Question 1

To say money is a store of value, it mans:

Accepted Answer

Money being a store of value means it can retain purchasing power over time, but it is not the only asset that can do so, and its value can be affected by inflation.

Question 2

Under the barter system, one person must want what the other has and vice versa. This is called:

Accepted Answer

The term "double coincidence of wants" refers to the situation in a barter system where two parties each possess an item the other wants, making an exchange possible without the need for a common currency.

Question 3

Without money being used in society:

Accepted Answer

Without money, trade would rely on barter, making it harder to coordinate exchanges and economic activities efficiently. Money simplifies transactions and enables more complex economic structures.

Question 4

Which of the following statements does not describe the barter system?

Accepted Answer

The answer of Which of the following statements does not...

Question 5

Which of the following statements best describes a barter system?

Accepted Answer

A barter system is characterized by the direct exchange of goods and services for other goods and services without the use of money as a medium.

Question 6

Money is valuable to society as a whole:

Accepted Answer

Money's value to society is largely determined by its quantity in circulation. Too much money can lead to inflation, reducing its value, while too little can hinder economic transactions. The balance in money supply is crucial for its value.

Question 7

Suppose that the value of a nation's money is less in alternative uses than its value in exchange. We can conclude that the nation's money is:

Accepted Answer

Token money is characterized by having a face value that is greater than its intrinsic value or cost of production, meaning it is worth more in exchange than in alternative uses. This is in contrast to commodity money, whose value comes from the material it is made of.

Question 8

Suppose that for some reason, the price of copper rose to such a level that the copper contained in a penny was worth more than the coin, this would cause:

Accepted Answer

When the intrinsic value of the metal in a coin exceeds its face value, people might start hoarding the coin for its metal content, leading to a shortage in circulation. This can also cause the coin to lose its function as token money, as its value as a commodity (copper in this case) becomes greater than its value as a medium of exchange. Therefore, all of the mentioned effects could occur.

Question 9

Goldsmiths could loan a part of the gold deposited in their vaults because:

Accepted Answer

Goldsmiths realized that not all depositors would come to claim their gold at the same time, allowing them to loan out a portion of the gold while still being able to meet withdrawal demands. This practice laid the groundwork for modern banking principles, particularly fractional reserve banking.

Question 10

Suppose that you win $5,000 in a poker game and stuff the currency in your mattress. The money is being used:

Accepted Answer

Storing money in a mattress is using it as a store of value, meaning it retains purchasing power over time and can be used to buy goods or services in the future.

Question 11

One of the most important functions of early banks was to:

Accepted Answer

The answer of One of the most important functions of...

Question 12

When the value of money is less in alternative uses than its value in exchange, it is called:

Accepted Answer

Token money refers to money whose face value exceeds its intrinsic value, meaning it is worth more in exchange than the material it is made from. This contrasts with full-valued money, where the material worth and face value are closely matched.

Question 13

A $20 bill in Canada is an example of:

Accepted Answer

A $20 bill in Canada is an example of fiat money because it has value as legal tender by government decree, not because it's backed by a physical commodity. It's also token money, as its physical value is less than its face value. Additionally, it serves as a medium of exchange, facilitating transactions in the economy.

Question 14

If a commodity has qualities of a medium of exchange, unit of account and store of value it can be used as:

Accepted Answer

A commodity that serves as a medium of exchange, unit of account, and store of value meets the criteria to be considered money. These are the three fundamental functions of money in an economy.

Question 15

Which of the following statements is false?

Accepted Answer

The answer of Which of the following statements is false?
...

Question 16

If trading requires a double coincidence of wants, we can assume that we are talking about:

Accepted Answer

A double coincidence of wants is a characteristic of a barter economy, where two parties each hold an item the other wants, allowing them to exchange these items directly without the need for a medium of exchange like money.

Question 17

The stock of the medium of exchange in circulation is known as:

Accepted Answer

The money supply refers to the total amount of money—currency and other liquid instruments—in a country's economy at a particular time. It includes cash in circulation and demand deposits.

Question 18

A near money provides all of the following functions except serving:

Accepted Answer

The answer of A near money provides all of the...

Question 19

When an asset is a near money, it performs all of the following functions except serving:

Accepted Answer

The answer of When an asset is a near money,...

Question 20

The role of a bank is to:

Accepted Answer

Banks primarily accept deposits from the public and use those deposits to make loans to individuals and businesses. They do not typically settle disputes among investors or finance government deficits directly as their primary function.

Quiz 8: Money, Banking Money Supply