4.1 Measuring Interest Rates
1) The concept of ________ is based on the common-sense notion that a dollar paid to you in the
future is less valuable to you than a dollar today.
A) present value
B) future value
C) interest
D) deflation
Answer: A
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2) The present value of an expected future payment ________ as the interest rate increases.
A) falls
B) rises
C) is constant
D) is unaffected
Answer: A
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3) An increase in the time to the promised future payment ________ the present value of the
payment.
A) decreases
B) increases
C) has no effect on
D) is irrelevant to
Answer: A
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4) With an interest rate of 6 percent, the present value of $100 next year is approximately
A) $106.
B) $100.
C) $94.
D) $92.
Answer: C
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5) If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest
rate is
A) 5 percent.
B) 10 percent.
C) 12.5 percent.
D) 15 percent.
Answer: B
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6) To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20
million ignores the process of
A) face value.
B) par value.
C) deflation.
D) discounting the future.
Answer: D
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7) A credit market instrument that provides the borrower with an amount of funds that must be
repaid at the maturity date along with an interest payment is known as a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer: A
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8) A credit market instrument that requires the borrower to make the same payment every period
until the maturity date is known as a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer: B
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9) Which of the following are true of fixed payment loans?
A) The borrower repays both the principal and interest at the maturity date.
B) Installment loans and mortgages are frequently of the fixed payment type.
C) The borrower pays interest periodically and the principal at the maturity date.
D) Commercial loans to businesses are often of this type.
Answer: B
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10) A fully amortized loan is another name for
A) a simple loan.
B) a fixed-payment loan.
C) a commercial loan.
D) an unsecured loan.
Answer: B
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11) A credit market instrument that pays the owner a fixed coupon payment every year until the
maturity date and then repays the face value is called a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer: C
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12) A ________ pays the owner a fixed coupon payment every year until the maturity date, when
the ________ value is repaid.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
Answer: C
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13) The ________ is the final amount that will be paid to the holder of a coupon bond.
A) discount value
B) coupon value
C) face value
D) present value
Answer: C
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14) When talking about a coupon bond, face value and ________ mean the same thing.
A) par value
B) coupon value
C) amortized value
D) discount value
Answer: A
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15) The dollar amount of the yearly coupon payment expressed as a percentage of the face value of
the bond is called the bondʹs
A) coupon rate.
B) maturity rate.
C) face value rate.
D) payment rate.
Answer: A
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16) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is
A) $650.
B) $1,300.
C) $130.
D) $13.
Answer: A
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17) An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
A) 5 percent.
B) 8 percent.
C) 10 percent.
D) 40 percent.
Answer: A
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18) All of the following are examples of coupon bonds except
A) Corporate bonds
B) U.S. Treasury bills
C) U.S. Treasury notes
D) U.S. Treasury bonds
Answer: B
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19) A bond that is bought at a price below its face value and the face value is repaid at a maturity
date is called a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer: D
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20) A ________ is bought at a price below its face value, and the ________ value is repaid at the
maturity date.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
Answer: D
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21) A discount bond
A) pays the bondholder a fixed amount every period and the face value at maturity.
B) pays the bondholder the face value at maturity.
C) pays all interest and the face value at maturity.
D) pays the face value at maturity plus any capital gain.
Answer: B
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22) Examples of discount bonds include
A) U.S. Treasury bills.
B) corporate bonds.
C) U.S. Treasury notes.
D) municipal bonds.
Answer: A
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23) Which of the following are true for discount bonds?
A) A discount bond is bought at par.
B) The purchaser receives the face value of the bond at the maturity date.
C) U.S. Treasury bonds and notes are examples of discount bonds.
D) The purchaser receives the par value at maturity plus any capital gains.
Answer: B
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24) The interest rate that equates the present value of payments received from a debt instrument
with its value today is the
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
Answer: C
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25) Economists consider the ________ to be the most accurate measure of interest rates.
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
Answer: C
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26) For simple loans, the simple interest rate is ________ the yield to maturity.
A) greater than
B) less than
C) equal to
D) not comparable to
Answer: C
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27) If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan
amount is
A) $1000.
B) $1210.
C) $2000.
D) $2200.
Answer: C
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28) For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is
A) $10,030.
B) $10,300.
C) $13,000.
D) $13,310.
Answer: D
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29) If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest
rate is
A) 5 percent.
B) 10 percent.
C) 22 percent.
D) 25 percent.
Answer: A
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30) If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it
sells for $200?
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent
Answer: B
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31) The present value of a fixed-payment loan is calculated as the ________ of the present value of
all cash flow payments.
A) sum
B) difference
C) multiple
D) log
Answer: A
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32) Which of the following are true for a coupon bond?
A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon
rate.
B) The price of a coupon bond and the yield to maturity are positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par
value.
D) The yield is less than the coupon rate when the bond price is below the par value.
Answer: A
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33) The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to
maturity ________, the price of the bond ________.
A) positively; rises; rises
B) negatively; falls; falls
C) positively; rises; falls
D) negatively; rises; falls
Answer: D
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34) The yield to maturity is ________ than the ________ rate when the bond price is ________ its face
value.
A) greater; coupon; above
B) greater; coupon; below
C) greater; perpetuity; above
D) less; perpetuity; below
Answer: B
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35) A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A) 8 percent.
B) 10 percent.
C) 12 percent.
D) 14 percent.
Answer: A
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36) Which of the following $1,000 face-value securities has the highest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 12 percent coupon bond selling for $1,000
D) A 12 percent coupon bond selling for $1,100
Answer: C
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37) Which of the following $5,000 face-value securities has the highest to maturity?
