Econ 302 test bank chapter 3 PDF

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Warning: TT: undefined function: 32 1Economics of Money, Banking, and Financial Markets 6e (Mishkin) Chapter 3 What Is Money?3 Meaning of Money A person's house is part of her ________. A) money B) income C) liabilities D) wealth Answer: D Diff: 1 Type: MC Skill: Recall Objective: 3 Describe what mo...

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Economics of Money, Banking, and Financial Markets 6e (Mishkin) Chapter 3 What Is Money? 3.1 Meaning of Money 1) A person's house is part of her ________. A) money B) income C) liabilities D) wealth Answer: D Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 2) Money is ________. A) anything that is generally accepted in payment for goods and services or in the repayment of debt B) a flow of earnings per unit of time C) the total collection of pieces of property that are a store of value D) always based on a precious metal like gold or silver Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 3) To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A) wealth B) income C) money D) credit Answer: C Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 4) Currency is defined as ________. A) anything accepted for payment of goods and services B) paper money and coins C) a unit of account D) foreign exchange Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 1 Copyright © 2017 Pearson Canada, Inc.

5) Money is ________. A) the same as currency B) anything that is generally accepted in payment of goods or services or in the repayment of debts C) not used as a unit of account D) defined as paper money and coins Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 6) Currency includes ________. A) paper money and coins B) paper money, coins, and cheques C) paper money and cheques D) paper money, coins, cheques, and savings deposits Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 7) There is no single precise measure of money or the money supply for economists because ________. A) the government considers money supply statistics to be confidential and refuses to publish them B) deciding what is generally accepted in payment for goods and services or in the repayment of debt is difficult to determine C) economists cannot agree if currency should be considered money D) definitions change all the time Answer: B Diff: 2 Type: MC Skill: Recall Objective: 3.1 Describe what money is 8) Even economists have no single, precise definition of money because ________. A) money supply statistics are a state secret B) the Bank of Canada does not employ or report different measures of the money supply C) the "moneyness" or liquidity of an asset is a matter of degree D) economists find disagreement interesting and refuse to agree for ideological reasons Answer: C Diff: 2 Type: MC Skill: Recall Objective: 3.1 Describe what money is

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9) The total collection of pieces of property that serve to store value is a person's ________. A) wealth B) income C) money D) credit Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 10) ________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value. A) Money; income B) Wealth; income C) Income; money D) Money; wealth Answer: D Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 11) ________ is a flow of earnings per unit of time. A) Income B) Money C) Wealth D) Currency Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 12) An individual's annual salary is her ________. A) money B) income C) wealth D) liabilities Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is

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13) When we say that money is a stock variable, we mean that ________. A) the quantity of money is measured at a given point in time B) we must attach a time period to the measure C) it is sold in the equity market D) money never loses purchasing power Answer: A Diff: 2 Type: MC Skill: Recall Objective: 3.1 Describe what money is 14) The difference between money and income is that ________. A) money is a flow and income is a stock B) money is a stock and income is a flow C) there is no difference—money and income are both stocks D) there is no difference—money and income are both flows Answer: B Diff: 2 Type: MC Skill: Recall Objective: 3.1 Describe what money is 15) Income is a ________ and wealth is a ________. A) stock; flow B) flow; stock C) variable; constant D) constant; variable Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is 16) Which of the following is a true statement? A) Money and income are flow variables. B) Money is a flow variable. C) Income is a flow variable. D) Money and income are stock variables. Answer: C Diff: 1 Type: MC Skill: Recall Objective: 3.1 Describe what money is

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17) Which of the following statements uses the economists' definition of money? A) I plan to earn a lot of money over the summer. B) Betsy is rich—she has a lot of money. C) I hope that I have enough money to buy my lunch today. D) The job with New Company gave me the opportunity to earn more money. Answer: C Diff: 2 Type: MC Skill: Applied Objective: 3.1 Describe what money is 18) In the country of Moneyland the law allows you to repay mortgage in rocks. Thus, ________. A) Moneyland is a poor country B) rocks in this country are considered as money C) money is scarce D) Moneyland is a developing country Answer: B Diff: 2 Type: MC Skill: Applied Objective: 3.1 Describe what money is 19) Explain the concepts of wealth and income and how they relate to the concept of money. Answer: Non-economists often use money synonymously with wealth or income. Wealth is a stock variable that describes the total collection of property that is used to store value. Income is a flow of earnings over some period of time. Money is a stock variable; it is a certain amount at a point of time and can be used in the payment of goods and services. Diff: 2 Type: ES Skill: Applied Objective: 3.1 Describe what money is

