Question 1

In a barter economy with "n'' number of goods there will always be:

Accepted Answer

A)  exactly "n'' relative prices. 
B)  fewer than "n'' relative prices. 
C)  more than "n'' relative prices. 
D)  "n''/2 relative prices. 
A)  exactly "n'' relative prices. 
B)  fewer than "n'' relative prices. 
C)  more than "n'' relative prices. 
D)  "n''/2 relative prices.

Question 2

Compare two economies: a barter economy versus an economy that uses money. In order to exchange goods and services:

Accepted Answer

A)  a double coincidence of wants is necessary in the barter economy. 
B)  a double coincidence of wants is more likely to occur in the barter economy. 
C)  transactions are likely to be smoother in the barter economy because goods and services are exchanged directly. 
D)  the money economy requires that sellers have more information about buyers' wants. 
A)  a double coincidence of wants is necessary in the barter economy. 
B)  a double coincidence of wants is more likely to occur in the barter economy. 
C)  transactions are likely to be smoother in the barter economy because goods and services are exchanged directly. 
D)  the money economy requires that sellers have more information about buyers' wants.

Question 3

Many college campuses use student ID cards as a way for students to pay for on-campus expenses, such as books, photocopies, and food. For convenience, some students will maintain a balance on their ID cards. Are these balances a means of payment? Are they a store of value? Explain why or why not.

Accepted Answer

The balances on the cards serve as both

Question 4

M1 is:

Accepted Answer

A)  a more useful measure of the relationship between the money supply and inflation because it includes the most liquid assets. 
B)  the money supply the Federal Reserve pays the most attention to in conducting monetary policy. 
C)  less useful than M2 for understanding inflation. 
D)  the fastest growing of all of the money aggregates. 
A)  a more useful measure of the relationship between the money supply and inflation because it includes the most liquid assets. 
B)  the money supply the Federal Reserve pays the most attention to in conducting monetary policy. 
C)  less useful than M2 for understanding inflation. 
D)  the fastest growing of all of the money aggregates.

Question 5

Money eliminates the need for:

Accepted Answer

A)  a search for a double coincidence of wants. 
B)  government regulation. 
C)  specialization of labor. 
D)  financial Intermediaries. 
A)  a search for a double coincidence of wants. 
B)  government regulation. 
C)  specialization of labor. 
D)  financial Intermediaries.

Question 6

Consider an island where people use sand dollars (shells) as currency. For simplicity, assume that people consume only one good: fish. Currently, there are 400 sand dollars in circulation and there are 200 fish purchased each year. Based on this information, what is the price of fish?
Now, suppose that a change in climate leads to new sand dollars washing ashore, leaving a total
of 500 sand dollars. If there are still 200 fish purchased each year, what is the new price of fish? In order to prevent inflation, what would have to happen to the amount of fish purchased each year?

Accepted Answer

When there are 400 sand dollars and 200

Question 7

What is included in M2 that is not included in M1?

Accepted Answer

Small denomination time deposi

Question 8

In a barter system people:

Accepted Answer

A)  have to specialize in order to have goods to trade. 
B)  cannot specialize because they never know what goods will be desired. 
C)  are less likely to specialize as extensively as they would in a monetary economy. 
D)  must be self-sufficient. 
A)  have to specialize in order to have goods to trade. 
B)  cannot specialize because they never know what goods will be desired. 
C)  are less likely to specialize as extensively as they would in a monetary economy. 
D)  must be self-sufficient.

Question 9

What distinguishes commodity money from fiat money?

Accepted Answer

Commodity money, such as gold or silver,

Question 10

The money aggregate M1 includes each of the following, except:

Accepted Answer

A)  currency in the hands of the public. 
B)  travelers checks that have been issued. 
C)  currency in the vaults of commercial banks. 
D)  demand deposits at commercial banks. 
A)  currency in the hands of the public. 
B)  travelers checks that have been issued. 
C)  currency in the vaults of commercial banks. 
D)  demand deposits at commercial banks.

Question 11

While money is an asset not all assets are money because:

Accepted Answer

A)  only money stores value. 
B)  money works as a means of payment. 
C)  only money is a good asset to hold during times of inflation. 
D)  money must be legal tender. 
A)  only money stores value. 
B)  money works as a means of payment. 
C)  only money is a good asset to hold during times of inflation. 
D)  money must be legal tender.