A) A 6 percent coupon bond selling for $5,000
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500
Answer: D
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38) Which of the following $1,000 face-value securities has the highest yield to maturity?
A) A 5 percent coupon bond with a price of $600
B) A 5 percent coupon bond with a price of $800
C) A 5 percent coupon bond with a price of $1,000
D) A 5 percent coupon bond with a price of $1,200
Answer: A
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39) Which of the following $1,000 face-value securities has the lowest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 15 percent coupon bond selling for $1,000
D) A 15 percent coupon bond selling for $900
Answer: A
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40) Which of the following bonds would you prefer to be buying?
A) A $10,000 face-value security with a 10 percent coupon selling for $9,000
B) A $10,000 face-value security with a 7 percent coupon selling for $10,000
C) A $10,000 face-value security with a 9 percent coupon selling for $10,000
D) A $10,000 face-value security with a 10 percent coupon selling for $10,000
Answer: A
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41) A coupon bond that has no maturity date and no repayment of principal is called a
A) consol.
B) cabinet.
C) Treasury bill.
D) Treasury note.
Answer: A
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42) The price of a consol equals the coupon payment
A) times the interest rate.
B) plus the interest rate.
C) minus the interest rate.
D) divided by the interest rate.
Answer: D
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43) The interest rate on a consol equals the
A) price times the coupon payment.
B) price divided by the coupon payment.
C) coupon payment plus the price.
D) coupon payment divided by the price.
Answer: D
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44) A consol paying $20 annually when the interest rate is 5 percent has a price of
A) $100.
B) $200.
C) $400.
D) $800.
Answer: C
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45) If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is
A) 2.5 percent.
B) 5 percent.
C) 7.5 percent.
D) 10 percent.
Answer: B
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46) The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on
long-term coupon bonds. It is called the ________ when approximating the yield for a coupon
bond.
A) current yield
B) discount yield
C) future yield
D) star yield
Answer: A
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47) The yield to maturity for a one-year discount bond equals the increase in price over the year,
divided by the
A) initial price.
B) face value.
C) interest rate.
D) coupon rate.
Answer: A
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48) If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to
maturity is
A) 5 percent.
B) 10 percent.
C) 50 percent.
D) 100 percent.
Answer: D
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49) If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to
maturity is
A) 0 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.
Answer: A
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50) A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to
maturity of
A) 3 percent.
B) 20 percent.
C) 25 percent.
D) 33.3 percent.
Answer: D
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51) The yield to maturity for a discount bond is ________ related to the current bond price.
A) negatively
B) positively
C) not
D) directly
Answer: A
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52) In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because
A) of the high inflation rate.
B) these bills sold at a discount from face value.
C) the bills were denominated in small amounts and could be stored electronically.
D) the bills were denominated in large amounts and could be stored electronically.
Answer: D
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53) If the interest rate is 5%, what is the present value of a security that pays you $1, 050 next year
and $1,102.50 two years from now? If this security sold for $2200, is the yield to maturity greater
or less than 5%? Why?
Answer: PV = $1,050/(1. +.05) + $1,102.50/(1 + 0.5)2
PV = $2,000
If this security sold for $2200, the yield to maturity is less than 5%. The lower the interest
rate the higher the present value.
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Tuesday, 1 May 2018
The Fed revises its estimates of the monetary aggregates, sometimes by large amounts, because
3.5 How Reliable are the Money Data?
1) The Fed revises its estimates of the monetary aggregates, sometimes by large amounts, because
A) large depository institutions need only report their deposits infrequently.
B) weekly monetary data need to be adjusted for the ʺweekend effect.ʺ
C) monthly monetary data need to be adjusted for the ʺpayday effect.ʺ
D) seasonal adjustments become more precise only as more data becomes available.
Answer: D
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2) The Fed estimates initial monetary aggregate reports because ________ depository institutions
report the amount of their deposits infrequently.
A) all
B) small
C) large
D) state
Answer: B
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3) The increase in holiday spending is not the same every year causing the Fedʹs adjustment for
________ to be revised as more data becomes available.
A) seasonal variation
B) reporting discrepancy
C) market churning
D) transactions discrepancy
Answer: A
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4) An examination of revised money supply statistics, when compared to the initial statistics,
suggests that the initial statistics
A) are pretty good.
B) do not provide a good guide to short-run movements in the money supply.
C) provide a poor guide of monetary policy because they are usually underestimates of the
revised statistics.
D) provide a good guide of monetary policy, though they are usually underestimates of the
revised statistics.
Answer: B
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5) Generally, the initial money supply data reported by the Fed
A) is not a reliable guide to the short-run behavior of the money supply.
B) is not a reliable guide to the long-run behavior of the money supply.
C) is a reliable guide to the short-run behavior of the money supply.
D) usually underestimate the revised statistics.
Answer: A
Ques Status: Revised
6) The initial money supply data reported by the Fed are not a reliable guide to short -run
movements in the money supply such as a ________, but are reasonably reliable for longer
periods such as a ________.
A) month; year
B) day; month
C) year; decade
D) decade; century
Answer: A
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1) The Fed revises its estimates of the monetary aggregates, sometimes by large amounts, because
A) large depository institutions need only report their deposits infrequently.
B) weekly monetary data need to be adjusted for the ʺweekend effect.ʺ
C) monthly monetary data need to be adjusted for the ʺpayday effect.ʺ
D) seasonal adjustments become more precise only as more data becomes available.
Answer: D
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2) The Fed estimates initial monetary aggregate reports because ________ depository institutions
report the amount of their deposits infrequently.
