Question 1

When economists refer to the role of money as a unit of account,they mean that

Accepted Answer

A)  most accounting systems reflect that goods are purchased with currency. 
B)  most accounting systems reflect that goods are purchased with checks. 
C)  money gives traders a way of measuring value in the economy. 
D)  money makes it possible for specialization to take place.

Question 2

A hyperinflation occurs when

Accepted Answer

A)  inflation persists for more than two years. 
B)  inflation persists for more than five years. 
C)  the inflation rate exceeds 10% per year. 
D)  the inflation rate exceeds 100% per year

Question 3

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 4

In what way are other assets less liquid than money?

Accepted Answer

The answer of In what way are other assets less...

Question 5

According to the equation of exchange,the money supply times the velocity of money equals the

Accepted Answer

A)  price level. 
B)  growth rate of the money supply. 
C)  real GDP. 
D)  nominal GDP.

Question 6

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 an issue of ongoing research. 
D)  it is reverting to considering currency alone as the best measure of the money supply.

Question 7

All of the following were 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 8

One advantage of using checks to settle transactions is

Accepted Answer

A)  they are more difficult to use fraudulently than currency or precious metals are. 
B)  there is effectively no cost to using them. 
C)  they are as liquid as cash. 
D)  there is no information cost involved in accepting them.

Question 9

Research has shown that nations with highly independent central banks tend to have low

Accepted Answer

A)  inflation. 
B)  interest rates. 
C)  economic growth. 
D)  unemployment.

Question 10

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 five times as large as M1. 
D)  It includes large-denomination time deposits.

Question 11

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 12

Money as a medium of exchange refers only to

Accepted Answer

A)  currency. 
B)  gold coins. 
C)  anything that is generally accepted as payment for goods and services. 
D)  checks at commercial banks.

Question 13

The velocity of money can best be described as

Accepted Answer

A)  how quickly prices are increasing. 
B)  how quickly output is increasing. 
C)  the number of times each dollar in the money supply us used to buy goods and services included in GDP. 
D)  the growth rate of the money supply.

Question 14

According to the quantity theory of money,if the long-run economic growth rate is 2.5%,by how much should the Fed increase the money supply if it wants inflation to be 2%?

Accepted Answer

A)  0.5% 
B)  1.25% 
C)  4.5% 
D)  5%

Question 15

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

Accepted Answer

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

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

All of the following are examples of electronic funds EXCEPT

Accepted Answer

A)  credit cards. 
B)  debit cards. 
C)  stored value cards. 
D)  e-cash.

Question 18

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.

Question 19

By "specialization" economists mean a situation where

Accepted Answer

A)  individuals produce the goods or services for which they have relatively the best ability. 
B)  goods are traded directly for goods and money is not used. 
C)  individuals who produce goods do not also produce services and individuals who produce services do not also produce goods. 
D)  individuals are assigned to occupations on the basis of tests that gauge their relative abilities.

Question 20

The payments system is

Accepted Answer

A)  the mechanism for conducting economic transactions. 
B)  another name for the system of foreign exchange rates. 
C)  the phrase used to describe how transactions are carried out in an economy that does not use money. 
D)  the way in which economic transactions are carried out in a government-controlled economy, such as the former Soviet Union.

Exam 2: Money and the Payments System