The Monetary System
Multiple Choice – Section 00: Introduction
1. You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency
a. has no intrinsic value. The exchange is an example of barter.
b. has no intrinsic value. The exchange is not an example of barter.
c. has intrinsic value. The exchange is not an example of barter.
d. has intrinsic value. The exchange is not an example of barter.
2. Which of the following is an example of barter?
a. A parent gives a teenager a $10 bill in exchange for her babysitting services.
b. A homeowner gives an exterminator a check for $50 in exchange for extermination services.
c. A barber gives a plumber a haircut in exchange for the plumber fixing the barber’s leaky faucet.
d. All of the above are examples of barter.
7092 The Monetary System
3. A double coincidence of wants
a. is required when there is no item in an economy that is widely accepted in exchange for goods
and services.
b. is required in an economy that relies on barter.
c. is a hindrance to the allocation of resources when it is required for trade.
d. All of the above are correct.
4. Consider the following traders who meet.
Bill
has an eggplant
wants a head of cabbage
Tim
has a head of lettuce
wants a cucumber
Mike
has a tomato
wants an eggplant
Amy
has a cucumber
wants a head of lettuce
Which, if any, pairs of traders has a double coincidence of wants?
a. Bill with Mike
b. Time with Amy
c. Bill with Mike, and Tim with Amy
d. Bill with Tim, and Mike with Amy
The Monetary System 7093
5. Consider four survivors on an island.
Ron
has a cooking pot
wants a machete
Alice
has a machete
wants a fishing spear
Raymond
has a machete
wants a cooking pot
Lee
has a fishing spear
wants a coconut
Which of the following pairs of survivors has a double-coincidence of wants?
a. Ron with Alice, and Ron with Lee
b. Alice with Lee
c. Ron with Raymond
d. None of the above are correct.
7094 The Monetary System
6. Consider five individuals with different occupations.
prepares taxes
wants ribs
does dry cleaning
wants computer fixed
fixes computers
wants bread
bakes bread
wants taxes prepared
barbecues ribs
wants dry cleaning
In a barter system which of the following pairs has a double coincidence of wants?
a. Allen and Eric
b. Diedre and Calvin
c. Both A and B are correct.
d. None of the above are correct.
The Monetary System 7095
7. Consider five individuals with different occupations.
prepares taxes
wants ribs
does dry cleaning
wants computer fixed
fixes computers
wants bread
bakes bread
wants taxes prepared
barbecues ribs
wants dry cleaning
If this economy has money
a. Allen will buy from Betty
b. Betty will buy from Calvin
c. Eric will buy from Allen
d. None of the above are correct.
7096 The Monetary System
8. Consider five high school students working on homework in study hall.
has math homework
wants science homework
has English homework
wants history homework
has math homework
wants science homework
has science homework
wants English homework
has science homework
wants math homework
Which of the following pairs of students has a double coincidence of wants?
a. Rosie and Piper
b. Piper and Molly
c. Dewey and Molly
d. Bob and Dewey
The Monetary System 7097
9. Consider five individuals with different occupations.
provides legal advice
wants knives sharpened
grows tomatoes
wants legal advice
styles hair
wants tomatoes
brews beer
wants knives sharpened
sharpens knives
wants beer
Which of the following pairs of individuals has a double coincidence of wants?
a. Mary and Clark
b. Clark and Nathan
c. Nathan and Polly
d. Polly and Paul
10. Money
a. is more efficient than barter.
b. makes trades easier.
c. allows greater specialization.
d. All of the above are correct.
7098 The Monetary System
11. In an economy that relies upon barter,
a. trade does not require a double coincidence of wants.
b. scarce resources are allocated just as easily as they are in economies that do not rely upon
barter.
c. there is no item in the economy that is widely accepted in exchange for goods and services.
d. All of the above are correct.
12. The existence of money leads to
a. greater specialization in production, but not to a higher standard of living.
b. a higher standard of living, but not to greater specialization.
c. greater specialization and to a higher standard of living.
d. neither greater specialization nor to a higher standard of living.
The Monetary System 7099
13. As opposed to a payments system based on barter, a payments system based on money
a. requires a double coincidence of wants.
b. leads to less specialization.
c. makes trades less costly.
d. None of the above is correct.
14. When we say that trade is roundabout we mean that
a. people sometimes trade goods for goods.
b. trades require a double coincidence of wants.
c. currency is accepted primarily to make further trades.
d. people must spend time searching for the products they wish to purchase.
7100 The Monetary System
15. The existence of money
a. reduces specialization.
b. makes trade easier.
c. allows for barter.
d. hinders production.