A) all
B) small
C) large
D) state
Answer: B
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3) The increase in holiday spending is not the same every year causing the Fedʹs adjustment for
________ to be revised as more data becomes available.
A) seasonal variation
B) reporting discrepancy
C) market churning
D) transactions discrepancy
Answer: A
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4) An examination of revised money supply statistics, when compared to the initial statistics,
suggests that the initial statistics
A) are pretty good.
B) do not provide a good guide to short-run movements in the money supply.
C) provide a poor guide of monetary policy because they are usually underestimates of the
revised statistics.
D) provide a good guide of monetary policy, though they are usually underestimates of the
revised statistics.
Answer: B
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5) Generally, the initial money supply data reported by the Fed
A) is not a reliable guide to the short-run behavior of the money supply.
B) is not a reliable guide to the long-run behavior of the money supply.
C) is a reliable guide to the short-run behavior of the money supply.
D) usually underestimate the revised statistics.
Answer: A
Ques Status: Revised
6) The initial money supply data reported by the Fed are not a reliable guide to short -run
movements in the money supply such as a ________, but are reasonably reliable for longer
periods such as a ________.
A) month; year
B) day; month
C) year; decade
D) decade; century
Answer: A
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Recent financial innovation makes the Federal Reserveʹs job of conducting monetary policy
3.4 Measuring Money
1) Recent financial innovation makes the Federal Reserveʹs job of conducting monetary policy
A) easier, since the Fed now knows what to consider money.
B) more difficult, since the Fed now knows what to consider money.
C) easier, since the Fed no longer knows what to consider money.
D) more difficult, since the Fed no longer knows what to consider money.
Answer: D
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2) Defining money becomes ________ difficult as the pace of financial innovation ________.
A) less; quickens
B) more; quickens
C) more; slows
D) more; stops
Answer: B
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3) Monetary aggregates are
A) measures of the money supply reported by the Federal Reserve.
B) measures of the wealth of individuals.
C) never redefined since ʺmoneyʺ never changes.
D) reported by the Treasury Department annually.
Answer: A
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4) ________ is the narrowest monetary aggregate that the Fed reports.
A) M0
B) M1
C) M2
D) M3
Answer: B
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5) The currency component includes paper money and coins held in ________.
A) bank vaults
B) ATMs
C) the hands of the nonbank public
D) the central bank
Answer: C
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6) The components of the U.S. M1 money supply are demand and checkable deposits plus
A) currency.
B) currency plus savings deposits.
C) currency plus travelers checks.
D) currency plus travelers checks plus money market deposits.
Answer: C
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7) The M1 measure of money includes
A) small denomination time deposits.
B) travelerʹs checks.
C) money market deposit accounts.
D) money market mutual fund shares.
Answer: B
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8) Which of the following is not included in the measure of M1?
A) NOW accounts.
B) Demand deposits.
C) Currency.
D) Savings deposits.
Answer: D
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9) Which of the following is not included in the M1 measure of money but is included in the M2
measure of money?
A) Currency
B) Travelerʹs checks
C) Demand deposits
D) Small-denomination time deposits
Answer: D
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10) Which of the following is included in both M1 and M2?
A) Currency
B) Savings deposits
C) Small-denomination time deposits
D) Money market deposit accounts
Answer: A
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11) Which of the following is not included in the monetary aggregate M2?
A) Currency
B) Savings bonds
C) Travelerʹs checks
D) Checking deposits
Answer: B
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12) Which of the following is included in M2 but not in M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Money market mutual fund shares (retail)
Answer: D
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13) Of the following, the largest is
A) money market deposit accounts.
B) demand deposits.
C) M1.
D) M2.
Answer: D
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14) If an individual redeems a U.S. savings bond for currency
A) M1 stays the same and M2 decreases.
B) M1 increases and M2 increases.
C) M1 increases and M2 stays the same.
D) M1 stays the same and M2 stays the same.
Answer: B
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15) If an individual moves money from a small-denomination time deposit to a demand deposit
account,
A) M1 increases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: A
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16) If an individual moves money from a demand deposit account to a money market deposit
account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: A
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17) If an individual moves money from a savings deposit account to a money market deposit
account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: C
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18) If an individual moves money from currency to a demand deposit account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 stays the same.
Answer: C
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19) If an individual moves money from a money market deposit account to currency,
A) M1 increases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: A
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20) Small-denomination time deposits refer to certificates of deposit with a denomination of less
than ________.
A) $1,000
B) $10,000
C) $100,000
D) $1,000,000
Answer: C
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21) Which of the following statements accurately describes the two measures of the money supply?
A) The two measures do not move together, so they cannot be used interchangeably by
policymakers.
B) The two measuresʹ movements closely parallel each other, even on a month-to-month
basis.
C) Short-run movements in the money supply are extremely reliable.
D) M2 is the narrowest measure the Fed reports.
Answer: A
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22) The decade during which the growth rates of monetary aggregates diverged the most is
A) the 1960s.
B) the 1970s.
C) the 1980s.
D) the 1990s.
Answer: D
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23) Why are most of the U.S. dollars held outside of the United States?
Answer: Concern about high inflation eroding the value of their own currency causes many people
in foreign countries to hold U.S. dollars as a hedge against inflation risk.
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1) Recent financial innovation makes the Federal Reserveʹs job of conducting monetary policy
A) easier, since the Fed now knows what to consider money.
B) more difficult, since the Fed now knows what to consider money.
C) easier, since the Fed no longer knows what to consider money.
D) more difficult, since the Fed no longer knows what to consider money.
Answer: D
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2) Defining money becomes ________ difficult as the pace of financial innovation ________.
