labor. 
A) they tend to be dominated by the agricultural sector, where productivity is usually low. 
B) they tend to have authoritarian governments that stifle innovation. 
C) they tend to be plagued by superstitious beliefs that stifle innovation. 
D) they tend not to have specialization of labor.

Question 16

In Moscow in 1989, what were taxi drivers using as a medium of exchange?

Accepted Answer

A) Russian rubles 
B) Marlboro cigarettes 
C) Gold coins 
D) Caviar 
A) Russian rubles 
B) Marlboro cigarettes 
C) Gold coins 
D) Caviar

Question 17

The attribute that distinguishes money from other assets is that only money

Accepted Answer

A) retains its value during times of inflation. 
B) is counted in determining the size of an individual's wealth. 
C) serves as a medium of exchange. 
D) may be used as collateral for a bank loan. 
A) retains its value during times of inflation. 
B) is counted in determining the size of an individual's wealth. 
C) serves as a medium of exchange. 
D) may be used as collateral for a bank loan.

Question 18

Checks are

Accepted Answer

A) not acceptable for settling transactions in most industrialized countries. 
B) less important than currency as a means of settling transactions. 
C) promises to pay definitive money on demand. 
D) promises to pay coins minted from precious metals on demand. 
A) not acceptable for settling transactions in most industrialized countries. 
B) less important than currency as a means of settling transactions. 
C) promises to pay definitive money on demand. 
D) promises to pay coins minted from precious metals on demand.

Question 19

In comparing money to shares of General Motors stock, we can say that

Accepted Answer

A) money is a store of value, but shares of General Motors stock are not. 
B) shares of General Motors stock are a store of value, but money is not. 
C) both money and shares of General Motors stock are stores of value. 
D) neither money nor shares of General Motors stock are stores of value. 
A) money is a store of value, but shares of General Motors stock are not. 
B) shares of General Motors stock are a store of value, but money is not. 
C) both money and shares of General Motors stock are stores of value. 
D) neither money nor shares of General Motors stock are stores of value.

Question 20

In a barter system individuals

Accepted Answer

A) find it impossible to specialize. 
B) must be entirely self-sufficient. 
C) find it difficult to specialize, but may be able to do so. 
D) will almost invariably specialize. 
A) find it impossible to specialize. 
B) must be entirely self-sufficient. 
C) find it difficult to specialize, but may be able to do so. 
D) will almost invariably specialize.

Exam 2: Money and the Payments System

When prices rise, the purchasing power of money

The Fed's current position towards the existing monetary aggregates is

Many economists argue that the gain to European countries from all of them using the same currency

The purchasing power of money

An asset is

Which of the following is NOT included in M1?

Which of the following is an example of a barter transaction?

Andy can't make a deal with Danny. Andy has a Barry Bonds baseball card and would like to trade it to Danny for Danny's Albert Pujols card, but Danny doesn't want a Barry Bonds card. Andy's problem illustrates the drawback to a barter system known as

Economic studies have shown that countries that have high inflation rates have lower rates of economic growth than do countries with low inflation rates. Explain what underlies this relationship between inflation and economic growth.

Which of the following is NOT an important criterion for whether a good will be usable as a medium of exchange?

Other assets are inferior to money in the sense that

The reason why many economists switched from using M1 to M2 as the best measure of the medium of exchange is that

What determines the acceptability of dollar bills as a medium of exchange?

The most important reason why economies at an early stage of development tend to operate inefficiently is that

In Moscow in 1989, what were taxi drivers using as a medium of exchange?

The attribute that distinguishes money from other assets is that only money

Checks are

In comparing money to shares of General Motors stock, we can say that

In a barter system individuals

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