Multiple Choice – Section 01: The Meaning of Money
1. Which of the following lists is included in what economists call “money”?
a. cash
b. cash and stocks and bonds
c. cash and stocks and bonds and real estate
d. cash and stocks and bonds and real estate and all other assets
The Monetary System 7101
2. Economists use the term “money” to refer to
a. all wealth.
b. all assets, including real assets and financial assets.
c. all financial assets, but not real assets.
d. those types of wealth that are regularly accepted by sellers in exchange for goods and services.
3. Economists use the word “money” to refer to
a. income generated by the production of goods and services.
b. those assets regularly used to buy goods and services.
c. financial assets such as stocks and bonds.
d. any type of wealth.
4. Economists equate money with
a. individual wealth.
b. income regularly earned.
c. assets people use regularly to buy goods and services.
d. individual saving.
7102 The Monetary System
5. Which of the following is a function of money?
a. a unit of account
b. a store of value
c. medium of exchange
d. All of the above are correct.
6. The confidence you have that a retailer will accept dollars in exchange for goods is based primarily
on money
a. being a unit of account.
b. being a medium of exchange.
c. serving as a store of value.
d. having intrinsic value.
The Monetary System 7103
7. You pay for cheese and bread from the deli with currency. Which function of money does this best
illustrate?
a. medium of exchange
b. unit of account
c. store of value
d. liquidity
8. You receive money as payment for babysitting your neighbors’ children. This best illustrates which
function of money?
a. medium of exchange
b. unit of account
c. store of value
d. liquidity
7104 The Monetary System
9. Which of the following best illustrates the medium of exchange function of money?
a. You keep some money hidden in your shoe.
b. You keep track of the value of your assets in terms of currency.
c. You pay for your oil change using currency.
d. None of the above is correct.
10. Any item that people can use to transfer purchasing power from the present to the future is called
a. a medium of exchange.
b. a unit of account.
c. a store of value.
d. None of the above is correct.
11. Dollar bills, rare paintings, and emerald necklaces are all
a. media of exchange.
b. units of account.
c. stores of value.
d. All of the above are correct.
The Monetary System 7105
12. Which of the following is a store of value?
a. cash and stocks
b. cash but not stocks
c. stocks but not cash
d. neither cash nor stocks
13. Which of the following is a store of value?
a. currency
b. U.S. government bonds
c. fine art
d. All of the above are correct.
14. Which of the following best illustrates the concept of a store of value?
a. You are a precious-metals dealer, and you are always aware of how many ounces of platinum
trade for an ounce of gold.
b. You sell items on eBay, and your prices are stated in terms of dollars.
c. You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.
d. None of the above is correct.
7106 The Monetary System
15. Mia puts money into a piggy bank so she can spend it later. What function of money does this
illustrate?
a. store of value
b. medium of exchange
c. unit of account
d. None of the above is correct.
16. Most financial assets other than money function as
a. a medium of exchange, a unit of account, and a store of value.
b. a medium of exchange and a store of value, but not a unit of account.
c. a store of value and a unit of account, but not a medium of exchange.
d. a store of value, but not a unit of account nor a medium of exchange
The Monetary System 7107
17. Which of the following functions of money is also a common function of most other financial
assets?
a. a unit of account
b. a store of value
c. medium of exchange
d. None of the above is correct.
18. Liquidity refers to
a. the ease with which an asset is converted to the medium of exchange.
b. the measurement of the intrinsic value of commodity money.
c. the measurement of the durability of a good.
d. how many time a dollar circulates in a given year.
7108 The Monetary System
19. The ease with which an asset can be
a. traded for another asset determines whether or not that asset is a unit of account.
b. transported from one place to another determines whether or not that asset could serve as fiat
money.
c. converted into a store of value determines the liquidity of that asset.
d. converted into the economy’s medium of exchange determines the liquidity of that asset.
20. Which list ranks assets from most to least liquid?
a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency
The Monetary System 7109
21. Which list ranks assets from most to least liquid?
a. money, bonds, cars, houses
b. money, cars, houses, bonds
c. bonds, money, cars, houses
d. bonds, cars, money, houses
22. Money is the most liquid asset available because
a. it is a store of value.
b. it is a medium of exchange.
c. it is a unit of account.
d. it has intrinsic value.
7110 The Monetary System
23. Money is
a. the most liquid asset and a perfect store of value.
b. the most liquid asset but an imperfect store of value.
c. not the most liquid asset but a perfect store of value.
d. neither the most liquid asset and nor a perfect store of value.
24. Money
a. is a perfect store of value.
b. is the most liquid asset.
c. has intrinsic value, regardless of which form it takes.
d. All of the above are correct.