A) less; quickens
B) more; quickens
C) more; slows
D) more; stops
Answer: B
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3) Monetary aggregates are
A) measures of the money supply reported by the Federal Reserve.
B) measures of the wealth of individuals.
C) never redefined since ʺmoneyʺ never changes.
D) reported by the Treasury Department annually.
Answer: A
Ques Status: New
4) ________ is the narrowest monetary aggregate that the Fed reports.
A) M0
B) M1
C) M2
D) M3
Answer: B
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5) The currency component includes paper money and coins held in ________.
A) bank vaults
B) ATMs
C) the hands of the nonbank public
D) the central bank
Answer: C
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6) The components of the U.S. M1 money supply are demand and checkable deposits plus
A) currency.
B) currency plus savings deposits.
C) currency plus travelers checks.
D) currency plus travelers checks plus money market deposits.
Answer: C
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7) The M1 measure of money includes
A) small denomination time deposits.
B) travelerʹs checks.
C) money market deposit accounts.
D) money market mutual fund shares.
Answer: B
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8) Which of the following is not included in the measure of M1?
A) NOW accounts.
B) Demand deposits.
C) Currency.
D) Savings deposits.
Answer: D
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9) Which of the following is not included in the M1 measure of money but is included in the M2
measure of money?
A) Currency
B) Travelerʹs checks
C) Demand deposits
D) Small-denomination time deposits
Answer: D
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10) Which of the following is included in both M1 and M2?
A) Currency
B) Savings deposits
C) Small-denomination time deposits
D) Money market deposit accounts
Answer: A
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11) Which of the following is not included in the monetary aggregate M2?
A) Currency
B) Savings bonds
C) Travelerʹs checks
D) Checking deposits
Answer: B
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12) Which of the following is included in M2 but not in M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Money market mutual fund shares (retail)
Answer: D
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13) Of the following, the largest is
A) money market deposit accounts.
B) demand deposits.
C) M1.
D) M2.
Answer: D
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14) If an individual redeems a U.S. savings bond for currency
A) M1 stays the same and M2 decreases.
B) M1 increases and M2 increases.
C) M1 increases and M2 stays the same.
D) M1 stays the same and M2 stays the same.
Answer: B
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15) If an individual moves money from a small-denomination time deposit to a demand deposit
account,
A) M1 increases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: A
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16) If an individual moves money from a demand deposit account to a money market deposit
account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: A
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17) If an individual moves money from a savings deposit account to a money market deposit
account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: C
Ques Status: Previous Edition
18) If an individual moves money from currency to a demand deposit account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 stays the same.
Answer: C
Ques Status: Previous Edition
19) If an individual moves money from a money market deposit account to currency,
A) M1 increases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.
Answer: A
Ques Status: Previous Edition
20) Small-denomination time deposits refer to certificates of deposit with a denomination of less
than ________.
A) $1,000
B) $10,000
C) $100,000
D) $1,000,000
Answer: C
Ques Status: Previous Edition
21) Which of the following statements accurately describes the two measures of the money supply?
A) The two measures do not move together, so they cannot be used interchangeably by
policymakers.
B) The two measuresʹ movements closely parallel each other, even on a month-to-month
basis.
C) Short-run movements in the money supply are extremely reliable.
D) M2 is the narrowest measure the Fed reports.
Answer: A
Ques Status: Previous Edition
22) The decade during which the growth rates of monetary aggregates diverged the most is
A) the 1960s.
B) the 1970s.
C) the 1980s.
D) the 1990s.
Answer: D
Ques Status: Previous Edition
23) Why are most of the U.S. dollars held outside of the United States?
Answer: Concern about high inflation eroding the value of their own currency causes many people
in foreign countries to hold U.S. dollars as a hedge against inflation risk.
Ques Status: Previous Edition
As the payments system evolves from barter to a monetary system,
3.3 Evolution of the Payments System
1) The payments system is
A) the method of conducting transactions in the economy.
B) used by union officials to set salary caps.
C) an illegal method of rewarding contracts.
D) used by your employer to determine salary increases.
Answer: A
Ques Status: New
2) As the payments system evolves from barter to a monetary system,
A) commodity money is likely to precede the use of paper currency.
B) transaction costs increase.
C) the number of prices that need to be calculated increase rather dramatically.
D) specialization decreases.
Answer: A
Ques Status: Previous Edition
3) A disadvantage of ________ is that it is very heavy and hard to transport from one place to
another.
A) commodity money
B) fiat money
C) electronic money
D) paper money
Answer: A
Ques Status: Previous Edition
4) Paper currency that has been declared legal tender but is not convertible into coins or precious
metals is called ________ money.
A) commodity
B) fiat
C) electronic
D) funny
Answer: B
Ques Status: Previous Edition
5) When paper currency is decreed by governments as legal tender, legally it must be ________.
A) paper currency backed by gold
B) a precious metal such as gold or silver
C) accepted as payment for debts
D) convertible into an electronic payment
Answer: C
Ques Status: Previous Edition
6) The evolution of the payments system from barter to precious metals, then to fiat money, then to
checks can best be understood as a consequence of the fact that
A) paper is more costly to produce than precious metals.
B) precious metals were not generally acceptable.
C) precious metals were difficult to carry and transport.
D) paper money is less accepted than checks.
Answer: C
Ques Status: Previous Edition
7) Compared to checks, paper currency and coins have the major drawbacks that they
A) are easily stolen.
B) are hard to counterfeit.
C) are not the most liquid assets.
D) must be backed by gold.
