Question 1

Credits cards are NOT a part of the M1 or M2 money supply.

Accepted Answer

Credit cards represent a line of credit or a loan, not actual money, and therefore are not included in the M1 or M2 measures of money supply, which consist of physical money and easily accessible deposits.

Question 2

Money solves the problem of double coincidence of wants that would regularly occur under a system of credit.

Accepted Answer

Money solves the problem of double coincidence of wants that occurs in barter systems, not credit systems. In a barter system, two parties must have what the other wants to make an exchange. Money eliminates this issue by providing a common medium of exchange.

Question 3

Small time deposits of $100,000 or less are classified as

Accepted Answer

Small time deposits of $100,000 or less are part of M2, which includes M1 (currency, demand deposits, and traveler's checks) and near money like savings accounts, money market accounts, and small time deposits. This means that they are not part of M1, which is more narrow and focused on the most liquid forms of money. While small time deposits may be FDIC insured and highly liquid depending on the terms of the deposit agreement, these are not characteristics that differentiate them from other types of deposits in terms of classification within the money supply.

Question 4

Economists use M2 to measure the amount of money that is regularly used in transactions.

Accepted Answer

Economists use M1 to measure the amount of money that is regularly used in transactions, which includes cash and checking deposits. M2 includes M1 plus savings accounts, money market accounts, and other near money.

Question 5

Credit cards are regularly used in economic exchanges, so credit card balances are included in the definition of money.

Accepted Answer

Credit card balances are not considered part of the money supply because they represent short-term loans from the credit card issuer to the cardholder, not actual money owned by the cardholder.

Question 6

An example of money is

Accepted Answer

Money can take many forms, including physical currency like a dollar bill, digital currency stored in a checking account balance, and even traveler's checks, which combine the convenience of physical currency with the security of a check. Therefore, all of the above options are valid examples of money.

Question 7

Recall the Application about the Brazilian city of Silva Jardim that has issued its own local currency to answer the following question(s). In order to entice local residents to spend their money on stores in town, the small city of Silva Jardim in Brazil, hatched a plan for its own currency. The currency is called the capivari and features a picture of a local rodent on the bills. The capivaris are issued by a local bank, which holds one unit of official Brazilian currency for each capivari it issued. Local merchants, however, give discounts for paying in capivaris so that local residents are therefore encouraged to make local purchases.
-According to this Application, the small city of Silva Jardim in Brazil has issued its own currency called the capivari. If people using the currency have enough confidence in this locally-issued scrip to hold onto it for use in future transactions, the currency will be acting as a

Accepted Answer

The currency acts as a store of value if people have confidence in holding onto it for future transactions, indicating it retains its value over time.

Question 8

Before they can be used in regular exchanges, the assets that make up M2 must often

Accepted Answer

M2 includes all the assets in M1 plus additional assets that cannot be directly used for transactions. To be used in regular exchanges, the assets that make up M2 must be converted to M1 assets. Therefore, choice B is the correct answer. Choices A, C, and D are not relevant to the process of converting M2 assets to M1 assets.

Question 9

According to the U.S. Secret Service, approximately $2.6 billion of U.S. paper currency in circulation is counterfeit. Undetected counterfeit U.S. currency being held by the public both at home and abroad will impact the level of

Accepted Answer

Counterfeit currency is not considered part of the M1 money supply, as it is not a legitimate form of currency. Therefore, the presence of undetected counterfeit currency will not impact M1.

Question 10

In the United States today, the government will exchange gold or silver for paper money.

Accepted Answer

The United States government no longer exchanges gold or silver for paper money. The US dollar is now a fiat currency, meaning it has no intrinsic value and is not backed by a commodity like gold or silver.

Question 11

Define "money."

Accepted Answer

The answer of Define "money."...

Question 12

Fiat money refers to a monetary system in which gold backs up paper money.

Accepted Answer

Fiat money refers to a monetary system in which the value of money is not based on any physical commodity or backing, but solely on the government's declaration of its worth and its acceptance as a means of payment.

Question 13

M1 is larger than M2.

Accepted Answer

M1 refers to the total supply of all types of money in an economy, including physical currency, demand deposits, and various types of savings deposits. M2 is a narrower measure of the money supply that includes M1 plus savings deposits, money market funds, and other time deposits. Since M2 includes M1 plus additional forms of money, it is larger than M1. Therefore, the statement "M1 is larger than M2" is false.

Question 14

Money is the standard of exchange by which any type of goods can be purchased.

Accepted Answer

Money is a universally recognized medium of exchange that can be used to purchase goods and services. It serves as a standard measure of value and facilitates trade and commerce.

Question 15

Inflation makes money an imperfect store of value.

Accepted Answer

Inflation decreases the purchasing power of money, which makes it an imperfect store of value over time.

Question 16

In order for money to be an effective medium of exchange, it is important to have it serve as a unit of account.

Accepted Answer

When money serves as a unit of account, it enables prices to be measured and compared in a standardized way, making transactions easier and more efficient.

Question 17

Financial monetary assets which often cannot be readily used in commercial exchanges are included in

Accepted Answer

Financial monetary assets which often cannot be readily used in commercial exchanges, such as savings deposits, time deposits, and money market funds, are included in M2. M1 only includes the most liquid forms of money. Credit cards and prepaid accounts are not considered monetary assets.

Question 18

Recall the Application about the Brazilian city of Silva Jardim that has issued its own local currency to answer the following question(s). In order to entice local residents to spend their money on stores in town, the small city of Silva Jardim in Brazil, hatched a plan for its own currency. The currency is called the capivari and features a picture of a local rodent on the bills. The capivaris are issued by a local bank, which holds one unit of official Brazilian currency for each capivari it issued. Local merchants, however, give discounts for paying in capivaris so that local residents are therefore encouraged to make local purchases.
-According to this Application, the small city of Silva Jardim in Brazil has issued its own currency called the capivari. When people use this currency to execute transactions, this currency is being used as a

Accepted Answer

The capivari is being used as a medium of exchange when people use it to execute transactions. It has been created by the local authorities to encourage local spending and local merchants give discounts for paying in capivaris. It is a form of currency that enables people to trade goods and services with one another, which is the function of a medium of exchange. It is not being used as a unit of account or a store of value as there is no indication that people are using it to measure the value of goods or as a means of saving their wealth. Commodity money is a form of money that has intrinsic value, such as gold or silver, which is not the case with the capivari.

Question 19

Money market mutual funds are hard to classify because they are used both for making transactions and savings.

Accepted Answer

Money market mutual funds can be used for both making transactions and savings, making them difficult to classify as solely one type of financial instrument.

Question 20

Recall the Application about the Brazilian city of Silva Jardim that has issued its own local currency to answer the following question(s). In order to entice local residents to spend their money on stores in town, the small city of Silva Jardim in Brazil, hatched a plan for its own currency. The currency is called the capivari and features a picture of a local rodent on the bills. The capivaris are issued by a local bank, which holds one unit of official Brazilian currency for each capivari it issued. Local merchants, however, give discounts for paying in capivaris so that local residents are therefore encouraged to make local purchases.
-According to this Application, the small city of Silva Jardim in Brazil has issued its own currency called the capivari. If this currency had nothing backing its value and was simply created by decree of the issuing city government, the city-issued money would be considered

Accepted Answer

If the capivari had nothing backing its value, it would be considered fiat money. Fiat money is a currency that has no intrinsic value and is not backed by a physical commodity, but derives its value from the government's decree or order. In this case, the city government of Silva Jardim created the capivari currency by decree, so it would be classified as fiat money.

Quiz 13: Money and the Banking System