Question 1

A society without any money:

Accepted Answer

A)  could never exchange goods and/or services. 
B)  would find people doing everything for themselves. 
C)  would have to rely on barter. 
D)  would be more efficient since people would be more self-sufficient. 
A)  could never exchange goods and/or services. 
B)  would find people doing everything for themselves. 
C)  would have to rely on barter. 
D)  would be more efficient since people would be more self-sufficient. C

Question 2

Which best describes money as a means of payment?

Accepted Answer

A)  Money provides an immediate double coincidence of wants. 
B)  Money makes sure a double coincidence of wants never occurs. 
C)  Money requires at least two transactions to obtain the double coincidence of wants. 
D)  To obtain a double coincidence of wants without money is impossible. 
A)  Money provides an immediate double coincidence of wants. 
B)  Money makes sure a double coincidence of wants never occurs. 
C)  Money requires at least two transactions to obtain the double coincidence of wants. 
D)  To obtain a double coincidence of wants without money is impossible. A

Question 3

Current critics of fiat money are urging governments to do what?

Accepted Answer

A)  Return to a system of legal tender. 
B)  Move to a system of electronic transactions only. 
C)  Return to a gold standard. 
D)  Place limits on the creation. 
A)  Return to a system of legal tender. 
B)  Move to a system of electronic transactions only. 
C)  Return to a gold standard. 
D)  Place limits on the creation. C

Question 4

You purchase a good by writing a check for $1,000. Considering the financial payments system this check follows, when is the check money? Explain.

Accepted Answer

The check itself is never money; rather

Question 5

Which of the following statements is correct?

Accepted Answer

A)  If you can buy the same goods this year as you bought last year with less money there must have been inflation. 
B)  If purchasing the same goods today that were purchased one year ago requires more money, there must have been deflation. 
C)  If purchasing the same goods today as one year ago requires less money, the money supply likely decreased. 
D)  If purchasing the same goods today as one year ago requires less money, the money supply likely increased. 
A)  If you can buy the same goods this year as you bought last year with less money there must have been inflation. 
B)  If purchasing the same goods today that were purchased one year ago requires more money, there must have been deflation. 
C)  If purchasing the same goods today as one year ago requires less money, the money supply likely decreased. 
D)  If purchasing the same goods today as one year ago requires less money, the money supply likely increased.

Question 6

During the U.S. Civil War the Confederate government had to resort to printing currency to obtain the goods they needed. Comment on what you think happened to both prices and the value of this currency at the end of the war.

Accepted Answer

While the Confederate government was pri

Question 7

Which of the following statements is incorrect?

Accepted Answer

A)  If you can buy the same goods this year as you bought last year with less money there must have been deflation. 
B)  If you can buy the same goods this year as you purchased one year ago with the same amount of money, prices are stable. 
C)  If purchasing the same goods today that were purchased one year ago requires more money, there must have been inflation. 
D)  If you can buy the same goods this year as you bought last year with the same money there must have been deflation. 
A)  If you can buy the same goods this year as you bought last year with less money there must have been deflation. 
B)  If you can buy the same goods this year as you purchased one year ago with the same amount of money, prices are stable. 
C)  If purchasing the same goods today that were purchased one year ago requires more money, there must have been inflation. 
D)  If you can buy the same goods this year as you bought last year with the same money there must have been deflation.

Question 8

The primary concern of current critics of fiat money is that:

Accepted Answer

A)  fiat money is too costly to produce. 
B)  governments issue too much money threatening its value. 
C)  fiat money is too easy to counterfeit. 
D)  government will issue too little threatening economic growth. 
A)  fiat money is too costly to produce. 
B)  governments issue too much money threatening its value. 
C)  fiat money is too easy to counterfeit. 
D)  government will issue too little threatening economic growth.

Question 9

As an economy produces more different types of goods:

Accepted Answer

A)  it is more difficult to quote prices if the economy does not use money. 
B)  the number of relative prices decreases. 
C)  money becomes less useful as a unit of account. 
D)  money becomes less useful as a standard of value. 
A)  it is more difficult to quote prices if the economy does not use money. 
B)  the number of relative prices decreases. 
C)  money becomes less useful as a unit of account. 
D)  money becomes less useful as a standard of value.

Question 10

What does it mean to say that an asset is "liquid"?

Accepted Answer

An asset is liquid when it can

Question 11

Why are electronic transactions increasingly taking the place of paper transactions?

Accepted Answer

Because efficient payments sys

Question 12

Which of the following assets is the most liquid?