Answer: A
Ques Status: Previous Edition
8) Introduction of checks into the payments system reduced the costs of exchanging goods and
services. Another advantage of checks is that
A) they provide convenient receipts for purchases.
B) they can never be stolen.
C) they are more widely accepted than currency.
D) the funds from a deposited check are available for use immediately.
Answer: A
Ques Status: New
9) The evolution of the payments system from barter to precious metals, then to fiat money, then to
checks can best be understood as a consequence of
A) government regulations designed to improve the efficiency of the payments system.
B) government regulations designed to promote the safety of the payments system.
C) innovations that reduced the costs of exchanging goods and services.
D) competition among firms to make it easier for customers to purchase their products.
Answer: C
Ques Status: Previous Edition
10) Compared to an electronic payments system, a payments system based on checks has the major
drawback that
A) checks are less costly to process.
B) checks take longer to process, meaning that it may take several days before the depositor
can get her cash.
C) fraud may be more difficult to commit when paper receipts are eliminated.
D) legal liability is more clearly defined.
Answer: B
Ques Status: Previous Edition
11) Which of the following sequences accurately describes the evolution of the payments system?
A) Barter, coins made of precious metals, paper currency, checks, electronic funds transfers
B) Barter, coins made of precious metals, checks, paper currency, electronic funds transfers
C) Barter, checks, paper currency, coins made of precious metals, electronic funds transfers
D) Barter, checks, paper currency, electronic funds transfers
Answer: A
Ques Status: Previous Edition
12) During the past two decades an important characteristic of the modern payments system has
been the rapidly increasing use of
A) checks and decreasing use of currency.
B) electronic fund transfers.
C) commodity monies.
D) fiat money.
Answer: B
Ques Status: Previous Edition
13) Which of the following is not a form of e-money?
A) a debit card
B) a credit card
C) a stored-value card
D) a smart card
Answer: B
Ques Status: Previous Edition
14) A smart card is the equivalent of
A) cash.
B) savings bonds.
C) savings deposits.
D) certificates of deposit.
Answer: A
Ques Status: Previous Edition
15) An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except
A) expensive equipment is necessary to set up the system.
B) security concerns.
C) privacy concerns.
D) transportation costs.
Answer: D
Ques Status: Revised
16) In explaining the evolution of money
A) government regulation is the most important factor.
B) commodity money, because it is valued more highly, tends to drive out paper money.
C) new forms of money evolve to lower transaction costs.
D) paper money is always backed by gold and therefore more desirable than checks.
Answer: C
Ques Status: Previous Edition
17) What factors have slowed down the movement to a system where all payments are made
electronically?
Answer: The equipment necessary to set up the system is expensive, security of the information,
and privacy concerns are issues that need to be addressed before an electronic payments
system will be widely accepted.
Ques Status: Previous Edition
1) The payments system is
A) the method of conducting transactions in the economy.
B) used by union officials to set salary caps.
C) an illegal method of rewarding contracts.
D) used by your employer to determine salary increases.
Answer: A
Ques Status: New
2) As the payments system evolves from barter to a monetary system,
A) commodity money is likely to precede the use of paper currency.
B) transaction costs increase.
C) the number of prices that need to be calculated increase rather dramatically.
D) specialization decreases.
Answer: A
Ques Status: Previous Edition
3) A disadvantage of ________ is that it is very heavy and hard to transport from one place to
another.
A) commodity money
B) fiat money
C) electronic money
D) paper money
Answer: A
Ques Status: Previous Edition
4) Paper currency that has been declared legal tender but is not convertible into coins or precious
metals is called ________ money.
A) commodity
B) fiat
C) electronic
D) funny
Answer: B
Ques Status: Previous Edition
5) When paper currency is decreed by governments as legal tender, legally it must be ________.
A) paper currency backed by gold
B) a precious metal such as gold or silver
C) accepted as payment for debts
D) convertible into an electronic payment
Answer: C
Ques Status: Previous Edition
6) The evolution of the payments system from barter to precious metals, then to fiat money, then to
checks can best be understood as a consequence of the fact that
A) paper is more costly to produce than precious metals.
B) precious metals were not generally acceptable.
C) precious metals were difficult to carry and transport.
D) paper money is less accepted than checks.
Answer: C
Ques Status: Previous Edition
7) Compared to checks, paper currency and coins have the major drawbacks that they
A) are easily stolen.
B) are hard to counterfeit.
C) are not the most liquid assets.
D) must be backed by gold.
Answer: A
Ques Status: Previous Edition
8) Introduction of checks into the payments system reduced the costs of exchanging goods and
services. Another advantage of checks is that
A) they provide convenient receipts for purchases.
B) they can never be stolen.
C) they are more widely accepted than currency.
D) the funds from a deposited check are available for use immediately.
Answer: A
Ques Status: New
9) The evolution of the payments system from barter to precious metals, then to fiat money, then to
checks can best be understood as a consequence of
A) government regulations designed to improve the efficiency of the payments system.
B) government regulations designed to promote the safety of the payments system.
C) innovations that reduced the costs of exchanging goods and services.
D) competition among firms to make it easier for customers to purchase their products.
Answer: C
Ques Status: Previous Edition
10) Compared to an electronic payments system, a payments system based on checks has the major
drawback that
A) checks are less costly to process.
B) checks take longer to process, meaning that it may take several days before the depositor
can get her cash.
C) fraud may be more difficult to commit when paper receipts are eliminated.
D) legal liability is more clearly defined.
Answer: B
Ques Status: Previous Edition
11) Which of the following sequences accurately describes the evolution of the payments system?
