Question 1

When economists refer to the role of money as a store of value,they mean that

Accepted Answer

A)   money never loses its value, unlike other assets.
B)   money allows value to be stored easily.
C)   the value of money falls only when the quantity of money in circulation falls.
D)   the value of money falls only when the quantity of money in circulation rises. B

Question 2

All of the following are examples of electronic funds EXCEPT

Accepted Answer

A)   credit cards.
B)   debit cards.
C)   ACH transactions.
D)   e-money. A

Question 3

Make use of the quantity equation to answer the following problem.If the Fed increases the money supply by 6%,economic growth is 2%,and inflation is 2%,what is happening to the velocity of money? Be specific.

Accepted Answer

Since the percent change in the money supply plus the percent change in velocity equals the percent change in real GDP plus the percent change in the price level,velocity is declining by 2%.

Question 4

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.

Question 5

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

The answer of Economic studies have shown that countries that...

Question 6

Which of the following is the most efficient means of trade?

Accepted Answer

A)   barter
B)   money
C)   government rationing
D)   the combination of barter with some government rationing

Question 7

According to the Fed,what are the five most desirable outcomes for a payments system?

Accepted Answer

The answer of According to the Fed,what are the five...

Question 8

The M2 aggregate

Accepted Answer

A)   includes M1 plus short-term investment accounts.
B)   includes M1 plus large-denomination time deposits.
C)   equals currency plus checking account deposits at commercial banks.
D)   is the best definition of money purely as a medium of exchange.

Question 9

According to the equation of exchange,if the quantity of money decreases and the velocity of money remains constant,then

Accepted Answer

A)   the level of real GDP must decrease.
B)   the level of nominal GDP must decrease.
C)   the price level must decrease.
D)   the level of inflation must increase.

Question 10

If prices increase rapidly

Accepted Answer

A)   money's usefulness as a store of value is diminished.
B)   money increases in value.
C)   deflation is likely.
D)   prices will decline to their normal level.

Question 11

All of the following took place during the German hyperinflation in the 1920s EXCEPT

Accepted Answer

A)   banks reduced lending.
B)   some banks only made loans to customers who agreed to repay in terms of foreign currencies or commodities.
C)   Deutsche Bank had to lay off many workers due to lack of business.
D)   households and firms increased their demand for loans.

Question 12

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

Question 13

Which of the following is NOT included in M2?

Accepted Answer

A)   currency
B)   savings bonds
C)   money market deposit accounts
D)   overnight repurchase agreements

Question 14

The most important economic benefit from specialization is that it

Accepted Answer

A)   makes it possible for an economy to begin using money.
B)   leads to an increase in the standard of living in an economy.
C)   makes barter possible.
D)   eliminates the need for financial markets.

Question 15

In quantity theory terms,during a hyperinflation

Accepted Answer

A)   money supply increases rapidly, but velocity does not.
B)   velocity increases rapidly, but money supply does not.
C)   both the money supply and velocity increase rapidly.
D)   neither the money supply nor velocity increase rapidly.

Question 16

What criteria should be used in deciding the best definition of the money supply?

Accepted Answer

The answer of What criteria should be used in deciding...

Question 17

According to the quantity theory of money,the growth rate of which of the following is zero?

Accepted Answer

A)   money supply
B)   velocity
C)   real GDP
D)   price level

Question 18

Make use of the quantity equation to answer the following problem.If the Fed increases the money supply by 4%,velocity increases by 1%,and economic growth is 3%,by how much will the price level increase?

Accepted Answer

The answer of Make use of the quantity equation to...

Question 19

Which of the following statements is TRUE about M2?

Accepted Answer

A)   Its total value is smaller than that of M1.
B)   Apart from those assets also included in M1, it includes no assets that offer check-writing features.
C)   Its total value is about four times as large as M1.
D)   It includes large-denomination time deposits.

Question 20

Which country experienced hyperinflation of almost 15 billion percent in 2008?

Accepted Answer

A)   Argentina
B)   Canada
C)   Iceland
D)   Zimbabwe

Exam 2: Money and the Payments System