Question 1

Which of the following would not be considered a characteristic of money?

Accepted Answer

A)  It is a store of value. 
B)  It is a means of payment. 
C)  It must have intrinsic value. 
D)  It is a unit of account. 
A)  It is a store of value. 
B)  It is a means of payment. 
C)  It must have intrinsic value. 
D)  It is a unit of account.

Question 2

Inflation refers to growth in the economy's:

Accepted Answer

A)  Gross Domestic Product (GDP). 
B)  interest rates. 
C)  money. 
D)  prices. 
A)  Gross Domestic Product (GDP). 
B)  interest rates. 
C)  money. 
D)  prices.

Question 3

One advantage of using checks over a debit card is:

Accepted Answer

A)  checks can be replaced if lost or stolen, a debit card cannot. 
B)  the bank is responsible if someone steals your checks and uses them; this isn't the case with debit cards. 
C)  a cancelled paper check is the only generally accepted proof of payment. 
D)  the person has "float," meaning time between writing the check and depositing funds to cover it. 
A)  checks can be replaced if lost or stolen, a debit card cannot. 
B)  the bank is responsible if someone steals your checks and uses them; this isn't the case with debit cards. 
C)  a cancelled paper check is the only generally accepted proof of payment. 
D)  the person has "float," meaning time between writing the check and depositing funds to cover it.

Question 4

The value of money as a means of payment:

Accepted Answer

A)  is independent of changes in the amount of money in the economy. 
B)  is fixed once relative prices are set. 
C)  depends on the amount of money in the economy, among other things. 
D)  depends on whether the majority of M1 is in currency or demand deposits. 
A)  is independent of changes in the amount of money in the economy. 
B)  is fixed once relative prices are set. 
C)  depends on the amount of money in the economy, among other things. 
D)  depends on whether the majority of M1 is in currency or demand deposits.

Question 5

Carlos pays his cable bill using his bank's internet banking web site to withdraw funds from his checking account. This transaction is a(n):

Accepted Answer

A)  automated clearinghouse transaction (ACH). 
B)  digitized-check transaction. 
C)  e-money transaction. 
D)  Fedwire transaction. 
A)  automated clearinghouse transaction (ACH). 
B)  digitized-check transaction. 
C)  e-money transaction. 
D)  Fedwire transaction.

Question 6

Suppose that in a barter economy Tom bakes bread and Hans produces chocolates. Tom wants chocolates but Hans doesn't like bread, so Hans is unwilling to trade with Tom. Tom's problem is an example of which problem associated with a barter system?

Accepted Answer

A)  Too much specialization 
B)  Not enough prices 
C)  The law of diminishing returns 
D)  The double coincidence of wants problem 
A)  Too much specialization 
B)  Not enough prices 
C)  The law of diminishing returns 
D)  The double coincidence of wants problem

Question 7

The high transaction costs associated with a barter system refers to the:

Accepted Answer

A)  fact that, often times, these exchanges are taxed by governments. 
B)  risk associated with having to carry an inventory of goods to trade. 
C)  high cost associated with finding someone with whom to exchange. 
D)  cost of drawing up complete contracts. 
A)  fact that, often times, these exchanges are taxed by governments. 
B)  risk associated with having to carry an inventory of goods to trade. 
C)  high cost associated with finding someone with whom to exchange. 
D)  cost of drawing up complete contracts.

Question 8

Considering the roughly $1.35 trillion in U.S. currency held by the public:

Accepted Answer

A)  over 90% of the amount is held in the form of $1 bills. 
B)  more than three-fourths is held in the form of $100 bills. 
C)  over half of the currency held in the form of $20 bills. 
D)  the Federal Reserve distributes the amount equally across all denominations of bills. 
A)  over 90% of the amount is held in the form of $1 bills. 
B)  more than three-fourths is held in the form of $100 bills. 
C)  over half of the currency held in the form of $20 bills. 
D)  the Federal Reserve distributes the amount equally across all denominations of bills.

Question 9

The introduction of money market substitutes for basic checking accounts was fueled partially by the:

Accepted Answer

A)  relatively high rates of inflation that existed in the late 1970s and early 1980s. 
B)  reluctance of many retailers to accept checks. 
C)  high number of bank failures that were occurring in the 1970s. 
D)  higher interest rates banks had to pay on checking accounts. 
A)  relatively high rates of inflation that existed in the late 1970s and early 1980s. 
B)  reluctance of many retailers to accept checks. 
C)  high number of bank failures that were occurring in the 1970s. 
D)  higher interest rates banks had to pay on checking accounts.

Question 10

Explain how money solves the problem of the "double coincidence of wants."

Accepted Answer

In an economy that does not rely on the

Question 11

Economists study the link between money and inflation because:

Accepted Answer

A)  they want to understand how to keep inflation low and stable. 
B)  economists believe that inflation in the 3-6% range is healthy for an economy. 
C)  as prices increase money becomes more valuable. 
D)  the Fed needs to increase the money supply as prices increase. 
A)  they want to understand how to keep inflation low and stable. 
B)  economists believe that inflation in the 3-6% range is healthy for an economy. 
C)  as prices increase money becomes more valuable. 
D)  the Fed needs to increase the money supply as prices increase.