A) Barter, coins made of precious metals, paper currency, checks, electronic funds transfers
B) Barter, coins made of precious metals, checks, paper currency, electronic funds transfers
C) Barter, checks, paper currency, coins made of precious metals, electronic funds transfers
D) Barter, checks, paper currency, electronic funds transfers
Answer: A
Ques Status: Previous Edition
12) During the past two decades an important characteristic of the modern payments system has
been the rapidly increasing use of
A) checks and decreasing use of currency.
B) electronic fund transfers.
C) commodity monies.
D) fiat money.
Answer: B
Ques Status: Previous Edition
13) Which of the following is not a form of e-money?
A) a debit card
B) a credit card
C) a stored-value card
D) a smart card
Answer: B
Ques Status: Previous Edition
14) A smart card is the equivalent of
A) cash.
B) savings bonds.
C) savings deposits.
D) certificates of deposit.
Answer: A
Ques Status: Previous Edition
15) An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except
A) expensive equipment is necessary to set up the system.
B) security concerns.
C) privacy concerns.
D) transportation costs.
Answer: D
Ques Status: Revised
16) In explaining the evolution of money
A) government regulation is the most important factor.
B) commodity money, because it is valued more highly, tends to drive out paper money.
C) new forms of money evolve to lower transaction costs.
D) paper money is always backed by gold and therefore more desirable than checks.
Answer: C
Ques Status: Previous Edition
17) What factors have slowed down the movement to a system where all payments are made
electronically?
Answer: The equipment necessary to set up the system is expensive, security of the information,
and privacy concerns are issues that need to be addressed before an electronic payments
system will be widely accepted.
Ques Status: Previous Edition
Of moneyʹs three functions, the one that distinguishes money from other assets is its function as a
3.2 Functions of Money
1) Of moneyʹs 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
Ques Status: Previous Edition
2) 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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
5) 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
Ques Status: Previous Edition
6) 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
Ques Status: Previous Edition
7) 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
Ques Status: Previous Edition
8) When economists say that money promotes ________, they mean that money encourages
specialization and the division of labor.
A) bargaining
B) contracting
C) efficiency
D) greed
Answer: C
Ques Status: Previous Edition
9) Money ________ transaction costs, allowing people to specialize in what they do best.
A) reduces
B) increases
C) enhances
D) eliminates
Answer: A
Ques Status: Previous Edition
10) 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
Ques Status: Previous Edition
11) 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
Ques Status: New
12) 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
Ques Status: Previous Edition
13) 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
Ques Status: Previous Edition
14) 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
Ques Status: Previous Edition
15) 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
Ques Status: Previous Edition
16) 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
Ques Status: Previous Edition
17) 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
Ques Status: Previous Edition
18) 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
Ques Status: Previous Edition
19) 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
Ques Status: Previous Edition
20) 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
Ques Status: Previous Edition
21) 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
Ques Status: Previous Edition
22) 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
Ques Status: Revised
23) 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
Ques Status: Revised
24) ________ 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
Ques Status: Previous Edition
25) Increasing transactions costs of selling an asset make the asset
A) more valuable.
B) more liquid.
C) less liquid.
D) more moneylike.
Answer: C
Ques Status: Previous Edition
26) 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
Ques Status: New
27) Of the following assets, the least liquid is
A) stocks.
B) travelerʹs checks.
C) checking deposits.
D) a house.
Answer: D
Ques Status: Previous Edition
28) 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
Ques Status: Previous Edition
29) 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
A) extremely 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
Ques Status: Previous Edition
30) 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 50 percent.
Answer: D
Ques Status: Previous Edition
31) 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
Ques Status: Previous Edition
32) A hyperinflation is
A) a period of extreme inflation generally greater than 50% 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
Ques Status: New
33) 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) moneyʹs value remains fixed to the price level; that is, if prices double so does the value of
money.
Answer: B
Ques Status: Previous Edition
34) Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one
can conclude that the German economy suffered from
A) deflation.
B) disinflation.
C) hyperinflation.
D) superdeflation.
Answer: C
Ques Status: Revised
35) 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
Ques Status: Previous Edition
36) Explain how cigarettes could be called ʺmoneyʺ 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.
Ques Status: Previous Edition
1) Of moneyʹs 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
Ques Status: Previous Edition
2) 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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
5) 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
Ques Status: Previous Edition
6) 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
Ques Status: Previous Edition
7) 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
Ques Status: Previous Edition
8) When economists say that money promotes ________, they mean that money encourages
specialization and the division of labor.
A) bargaining
B) contracting
C) efficiency
D) greed
Answer: C
Ques Status: Previous Edition
9) Money ________ transaction costs, allowing people to specialize in what they do best.
A) reduces
B) increases
C) enhances
D) eliminates
Answer: A
Ques Status: Previous Edition
10) 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
Ques Status: Previous Edition
11) 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
Ques Status: New
12) 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
Ques Status: Previous Edition
13) 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
Ques Status: Previous Edition
14) 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
Ques Status: Previous Edition
15) 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
Ques Status: Previous Edition
16) 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
Ques Status: Previous Edition
17) 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
Ques Status: Previous Edition
18) 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
Ques Status: Previous Edition
19) 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
Ques Status: Previous Edition
20) 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
Ques Status: Previous Edition
21) 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
Ques Status: Previous Edition
22) 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
Ques Status: Revised
23) 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
Ques Status: Revised
24) ________ 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
Ques Status: Previous Edition
25) Increasing transactions costs of selling an asset make the asset
A) more valuable.
B) more liquid.
C) less liquid.
D) more moneylike.
Answer: C
Ques Status: Previous Edition
26) 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
Ques Status: New
27) Of the following assets, the least liquid is
A) stocks.