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3.2 Functions of Money 1) If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are ________. A) bank deposits B) reserves C) money D) loanable funds Answer: C Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 2) For a commodity to function effectively as money it must be ________. A) easily standardized, making it easy to ascertain its value B) difficult to make change C) deteriorate quickly so that its supply does not become too large D) hard to carry around Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 3) ________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs B) Transaction costs C) Contracting costs D) Barter costs Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 4) Compared to an economy that uses a medium of exchange, in a barter economy ________. A) transaction costs are higher B) transaction costs are lower C) liquidity costs are higher D) liquidity costs are lower Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money

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5) Of money's three functions, the one that distinguishes money from other assets is its function as a ________. A) store of value B) unit of account C) standard of deferred payment D) medium of exchange Answer: D Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 6) When compared to exchange systems that rely on money, disadvantages of the barter system include ________. A) the requirement of a double coincidence of wants B) lowering the cost of exchanging goods over time C) lowering the cost of exchange to those who would specialize D) encouraging specialization and the division of labor Answer: A Diff: 2 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 7) The conversion of a barter economy to one that uses money ________. A) increases efficiency by reducing the need to exchange goods and services B) increases efficiency by reducing the need to specialize C) increases efficiency by reducing transactions costs D) does not increase economic efficiency Answer: C Diff: 2 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 8) Which of the following statements best explains how the use of money in an economy increases economic efficiency? A) Money increases economic efficiency because it is costless to produce. B) Money increases economic efficiency because it discourages specialization. C) Money increases economic efficiency because it decreases transactions costs. D) Money cannot have an effect on economic efficiency. Answer: C Diff: 2 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money

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9) Which of the following is a true statement? A) The conversion of a barter economy to one that uses money increases efficiency by increasing the cost of exchange. B) The conversion of a barter economy to one that uses money increases efficiency by increasing the cost to those who wish to specialize. C) The conversion of a barter economy to one that uses money increases efficiency by reducing transactions costs. D) The conversion of a barter economy to one that uses money does not increases efficiency. Answer: C Diff: 3 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 10) When economists say that money promotes ________, they mean that money encourages specialization and the division of labour. A) bargaining B) contracting C) efficiency D) greed Answer: C Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 11) Money ________ transaction costs, allowing people to specialize in what they do best. A) reduces B) increases C) enhances D) eliminates Answer: A Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 12) All of the following are necessary criteria for a commodity to function as money except ________. A) it must deteriorate quickly B) it must be divisible C) it must be easy to carry D) it must be widely accepted Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money

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13) Whatever a society uses as money, the distinguishing characteristic is that it must ________. A) be completely inflation proof B) be generally acceptable as payment for goods and services or in the repayment of debt C) contain gold D) be produced by the government Answer: B Diff: 2 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 14) All but the most primitive societies use money as a medium of exchange, implying that ________. A) the use of money is economically efficient B) barter exchange is economically efficient C) barter exchange cannot work outside the family D) inflation is not a concern Answer: A Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 15) Kevin purchasing concert tickets with his debit card is an example of the ________ function of money. A) medium of exchange B) unit of account C) store of value D) specialization Answer: A Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 16) When money prices are used to facilitate comparisons of value, money is said to function as a ________. A) unit of account B) medium of exchange C) store of value D) payments-system ruler Answer: A Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money

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17) A problem with barter exchange when there are many goods is that in a barter system ________. A) transactions costs are minimized B) there exists a multiple number of prices for each good C) there is only one store of value D) exchange of services is impossible Answer: B Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 18) In a barter economy the number of prices in an economy with N goods is ________. A) [N(N - 1)]/2 B) N(N/2) C) 2N D) N(N/2) - 1 Answer: A Diff: 3 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 19) If there are five goods in a barter economy, one needs to know ten prices in order to exchange one good for another. If, however, there are ten goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 20 B) 25 C) 30 D) 45 Answer: D Diff: 2 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 20) If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 8 B) 6 C) 5 D) 4 Answer: B Diff: 2 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money

