Question 1

Historically, items as diverse as salt, fish, and rocks have been used by various cultures as money.

Accepted Answer

Strictly defined, money, or currency, is anything generally accepted in exchange for goods and services. Materials as diverse as salt, cattle, fish, rocks, shells, and cloth, as well as precious metals such as gold, silver, and copper, have long been used by various cultures as money.

Question 2

Mutual savings banks were originally established for groups of people (like fishermen) to have a safe place for their savings.

Accepted Answer

Mutual savings banks are similar to savings and loan associations, but, like credit unions, they are owned by their depositors. Among the oldest financial institutions in the United States, they were originally established to provide a safe place for savings of particular groups of people, such as fishermen.

Question 3

Finance companies require borrowers to pledge personal collateral when obtaining a loan.

Accepted Answer

Consumer finance companies make loans to individuals. Like commercial finance companies, these firms require some sort of personal collateral as security against the borrower's possible inability to repay their loans.

Question 4

________ is the study of how money is managed by individuals, companies, and governments.

Accepted Answer

Finance is the study of how money is managed by individuals, companies, and governments.

Question 5

Anything that can be used for the payment of goods and services is defined as

Accepted Answer

Strictly defined, money is anything generally accepted in exchange for goods and services. Materials as diverse as salt, cattle, fish, rocks, shells, and cloth, as well as precious metals such as gold, silver, and copper have long been used by various cultures as money.

Question 6

When early settlers needed to buy farming equipment and supplies, they often would use the milk, eggs, and crops their farms produced as currency. As it pertains to money, this scenario depicts

Accepted Answer

This scenario describes the concept of using limited-supply commodities that have their own value in society as currency. The supply of these commodities therefore determined the supply of "money"
in that society.

Question 7

Gerald lives in an apartment in Chicago. Every month, he must pay rent and utilities to remain in his apartment. As it pertains to the functions of money, this is an example of a(n) ________ action.

Accepted Answer

No matter what a particular society uses for money, its primary purpose is to enable a person or organization to transform a desire into an action. These desires may be for entertainment actions, such as party expenses; operating actions, such as paying for rent, utilities, or employees; investing actions, such as buying property or equipment; or financing actions, such as starting or growing a business.

Question 8

Noelle has taught dance classes at a large studio for several years. Recently, she decided to start her own dance studio. As a function of money, this scenario describes Noelle's desire for ________ actions.

Accepted Answer

No matter what a particular society uses for money, its primary purpose is to enable a person or organization to transform a desire into an action. These desires may be for entertainment actions, such as party expenses; operating actions, such as paying for rent, utilities, or employees; investing actions, such as buying property or equipment; or financing actions, such as starting or growing a business.

Question 9

Rick owns and operates a small farm that produces vegetables and fruits. His friend Owen owns and operates a butcher shop that sells various kinds of meat. Rick often gives Owen vegetables and fruits in exchange for meat, and vice versa. This scenario best describes

Accepted Answer

This scenario best describes bartering or trading a good or service for another of similar value. Before fiat money, this was a common practice.

Question 10

After using the barter system, it was decided that a simpler medium of exchange needed to take place, and the result was to

Accepted Answer

Before fiat money, the trade of goods and services was accomplished through bartering-trading one good or service for another of similar value. There had to be a simpler way, and that was to decide on a single item-money-that can be freely converted to any other good upon agreement between parties.

Question 11

Chuck and Paula want to buy their first house. They have done online research and determined that most houses having the features they want in the area where they live cost around $350,000. They hire a real estate agent who helps them find and buy a house for $345,000. What function of money does this scenario best describe?

Accepted Answer

This scenario best describes money functioning as a measure of value. In this function, money serves as a common standard or yardstick of the value of goods and services. Thus, money is a common denominator that allows people to compare different goods and services that can be consumed on a particular income level.

Question 12

Kate makes $3,000 a month working as a radiology technician. She wants to buy a used car for $10,000. She plans to save $2,000 per month for 5 months to buy the car. What function of money does this scenario best describe?

Accepted Answer

This scenario best describes money functioning as a store of value. In this function, money serves as a way to accumulate wealth (buying power) until it is needed.

Question 13

What characteristic of money is directly affected by the health of the economy?

Accepted Answer

As a store of value, money serves as a way to accumulate wealth (buying power) until it is needed. Unfortunately, the value of stored money is directly dependent on the health of the economy. If, due to rapid inflation, all prices double in one year, then the purchasing power value of money would fall by half. On the other hand, deflation occurs when prices of goods fall. Deflation might seem like a good thing for consumers, but in many ways, it can be just as problematic as inflation. Periods of major deflation often lead to decreases in wages and increases in debt burdens.

Question 14

Nico trades his tablet for a cellphone. Since both are the same value, there is no exchange of money. What concept does this scenario illustrate?

Accepted Answer

The scenario illustrates bartering. Bartering involves trading one good or service for another of similar value.

Question 15

If businesses do not take money as payment for goods and services, consumers will have to find another means of paying for purchases. This is why ________ is probably the most important characteristic of money.

Accepted Answer

To be effective, money must be readily acceptable for the purchase of goods and services and for the settlement of debts. Acceptability is probably the most important characteristic of money: If people do not trust the value of money, businesses will not accept it as a payment for goods and services, and consumers will have to find some other means of paying for their purchases.

Question 16

Anna is a high school senior who wants to buy a prom dress that costs $250. She postpones purchasing the dress and gets a weekend job at a restaurant to save money for it. After two months of saving, she is able to buy the dress. What characteristic of money does this scenario best relate to?

Accepted Answer

This scenario best relates to stability-money must be stable and maintain its declared face value. This principle allows people to postpone their purchases to save money for them without the fear that their money will decline in value.

Question 17

You feel confident that a $20 bill will buy tomorrow what it can buy today. This exemplifies which characteristic of money?

Accepted Answer

Money must be stable and maintain its declared face value. A $20 bill should purchase the same amount of goods or services from one day to the next. The principle of stability allows people who wish to postpone purchases and save their money to do so without fear that it will decline in value.

Question 18

The life expectancy of a $20 bill is estimated to be 7.9 years. What characteristic of money does this statement illustrate?

Accepted Answer

The given statement illustrates the durability of money. Money must be durable. Were the value of an old, faded bill to fall in line with the deterioration of its appearance, the principles of stability and universal acceptability would fail.

Question 19

U.S. money includes subtle colors in addition to the traditional green, as well as enhanced security features, such as a watermark, security thread, and color-shifting ink. What characteristic of money is being protected by these measures?

Accepted Answer

To remain stable and enjoy universal acceptance, it almost goes without saying that money must be very difficult to counterfeit-that is, to duplicate illegally. Every country takes steps to make counterfeiting difficult. Most use multicolored money, and many use specially watermarked papers that are virtually impossible to duplicate. For example, U.S. money includes subtle colors in addition to the traditional green, as well as enhanced security features, such as a watermark, security thread, and color-shifting ink.

Question 20

The characteristic of money that relates to it having a long, useful life is its

Accepted Answer

Money must be durable. The crisp new dollar bills you trade for products at the mall will make their way all around town for about six years before being replaced. Although metal coins, due to their much longer useful life, would appear to be an ideal form of money, paper currency is far more portable than metal because of its light weight.

Quiz 15: Money and the Financial System