B) travelerʹs checks.
C) checking deposits.
D) a house.
Answer: D
Ques Status: Previous Edition
28) 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
Ques Status: Previous Edition
29) 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
A) extremely 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
Ques Status: Previous Edition
30) 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 50 percent.
Answer: D
Ques Status: Previous Edition
31) 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
Ques Status: Previous Edition
32) A hyperinflation is
A) a period of extreme inflation generally greater than 50% 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
Ques Status: New
33) 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) moneyʹs value remains fixed to the price level; that is, if prices double so does the value of
money.
Answer: B
Ques Status: Previous Edition
34) Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one
can conclude that the German economy suffered from
A) deflation.
B) disinflation.
C) hyperinflation.
D) superdeflation.
Answer: C
Ques Status: Revised
35) 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
Ques Status: Previous Edition
36) Explain how cigarettes could be called ʺmoneyʺ 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.
Ques Status: Previous Edition
Which of the following statements uses the economistsʹ definition of money?
3.1 Meaning of Money
1) 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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
3) Currency includes
A) paper money and coins.
B) paper money, coins, and checks.
C) paper money and checks.
D) paper money, coins, checks, and savings deposits.
Answer: A
Ques Status: Previous Edition
4) Even economists have no single, precise definition of money because
A) money supply statistics are a state secret.
B) the Federal Reserve does not employ or report different measures of the money supply.
C) the ʺmoneynessʺ or liquidity of an asset is a matter of degree.
D) economists find disagreement interesting and refuse to agree for ideological reasons.
Answer: C
Ques Status: Revised
5) The total collection of pieces of property that serve to store value is a personʹs
A) wealth.
B) income.
C) money.
D) credit.
Answer: A
Ques Status: New
6) A personʹs house is part of her
A) money.
B) income.
C) liabilities.
D) wealth.
Answer: D
Ques Status: Previous Edition
7) ________ 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
Ques Status: Previous Edition
8) ________ is a flow of earnings per unit of time.
A) Income
B) Money
C) Wealth
D) Currency
Answer: A
Ques Status: Previous Edition
9) An individualʹs annual salary is her
A) money.
B) income.
C) wealth.
D) liabilities.
Answer: B
Ques Status: Previous Edition
10) 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
Ques Status: New
11) 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 differencemoney and income are both stocks.
D) there is no differencemoney and income are both flows.
Answer: B
Ques Status: Previous Edition
12) 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
Ques Status: Revised
13) Which of the following statements uses the economistsʹ definition of money?
A) I plan to earn a lot of money over the summer.
B) Betsy is richshe 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
Ques Status: Previous Edition
1) 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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
3) Currency includes
A) paper money and coins.
B) paper money, coins, and checks.
C) paper money and checks.
D) paper money, coins, checks, and savings deposits.
Answer: A
Ques Status: Previous Edition
4) Even economists have no single, precise definition of money because
A) money supply statistics are a state secret.
B) the Federal Reserve does not employ or report different measures of the money supply.
C) the ʺmoneynessʺ or liquidity of an asset is a matter of degree.
D) economists find disagreement interesting and refuse to agree for ideological reasons.
Answer: C
Ques Status: Revised
5) The total collection of pieces of property that serve to store value is a personʹs
A) wealth.
B) income.
C) money.
D) credit.
Answer: A
Ques Status: New
6) A personʹs house is part of her
A) money.
B) income.
C) liabilities.
D) wealth.
Answer: D
Ques Status: Previous Edition
7) ________ 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
Ques Status: Previous Edition
8) ________ is a flow of earnings per unit of time.
A) Income
B) Money
C) Wealth
D) Currency
Answer: A
Ques Status: Previous Edition
9) An individualʹs annual salary is her
A) money.
B) income.
C) wealth.
D) liabilities.
Answer: B
Ques Status: Previous Edition
10) 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
Ques Status: New
11) 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 differencemoney and income are both stocks.
D) there is no differencemoney and income are both flows.
Answer: B
Ques Status: Previous Edition
12) 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
Ques Status: Revised
13) Which of the following statements uses the economistsʹ definition of money?
A) I plan to earn a lot of money over the summer.
B) Betsy is richshe 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
Ques Status: Previous Edition
Which of the following is not a goal of financial regulation?
2.7 Regulation of the Financial System
1) Which of the following is not a goal of financial regulation?
A) Ensuring the soundness of the financial system
B) Reducing moral hazard
C) Reducing adverse selection
D) Ensuring that investors never suffer losses
Answer: D
Ques Status: Previous Edition
2) Increasing the amount of information available to investors helps to reduce the problems of
________ and ________ in the financial markets.
A) adverse selection; moral hazard
B) adverse selection; risk sharing
C) moral hazard; transactions costs
D) adverse selection; economies of scale
Answer: A
Ques Status: New
3) A goal of the Securities and Exchange Commission is to reduce problems arising from
A) competition.
B) banking panics.
C) risk.
D) asymmetric information.
Answer: D
Ques Status: Previous Edition
4) The purpose of the disclosure requirements of the Securities and Exchange Commission is to
A) increase the information available to investors.
B) prevent bank panics.
C) improve monetary control.
D) protect investors against financial losses.
Answer: A
Ques Status: Previous Edition
5) Government regulations to reduce the possibility of financial panic include all of the following
except
A) transactions costs.
B) restrictions on assets and activities.
C) disclosure.
D) deposit insurance.
Answer: A
Ques Status: New
6) Which of the following do not provide charters?