Accepted Answer

A)  Art 
B)  Demand deposits 
C)  Houses 
D)  Stocks 
A)  Art 
B)  Demand deposits 
C)  Houses 
D)  Stocks

Question 13

In comparing money to a share of Microsoft stock held by an individual, we can say:

Accepted Answer

A)  the share of stock is an asset, but money is a liability. 
B)  only the money is a means of payment, but both are stores of value. 
C)  only the money is a means of payment, but both are units of account. 
D)  both the Microsoft stock and the money are liabilities. 
A)  the share of stock is an asset, but money is a liability. 
B)  only the money is a means of payment, but both are stores of value. 
C)  only the money is a means of payment, but both are units of account. 
D)  both the Microsoft stock and the money are liabilities.

Question 14

Why do economists claim the Consumer Price Index (CPI) tends to overstate the actual rate of inflation?

Accepted Answer

The CPI is measured using a fixed-expend

Question 15

A cross-country analysis of money growth supports the conclusion that:

Accepted Answer

A)  there is no correlation between the growth rate of the quantity of money and the rate of inflation. 
B)  the correlation between the money growth rate and inflation in most countries was positive but very small. 
C)  the correlation between inflation and money growth in most industrialized countries was actually negative. 
D)  the correlation between inflation and the money growth rate was positive and relatively strong. 
A)  there is no correlation between the growth rate of the quantity of money and the rate of inflation. 
B)  the correlation between the money growth rate and inflation in most countries was positive but very small. 
C)  the correlation between inflation and money growth in most industrialized countries was actually negative. 
D)  the correlation between inflation and the money growth rate was positive and relatively strong.

Question 16

To say an asset is liquid implies that:

Accepted Answer

A)  we are focusing on a category of assets that are in a physically liquid form, like oil. 
B)  we are considering assets that may be readily converted into a means of payment. 
C)  we are considering any asset that can be sold. 
D)  we are only considering U.S. currency. 
A)  we are focusing on a category of assets that are in a physically liquid form, like oil. 
B)  we are considering assets that may be readily converted into a means of payment. 
C)  we are considering any asset that can be sold. 
D)  we are only considering U.S. currency.

Question 17

Which of the following assets is least liquid?

Accepted Answer

A)  Common stock 
B)  Houses 
C)  Art 
D)  Checking account deposits. 
A)  Common stock 
B)  Houses 
C)  Art 
D)  Checking account deposits.

Question 18

All of the following are true about electronic funds transfers except:

Accepted Answer

A)  sometimes involve the Federal Reserve sending electronic images of checks to banks. 
B)  occur when banks or individuals deposit/withdraw from one bank account to another electronically. 
C)  include automated clearinghouse transactions (ACH). 
D)  include credit card payments made online. 
A)  sometimes involve the Federal Reserve sending electronic images of checks to banks. 
B)  occur when banks or individuals deposit/withdraw from one bank account to another electronically. 
C)  include automated clearinghouse transactions (ACH). 
D)  include credit card payments made online.

Question 19

An advantage that money has over other assets is that it:

Accepted Answer

A)  increases in value over time. 
B)  has lower transaction costs to use as a means of payment than other assets. 
C)  provides a higher return to the owner. 
D)  is a safer asset to hold during times of inflation. 
A)  increases in value over time. 
B)  has lower transaction costs to use as a means of payment than other assets. 
C)  provides a higher return to the owner. 
D)  is a safer asset to hold during times of inflation.

Question 20

Suppose there is an economy that has 100 people each of whom makes a different good, and that they use a barter system for exchange. How many relative prices will there be?

Accepted Answer

The general formula for the number of pr

Exam 2: Money and the Payments System

A society without any money:

Which best describes money as a means of payment?

Current critics of fiat money are urging governments to do what?

You purchase a good by writing a check for $1,000. Considering the financial payments system this check follows, when is the check money? Explain.

Which of the following statements is correct?

During the U.S. Civil War the Confederate government had to resort to printing currency to obtain the goods they needed. Comment on what you think happened to both prices and the value of this currency at the end of the war.

Which of the following statements is incorrect?

The primary concern of current critics of fiat money is that:

As an economy produces more different types of goods:

What does it mean to say that an asset is "liquid"?

Why are electronic transactions increasingly taking the place of paper transactions?

Which of the following assets is the most liquid?

In comparing money to a share of Microsoft stock held by an individual, we can say:

Why do economists claim the Consumer Price Index (CPI) tends to overstate the actual rate of inflation?

A cross-country analysis of money growth supports the conclusion that:

To say an asset is liquid implies that:

Which of the following assets is least liquid?

All of the following are true about electronic funds transfers except:

An advantage that money has over other assets is that it:

Suppose there is an economy that has 100 people each of whom makes a different good, and that they use a barter system for exchange. How many relative prices will there be?

An Introduction to Money and the Financial System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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