Question 12

M1 is:

Accepted Answer

A)  about 17% of GDP. 
B)  equal to GDP. 
C)  about four times larger than GDP. 
D)  about one fourth the amount of GDP. 
A)  about 17% of GDP. 
B)  equal to GDP. 
C)  about four times larger than GDP. 
D)  about one fourth the amount of GDP.

Question 13

What was the double liquidity shock that occurred in the US financial system in the summer of 2007?

Accepted Answer

Investors began to doubt the value of a

Question 14

One major difference between a debit card and a credit card is:

Accepted Answer

A)  only the debit card helps you to build a credit history. 
B)  the debit card has lower minimum monthly payments. 
C)  you do not need to actually have the funds in your account when you use a debit card. 
D)  debit cards have no late fees. 
A)  only the debit card helps you to build a credit history. 
B)  the debit card has lower minimum monthly payments. 
C)  you do not need to actually have the funds in your account when you use a debit card. 
D)  debit cards have no late fees.

Question 15

Gold would be a superior commodity money compared to wheat because:

Accepted Answer

A)  wheat has a high value relative to weight, which gold does not. 
B)  it is easier to divide wheat into small units. 
C)  wheat has more practical uses than gold. 
D)  wheat is perishable. 
A)  wheat has a high value relative to weight, which gold does not. 
B)  it is easier to divide wheat into small units. 
C)  wheat has more practical uses than gold. 
D)  wheat is perishable.

Question 16

The amount of currency in the hands of the public is approximately what percentage of M1?

Accepted Answer

A)  45% 
B)  25% 
C)  30% 
D)  90% 
A)  45% 
B)  25% 
C)  30% 
D)  90%

Question 17

Which of the following is incorrect?

Accepted Answer

A)  Money is wealth but not all wealth is money. 
B)  Money is a means of payment but is not part of wealth. 
C)  An asset doesn't have to be a means of payment to be a part of a person's wealth. 
D)  All items considered wealth can eventually be converted to a means of payment. 
A)  Money is wealth but not all wealth is money. 
B)  Money is a means of payment but is not part of wealth. 
C)  An asset doesn't have to be a means of payment to be a part of a person's wealth. 
D)  All items considered wealth can eventually be converted to a means of payment.

Question 18

The store of value characteristic of money refers to the fact that:

Accepted Answer

A)  people save most of their money. 
B)  money allows people to shift purchasing power into the future. 
C)  money is not valuable unless it is stored. 
D)  money is the only way people have to store value. 
A)  people save most of their money. 
B)  money allows people to shift purchasing power into the future. 
C)  money is not valuable unless it is stored. 
D)  money is the only way people have to store value.

Question 19

During what period was money a better store of value: 1960-1980 or 1990-2009? Explain.

Accepted Answer

The period 1990-2009. During t

Question 20

The fact that U.S. currency is legal tender means:

Accepted Answer

A)  U.S. currency is good anywhere in the world. 
B)  the only money the government will accept for settlement of debts is U.S. currency. 
C)  private businesses in the U.S. and the U.S. government must accept currency for payment. 
D)  it cannot be backed by gold or other metals. 
A)  U.S. currency is good anywhere in the world. 
B)  the only money the government will accept for settlement of debts is U.S. currency. 
C)  private businesses in the U.S. and the U.S. government must accept currency for payment. 
D)  it cannot be backed by gold or other metals.

Exam 2: Money and the Payments System

In a barter economy with "n'' number of goods there will always be:

Compare two economies: a barter economy versus an economy that uses money. In order to exchange goods and services:

Many college campuses use student ID cards as a way for students to pay for on-campus expenses, such as books, photocopies, and food. For convenience, some students will maintain a balance on their ID cards. Are these balances a means of payment? Are they a store of value? Explain why or why not.

M1 is:

Money eliminates the need for:

What is included in M2 that is not included in M1?

In a barter system people:

What distinguishes commodity money from fiat money?

The money aggregate M1 includes each of the following, except:

While money is an asset not all assets are money because:

M1 is:

What was the double liquidity shock that occurred in the US financial system in the summer of 2007?

One major difference between a debit card and a credit card is:

Gold would be a superior commodity money compared to wheat because:

The amount of currency in the hands of the public is approximately what percentage of M1?

Which of the following is incorrect?

The store of value characteristic of money refers to the fact that:

During what period was money a better store of value: 1960-1980 or 1990-2009? Explain.

The fact that U.S. currency is legal tender means:

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

Filters