A) The Office of the Comptroller of the Currency
B) The Federal Reserve System
C) The National Credit Union Administration
D) State banking and insurance commissions
Answer: B
Ques Status: Previous Edition
7) A restriction on bank activities that was repealed in 1999 was
A) the prohibition of the payment of interest on checking deposits.
B) restrictions on credit terms.
C) minimum down payments on loans to purchase securities.
D) separation of commercial banking from the securities industries.
Answer: D
Ques Status: Revised
8) In order to reduce risk and increase the safety of financial institutions, commercial banks and
other depository institutions are prohibited from
A) owning municipal bonds.
B) making real estate loans.
C) making personal loans.
D) owning common stock.
Answer: D
Ques Status: Previous Edition
9) The primary purpose of deposit insurance is to
A) improve the flow of information to investors.
B) prevent banking panics.
C) protect bank shareholders against losses.
D) protect bank employees from unemployment.
Answer: B
Ques Status: Previous Edition
10) The agency that was created to protect depositors after the banking failures of 1930 -1933 is the
A) Federal Reserve System.
B) Federal Deposit Insurance Corporation.
C) Treasury Department.
D) Office of the Comptroller of the Currency.
Answer: B
Ques Status: Previous Edition
11) Savings and loan associations are regulated by the
A) Federal Reserve System.
B) Securities and Exchange Commission.
C) Office of the Comptroller of the Currency.
D) Office of Thrift Supervision.
Answer: D
Ques Status: Previous Edition
12) The regulatory agency that sets reserve requirements for all banks is
A) the Federal Reserve System.
B) the Federal Deposit Insurance Corporation.
C) the Office of Thrift Supervision.
D) the Securities and Exchange Commission.
Answer: A
Ques Status: New
13) Asymmetric information is a universal problem. This would suggest that financial regulations
A) in industrial countries are an unqualified failure.
B) differ significantly around the world.
C) in industrialized nations are similar.
D) are unnecessary.
Answer: C
Ques Status: Previous Edition
14) How do regulators help to ensure the soundness of financial intermediaries?
Answer: Regulators restrict who can set up a financial intermediary, conduct regular
examinations, restrict assets, and provide insurance to help ensure the soundness of
financial intermediaries.
Ques Status: Previous Edition
1) Which of the following is not a goal of financial regulation?
A) Ensuring the soundness of the financial system
B) Reducing moral hazard
C) Reducing adverse selection
D) Ensuring that investors never suffer losses
Answer: D
Ques Status: Previous Edition
2) Increasing the amount of information available to investors helps to reduce the problems of
________ and ________ in the financial markets.
A) adverse selection; moral hazard
B) adverse selection; risk sharing
C) moral hazard; transactions costs
D) adverse selection; economies of scale
Answer: A
Ques Status: New
3) A goal of the Securities and Exchange Commission is to reduce problems arising from
A) competition.
B) banking panics.
C) risk.
D) asymmetric information.
Answer: D
Ques Status: Previous Edition
4) The purpose of the disclosure requirements of the Securities and Exchange Commission is to
A) increase the information available to investors.
B) prevent bank panics.
C) improve monetary control.
D) protect investors against financial losses.
Answer: A
Ques Status: Previous Edition
5) Government regulations to reduce the possibility of financial panic include all of the following
except
A) transactions costs.
B) restrictions on assets and activities.
C) disclosure.
D) deposit insurance.
Answer: A
Ques Status: New
6) Which of the following do not provide charters?
A) The Office of the Comptroller of the Currency
B) The Federal Reserve System
C) The National Credit Union Administration
D) State banking and insurance commissions
Answer: B
Ques Status: Previous Edition
7) A restriction on bank activities that was repealed in 1999 was
A) the prohibition of the payment of interest on checking deposits.
B) restrictions on credit terms.
C) minimum down payments on loans to purchase securities.
D) separation of commercial banking from the securities industries.
Answer: D
Ques Status: Revised
8) In order to reduce risk and increase the safety of financial institutions, commercial banks and
other depository institutions are prohibited from
A) owning municipal bonds.
B) making real estate loans.
C) making personal loans.
D) owning common stock.
Answer: D
Ques Status: Previous Edition
9) The primary purpose of deposit insurance is to
A) improve the flow of information to investors.
B) prevent banking panics.
C) protect bank shareholders against losses.
D) protect bank employees from unemployment.
Answer: B
Ques Status: Previous Edition
10) The agency that was created to protect depositors after the banking failures of 1930 -1933 is the
A) Federal Reserve System.
B) Federal Deposit Insurance Corporation.
C) Treasury Department.
D) Office of the Comptroller of the Currency.
Answer: B
Ques Status: Previous Edition
11) Savings and loan associations are regulated by the
A) Federal Reserve System.
B) Securities and Exchange Commission.
C) Office of the Comptroller of the Currency.
D) Office of Thrift Supervision.
Answer: D
Ques Status: Previous Edition
12) The regulatory agency that sets reserve requirements for all banks is
A) the Federal Reserve System.
B) the Federal Deposit Insurance Corporation.
C) the Office of Thrift Supervision.
D) the Securities and Exchange Commission.
Answer: A
Ques Status: New
13) Asymmetric information is a universal problem. This would suggest that financial regulations
A) in industrial countries are an unqualified failure.
B) differ significantly around the world.
C) in industrialized nations are similar.
D) are unnecessary.
Answer: C
Ques Status: Previous Edition
14) How do regulators help to ensure the soundness of financial intermediaries?
Answer: Regulators restrict who can set up a financial intermediary, conduct regular
examinations, restrict assets, and provide insurance to help ensure the soundness of
financial intermediaries.
Ques Status: Previous Edition
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