Question 1

Rosa goes to the grocery store to buy groceries, and at the checkout counter she pays cash. This is an example of money being used as

Accepted Answer

Money being used at the checkout counter to pay for groceries is an example of money being used as a medium of exchange. This means it facilitates transactions between parties as an accepted form of payment for goods and services.

Question 2

In sixteenth century Europe, commodity money was almost exclusively gold and silver coins. After the Spanish conquest of Latin America, there was a sudden influx of additional gold and silver. This resulted in which scenario?

Accepted Answer

The sudden influx of gold and silver from Latin America into Europe in the sixteenth century led to significant inflation. This is because the increase in the money supply, without a corresponding increase in goods and services, decreased the value of money, causing prices to rise.

Question 3

Money is most accurately defined by which of the following statements?

Accepted Answer

Money is most accurately defined as anything that is generally accepted as a medium of exchange for goods and services. This definition encompasses various forms of money, including but not limited to currency issued by governments.

Question 4

If gold and silver became the primary types of commodity money in circulation, what would most likely be expected if there was a sudden and great amount of hoarding of these two items?

Accepted Answer

When gold and silver, serving as commodity money, are hoarded in large amounts, it reduces the money supply available for transactions. This scarcity of money can lead to decreased spending, slowing down economic activity and potentially causing a recession.

Question 5

In a barter economy, the number of prices necessary will

Accepted Answer

In a barter economy, the number of prices necessary depends on the number of goods exchanged because each good can be exchanged for every other good, leading to a large number of potential exchange rates or prices. This is calculated using the formula n(n-1)/2, where n is the number of goods.

Question 6

When there is too much money chasing too few goods, the likely impact is

Accepted Answer

When there is too much money in the economy chasing too few goods, it typically leads to inflation. This is because the excess demand causes prices to increase.

Question 7

In some cases, people use another country's currency in private transactions, but the local currency remains legal tender and continues to circulate. Which of these is one term for this unofficial change in currency used?

Accepted Answer

Currency substitution occurs when residents of a country use a foreign currency alongside or instead of the domestic currency for transactions. This can happen for various reasons, including hyperinflation or lack of confidence in the local currency, but it doesn't necessarily mean the local currency stops circulating or becomes illegal.

Question 8

Assets accepted for repayment of debt to the government as well as private transactions are known as

Accepted Answer

Legal tender refers to money that must be accepted if offered in payment of a debt. The term specifically relates to the acceptance of the currency by a legal jurisdiction, often issued by a country's central bank or government, for the repayment of debt, including taxes or private debts.

Question 9

How many different prices would there be in a barter economy with 100 goods?

Accepted Answer

In a barter economy with 100 goods, the number of different prices would be determined by the number of unique pairs of goods that can be traded for each other. This can be calculated using the formula for combinations: C(n, 2) = n! / [2!(n-2)!], where n is the number of goods. Plugging in 100 for n gives us 100! / [2!(100-2)!] = 100*99 / 2 = 4,950. This is because each unique pair represents a potential price or trade agreement between two goods.

Question 10

Following World War II, inflation became so bad that Germans stopped using Reichsmarks for transactions, and instead used cigarettes for small transactions and cognac for large transactions. Which of the following best describes this situation?

Accepted Answer

Cigarettes and cognac effectively served as currency during this period because the Reichsmark had lost its value due to hyperinflation and the collapse of the German economy, making traditional money impractical for everyday transactions.

Question 11

Which of the following statements most accurately describes the measurements of the money supply known as M1 and M2?

Accepted Answer

M1 was a measure of the money supply that worked well until the mid-1970s; then M2 became a more accurate measure until the 1990s.

Question 12

Today, in the United States, several assets function as money. Which of the following would NOT be considered money?

Accepted Answer

Credit cards are not considered money because they represent a line of credit or a loan from the bank, rather than a direct medium of exchange or store of value like currency or deposits.

Question 13

Regulation Q, passed following the Great Depression, set a

Accepted Answer

Regulation Q, established as part of the Banking Act of 1933, set a maximum on the interest rate that banks could pay on deposits. This was intended to reduce competition among banks for deposits and to promote financial stability.

Question 14

The term monetary aggregates refers to things like

Accepted Answer

Monetary aggregates are measures of the total amount of money in circulation within an economy and include categories like M1 (which consists of cash and checking deposits) and M2 (which includes M1 plus savings deposits, small time deposits, and money market securities).

Question 15

What concept does the following diagram illustrate? ​

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Accepted Answer

The answer of What concept does the following diagram illustrate?...

Question 16

On payday you get paid in cash, so each week you put $10 into a shoebox in your closet so that you can buy a big-screen TV at the end of the year. In this situation, money is serving as a

Accepted Answer

Money in this scenario is being saved over time to make a future purchase, which means it is being used as a store of value. This is because it retains its value over time, allowing you to use it later to buy the big-screen TV.

Question 17

When a coffee shop lists a tall coffee on its menu at $2.95, the coffee shop is using money as a

Accepted Answer

When a coffee shop lists a price for a coffee, it is using money as a unit of account. This means money is being used to measure and compare the value of goods and services, in this case, the value of a tall coffee.

Question 18

Which of the following are included in the M1 definition of the money supply?

Accepted Answer

M1 includes currency (physical cash and coins), demand deposits (which are essentially checking accounts), and other checkable deposits. Money market accounts and small time deposits are considered part of M2, not M1.

Question 19

Commonly accepted and widely used money that has no intrinsic value is known as

Accepted Answer

Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. Its value comes from the trust that people have in the government that issued it. Unlike commodity money, which is based on the value of the material from which it is made, fiat money has no intrinsic value.

Question 20

Imagine you live in a country suffering from extreme inflation of 20% per month. The money you earn, every single molino, is worth a little less each week, so you and many others around you begin to use the currency of a more prosperous neighboring country, the dolingo. What is the term for this practice of adopting another country's currency?

Accepted Answer

Dollarization is the term used to describe the practice of using a foreign currency in parallel to or instead of the domestic currency within a country. This usually happens in countries experiencing high inflation or instability with their own currency.

Quiz 2: Money, Money Supply and Interest