Question 12

How many prices would a trader of a particular good need to know in a barter economy with 20 goods?

Accepted Answer

A)  190 
B)  100 
C)  20 
D)  40 
A)  190 
B)  100 
C)  20 
D)  40

Question 13

Which of the following is not an example of bartering?

Accepted Answer

A)  Sue trading candles with Tom for his bread. 
B)  Mary paying for her new shoes with her credit card. 
C)  John cutting his neighbor's grass in return for his neighbor washing John's car. 
D)  Mrs. Smith treating the neighbor children to pizza after they helped clean up her yard. 
A)  Sue trading candles with Tom for his bread. 
B)  Mary paying for her new shoes with her credit card. 
C)  John cutting his neighbor's grass in return for his neighbor washing John's car. 
D)  Mrs. Smith treating the neighbor children to pizza after they helped clean up her yard.

Question 14

Checks and currency function similarly, however:

Accepted Answer

A)  currency is a more effective means of payment. 
B)  carrying currency entails greater risk, because it cannot be replaced if lost or stolen. 
C)  currency is a better store of value than checking deposits. 
D)  checks are not included in measures of money, whereas currency is. 
A)  currency is a more effective means of payment. 
B)  carrying currency entails greater risk, because it cannot be replaced if lost or stolen. 
C)  currency is a better store of value than checking deposits. 
D)  checks are not included in measures of money, whereas currency is.

Question 15

The use of money makes us more efficient because:

Accepted Answer

A)  we spend more time trading and more time producing. 
B)  people can specialize in what they do well. 
C)  with money we borrow less. 
D)  money increases in value over time. 
A)  we spend more time trading and more time producing. 
B)  people can specialize in what they do well. 
C)  with money we borrow less. 
D)  money increases in value over time.

Question 16

There are three goods produced in an economy by three individuals:
Good Producer
Oranges Orchard owner
Bread Baker
Chocolate Candy Maker
If the orchard owner likes only bread, the baker likes only chocolate, and the candy maker likes only oranges, will any trade between these three persons take place in a barter economy? Explain.

Accepted Answer

Yes, but this is a good example of the h

Question 17

Which of the following statements is not true?

Accepted Answer

A)  For most of history gold has been the most common commodity money. 
B)  The most common form of money in the U.S. is not a commodity money. 
C)  Gold is an example of a fiat money. 
D)  U.S. currency is legal tender. 
A)  For most of history gold has been the most common commodity money. 
B)  The most common form of money in the U.S. is not a commodity money. 
C)  Gold is an example of a fiat money. 
D)  U.S. currency is legal tender.

Question 18

Have the growth rates of the two measures of money moved together over time? Explain.

Accepted Answer

From 1960 to 1980 the growth rates of th

Question 19

Consider the following: there are two countries, A and B. Each country has the same resources, and produces the same goods. The residents of country A use money; the residents of country B rely on bartering of goods. Will each country produce the same quantity of output? Explain.

Accepted Answer

No, the residents of Country B will defi

Question 20

In comparing money to a U.S. Treasury bond held by an individual, we can say:

Accepted Answer

A)  both are legal tender. 
B)  both are units of account. 
C)  only the bond is legal tender since it is an obligation of the U.S. government. 
D)  both are stores of value. 
A)  both are legal tender. 
B)  both are units of account. 
C)  only the bond is legal tender since it is an obligation of the U.S. government. 
D)  both are stores of value.

Exam 2: Money and the Payments System

Which of the following would not be considered a characteristic of money?

Inflation refers to growth in the economy's:

One advantage of using checks over a debit card is:

The value of money as a means of payment:

Carlos pays his cable bill using his bank's internet banking web site to withdraw funds from his checking account. This transaction is a(n):

Suppose that in a barter economy Tom bakes bread and Hans produces chocolates. Tom wants chocolates but Hans doesn't like bread, so Hans is unwilling to trade with Tom. Tom's problem is an example of which problem associated with a barter system?

The high transaction costs associated with a barter system refers to the:

Considering the roughly $1.35 trillion in U.S. currency held by the public:

The introduction of money market substitutes for basic checking accounts was fueled partially by the:

Explain how money solves the problem of the "double coincidence of wants."

Economists study the link between money and inflation because:

How many prices would a trader of a particular good need to know in a barter economy with 20 goods?

Which of the following is not an example of bartering?

Checks and currency function similarly, however:

The use of money makes us more efficient because:

Which of the following statements is not true?

Have the growth rates of the two measures of money moved together over time? Explain.

Consider the following: there are two countries, A and B. Each country has the same resources, and produces the same goods. The residents of country A use money; the residents of country B rely on bartering of goods. Will each country produce the same quantity of output? Explain.

In comparing money to a U.S. Treasury bond held by an individual, we can say:

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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