Chapter 02 – Money and the Payments System
Multiple Choice Questions
1. Which of the following would not be considered a characteristic of money?
A. It is a store of value
2. A society without any money:
A. Could never exchange goods and/or services
3. The use of money makes us more efficient because:
D. Money increases in value over time
Chapter 02 – Money and the Payments System
4. The unit of account characteristic of money:
A. Makes it difficult to compare the relative prices of goods and services
5. Without the use of money, workers in an economy:
A. Would become more specialized
6. As an economy produces more different types of goods:
D. Money becomes less useful as a standard of value
Chapter 02 – Money and the Payments System
7. The store of value characteristic of money refers to the fact that:
D. Money is the only way people have to store value
8. Which best describes money as a means of payment?
D. To obtain a double coincidence of wants without money is impossible
9. Compare two economies: a barter economy versus an economy that uses money. In order to
exchange goods and services:
Chapter 02 – Money and the Payments System
10. In a barter system:
A. People have to specialize in order to have goods to trade
11. How many prices would a trader of a particular good need to know in a barter economy
with 5 goods?
D. 50
12. How many prices would a trader of a particular good need to know in a barter economy
with 20 goods?
D. 40
Chapter 02 – Money and the Payments System
13. In a barter economy with “n” number of goods there will always be:
A. Exactly “n” relative prices
14. The high transaction costs associated with a barter system refers to:
A. The fact that, often times, these exchanges are taxed by governments
15. Suppose that in a barter economy Tom bakes bread and Hans produces chocolates. Tom
wants chocolates but Hans doesn’t like bread, so Hans is unwilling to trade with Tom. Tom’s
problem is an example of which problem associated with a barter system?
A. Too much specialization
Chapter 02 – Money and the Payments System
16. Specialization usually increases the output of a country; however effective specialization
requires:
17. Which of the following is not an example of bartering?
D. Mrs. Smith treating the neighbor children to pizza after they helped clean up her yard
18. Money eliminates the need for:
D. Financial Intermediaries
Chapter 02 – Money and the Payments System
19. Money as a means of payments refers only to:
20. While money is an asset not all assets are money because:
D. Money must be legal tender
21. An advantage that money has over other assets is that it:
D. Is a safer asset to hold during times of inflation
Chapter 02 – Money and the Payments System
22. An individual who stores wealth in art rather than money will find that he/she:
A. Suffers larger real losses during periods of high inflation
D. Wealth is a store of value but is not a means of payment
24. Which of the following statement is incorrect?
D. All items considered wealth can eventually be converted to a means of payment
Chapter 02 – Money and the Payments System
25. Which of the following statements is not true?
A. For most of history gold has been the most common commodity money
26. Gold would be a superior commodity money compared to wheat because:
A. Wheat has a high value relative to weight, which gold does not
27. The fact that U.S. currency is legal tender means:
A. U.S. currency is good anywhere in the world
Chapter 02 – Money and the Payments System
28. In comparing money to a U.S. Treasury bond held by an individual, we can say:
A. The Treasury bond is an asset but money is not
29. In comparing money to a U.S. Treasury bond held by an individual, we can say:
A. Both are legal tender
30. In comparing money to a share of Microsoft stock held by an individual, we can say:
D. Both the Microsoft stock and the money are liabilities
Chapter 02 – Money and the Payments System
31. Comparing checks and currency, we can say:
A. Both are money but only currency is legal tender
32. When the Continental Congress issued currency to finance the Revolutionary War, the
Continental Congress:
D. Made “continentals” legal tender
33. During the Civil War, the North issued currency, known as “greenbacks”. Which of the
D. Greenbacks are a historical example of commodity money
Chapter 02 – Money and the Payments System
34. Most of the non-cash retail payments made each year in the United States are made by:
A. Check
35. All of the following are true about electronic funds transfers except:
A. Sometimes involve the Federal Reserve sending electronic images of checks to banks
36. Carlos pays his cable bill using his bank’s internet banking web site to withdraw funds
D. Fedwire transaction
Chapter 02 – Money and the Payments System
37. As a result of “Check 21—The Check Clearing for the 21st Century Act”:
D. The Federal Reserve is no longer involved in the check-clearing process
38. The value of fiat money:
A. Comes from its intrinsic value
39. Which of the following could not be used as commodity money?
A. Gold coins
Chapter 02 – Money and the Payments System
40. U.S. currency is
D. The only store of value
D. Not acceptable by the U.S. Government for payment of taxes
42. One major difference between a debit card and a credit card is:
A. Only the debit card helps you to build a credit history
Chapter 02 – Money and the Payments System
43. One major difference between a debit and credit card is:
D. Debit cards charge late fees
44. To say an asset is liquid implies that:
D. We are only considering U.S. currency
45. One advantage of using checks over a debit card is:
A. Checks can be replaced if lost or stolen, a debit card cannot
Chapter 02 – Money and the Payments System
D. Checks are not included in measures of money, whereas currency is
47. Money aggregates can best be defined as a set of measures of the amount of:
D. U.S. currency the Bureau of Printing and Engraving has produced
48. The money aggregate M1 includes each of the following, except:
A. Currency in the hands of the public
Chapter 02 – Money and the Payments System
49. The amount of currency in the hands of the public is approximately what percentage of
M1?
D. 90%
50. The money aggregate M2 includes:
A. Large denomination time deposits
51. The most commonly quoted monetary aggregate is:
A. Money-market mutual fund shares
Chapter 02 – Money and the Payments System
52. An automobile is an asset, but it is not liquid because:
D. The automobile cannot be sold without a loss in value
53. Which of the following lists correctly orders assets from most liquid to least liquid?
A. Stocks¼house¼paper currency¼savings deposits
54. Which of the following assets is the most liquid?
D. Stocks
Chapter 02 – Money and the Payments System
55. Considering the roughly $880 billion in U.S. currency held by the public:
D. The Federal Reserve distributes the amount equally across all denominations of bills
56. Ava buys a $2,000 computer using a paper check. At which step does $2,000 get recorded
in M1?
D. The check is never M1. The $2000 is M1 both in Ava’s bank account and, later, in the
merchant’s account. It is the deposit balance that is counted
57. Sophia receives a $400 gift card for her campus bookstore from her parents. Which of the
following is true regarding the $400 gift card?
A. It is counted only in M1
Chapter 02 – Money and the Payments System
58. Gross Domestic Product in the U.S. is roughly:
A. Equal to M1
59. M1 is:
D. About one fourth the amount of GDP
60. Recently, M1 has become:
A. A more useful measure of the relationship between the money supply and inflation because