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21) Because it is a unit of account, money ________. A) increases transaction costs B) reduces the number of prices that need to be calculated C) does not earn interest D) discourages specialization Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 22) Dennis notices that jackets are on sale for $99. In this case money is functioning as a ________. A) medium of exchange B) unit of account C) store of value D) payments-system ruler Answer: B Diff: 2 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 23) As a store of value, money ________. A) does not earn interest B) cannot be a durable asset C) must be currency D) is a way of saving for future purchases Answer: D Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 24) Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a ________. A) medium of exchange B) unit of account C) store of value D) unit of specialization Answer: C Diff: 2 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money

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25) ________ is the relative ease and speed with which an asset can be converted into a medium of exchange. A) Efficiency B) Liquidity C) Deflation D) Specialization Answer: B Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 26) Increasing transactions costs of selling an asset make the asset ________. A) more valuable B) more liquid C) less liquid D) more moneylike Answer: C Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 27) Since it does not have to be converted into anything else to make purchases, ________ is the most liquid asset. A) money B) stock C) artwork D) gold Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 28) Of the following assets, the least liquid is ________. A) stocks B) travellers cheques C) chequing deposits D) a house Answer: D Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money

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29) Ranking assets from most liquid to least liquid, the correct order is ________. A) savings bonds; house; currency B) currency; savings bonds; house C) currency; house; savings bonds D) house; savings bonds; currency Answer: B Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 30) People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is all of the following except ________. A) perfectly liquid B) a unique good for which there are no substitutes C) the only thing accepted in economic exchange D) backed by gold Answer: A Diff: 3 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money 31) If the price level doubles, the value of money ________. A) doubles B) more than doubles, due to scale economies C) rises but does not double, due to diminishing returns D) falls by half Answer: D Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 32) A fall in the level of prices ________. A) does not affect the value of money B) has an uncertain effect on the value of money C) increases the value of money D) reduces the value of money Answer: C Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money

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33) A hyperinflation is ________. A) a period of extreme inflation generally greater than 50 percent per month B) a period of anxiety caused by rising prices C) an increase in output caused by higher prices D) impossible today because of tighter regulations Answer: A Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 34) During hyperinflations, ________. A) the value of money rises rapidly B) money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale C) middle-class savers benefit as prices rise D) money's value remains fixed to the price level; that is, if prices double so does the value of money Answer: B Diff: 2 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 35) Because inflation in Germany after World War I sometimes exceeded 1000 percent per month, one can conclude that the German economy suffered from ________. A) deflation B) disinflation C) hyperinflation D) superdeflation Answer: C Diff: 1 Type: MC Skill: Recall Objective: 3.2 List and summarize the functions of money 36) If merchants in the country Zed choose to close their doors, preferring to be stuck with rotting merchandise rather than worthless currency, then one can conclude that Zed is experiencing a ________. A) superdeflation B) hyperdeflation C) disinflation D) hyperinflation Answer: D Diff: 1 Type: MC Skill: Applied Objective: 3.2 List and summarize the functions of money

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37) Explain how cigarettes could be called "money" in prisoner-of-war camps of World War II. Answer: The cigarettes performed the three functions of money. They served as the medium of exchange because individuals did exchange items for cigarettes. They served as a unit of account because prices were quoted in terms of the number of cigarettes required for the exchange. They served as a store of value because an individual would be willing to save their cigarettes even if they did not smoke because they believed that they could exchange the cigarettes for something that they did want at some time in the future. Diff: 2 Type: ES Skill: Applied Objective: 3.2 List and summarize the functions of money 38) Can packs of cigarettes be used as commodity money? Answer: We must see whether cigarettes satisfy the 5 criteria for a commodity to function effectively as money: 1. Easily standardized—yes they are, cigarettes come is packs. 2. Widely accepted—yes, if they are used in a setting such as WW II prisoners of war. 3. Divisible—yes, packs of cigarettes are divisible to single cigarettes. 4. Easy to carry—yes, cigarettes are lightweight. 5. Must not deteriorate quickly—yes, cigarettes do not deteriorate easily. Diff: 2 Type: ES Skill: Applied Objective: 3.2 List and summarize the functions of money 39) Economists say that money is a store of value. since there are other assets that are a more desirable store of money, why do people hold money at all? Answer: People hold money although it is not the best store of value, because of an important economic feature of money, liquidity. Liquidity is a highly desired property of assets. Liquidity measures how easily and fast an asset can be converted into a medium of exchange. Since money is a medium of exchange it is the most liquid asset, and thus, highly desirable although it is not the best store of value. Diff: 2 Type: ES Skill: Applied Objective: 3...