Macroeconomics, 12e (Parkin)
Chapter 8 Money, the Price Level, and Inflation
1 What Is Money?
1) Aside from being a means of payment, the other functions of money are
A) medium of exchange and the ability to buy goods and services.
B) medium of exchange, unit of account, and means of lending.
C) pricing, contracts, and store of value.
D) medium of exchange, unit of account, and store of value.
2) Which of the following does NOT describe a function of money?
A) unit of account
B) hedge against inflation
C) medium of exchange
D) store of value
3) Which of the following is a primary function of money?
A) to serve as a unit of account
B) to serve as an encouragement to work
C) to reduce the burden of excessive imports
D) to raise funds for the government
4) The functions of money are
A) interest rates, prices and output.
B) M1, M2 or currency.
C) currency, deposits, and traveler’s checks.
D) medium of exchange, unit of account, and store of value.
5) Which of the following is NOT considered a function of money?
A) It facilitates exchange.
B) It acts as a means of payment.
C) It can be held and exchanged for future goods and services.
D) It allows banks to lend out funds.
6) Which of the following does NOT describe a function of money?
A) unit of account
B) barter
C) medium of exchange
D) store of value
7) Barter is
A) another type of money.
B) printing too much money.
C) the exchange of goods and services directly for other goods and services.
D) the exchange of goods and services for any type of money.
8) The most direct way in which money replaces barter is through its use as a
A) medium of exchange.
B) recording device.
C) store of value.
D) unit of account.
9) The most direct way in which money eliminates the need for a double coincidence of wants is
through its use as a
A) medium of exchange.
B) standard of deferred payment.
C) store of value.
D) unit of account.
10) A medium of exchange is
A) an object that sellers will accept as payment.
B) a measure by which prices are expressed.
C) an asset that is used to settle future debts.
D) the thing traded when barter takes place.
11) The “double coincidence of wants” problem is
A) resolved under a system of barter.
B) always present in all economic systems.
C) resolved by the use of money.
D) created by the use of money.
12) The direct exchange of goods and services for other goods and services is known as
A) primitive trade.
B) nonmarket trade.
C) barter.
D) purchasing power trading.
13) Barter occurs when you exchange
A) money for goods.
B) goods for money.
C) goods for other goods.
D) one type of money, such as U.S. dollars, for a different type of money, such as Japanese yen.
14) The fact that using money avoids the double coincidence of wants necessary in a barter
economy illustrates which function of money?
A) medium of exchange
B) unit of account
C) store of value
D) source of liquidity
15) Money ________.
A) is always composed of coins and paper
B) loses its value as it becomes older
C) requires a double coincidence of wants
D) is any commodity that is generally acceptable as a means of payment
16) If an economy has no money, then all transactions must be conducted through the use of
________.
A) credit cards
B) barter
C) debit cards
D) tobacco or wampum
17) In a barter system, we would see
A) many different units of money.
B) money and goods exchanged for each other.
C) wide-spread depository institutions.
D) goods traded directly for other goods and services.
18) When you buy a hamburger for lunch, you are using money as a
A) store of value.
B) standard of deferred payment.
C) medium of exchange.
D) unit of accounting.
19) When money is accepted as payment in a market transaction, it is functioning as a
A) store of value.
B) unit of accounting.
C) medium of exchange.
D) unit of investment.
20) Money’s function as a medium of exchange means that
A) money is a common denominator for expressing the prices of goods and services.
B) money can be used to store wealth.
C) money serves as an acceptable means of payment.
D) money requires a double coincidence of wants.
21) Matthew purchases a candy bar with his allowance. This purchase represents using money as
A) a medium of exchange.
B) a store of value.
C) an unit of account.
D) none of the above.
22) When you bought your textbook for this course, you were using money as a
A) store of value.
B) price mechanism.
C) medium of exchange.
D) unit of account.
23) Money as a medium of exchange
I. facilitates the exchange of goods.
II. reduces or eliminates the need for barter.
A) I only
B) II only
C) both I and II
D) neither I nor II
24) Suppose prices are quoted in dollars and transactions are conducted in pesos. The peso serves
as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) all of the above.
25) Barter is an inefficient means of exchange because
A) barter transactions require a double coincidence of wants.
B) barter only occurs in relatively primitive economies.
C) demand will not necessarily equal supply.
D) in a barter transaction only one party needs to want what the other party has to sell.
26) A unit of account
A) is a type of accounting of how many currency units there are in an economy.
B) is an accounting of the total units of goods and services produced in an economy.
C) is an agreed measure for stating the prices of goods and services in an economy.
D) is a type of value stored within all assets.
27) Which function of money represents a measure for stating the prices of goods and services?
A) medium of exchange
B) unit of account
C) store of value
D) means of payment
28) Which of the following applies to the use of money as a unit of account?
I. A unit of account is an agreed measure for stating the prices of goods and services.
II. Using money as a unit of account creates a simplified pricing system.
III. Economies choose many goods as units of account.
A) I only
B) II only
C) I and III
D) I and II
29) A $25,000 price tag on a new car is an example of money as
A) a medium of exchange.
B) a unit of account.
C) a store of value.
D) a time deposit.
30) After you finish your degree, suppose your salary is $52,000 per year. This is an example of
money as
A) a medium of exchange.
B) a unit of account.
C) a store of value.
D) M1.
31) Suppose prices are quoted in dollars and transactions are conducted in pesos. The dollar
serves as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) all of the above.
32) Suppose that you find out from an L.L. Bean catalogue that a sweater costs $30.00. In this
case, money is serving as a
A) medium of exchange.
B) unit of account.
C) store of value.
D) double coincidence of want.
33) As a unit of account, money is used to
A) state prices of all goods and services.
B) pay off future debts.
C) hold purchasing power over time.
D) exchange for goods and services.
34) Cigarettes served as money in some POW camps during World War II. Given this fact, we
would expect to observe
A) no one ever smoking a cigarette.
B) people usually resorting to barter rather than using cigarettes as money.
C) prices of other goods expressed in terms of cigarettes.
D) only government-issued cigarettes being accepted as money.
35) Catherine compares the prices of candy bars in order to get the “best buy.” This comparison
represents using money as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) none of the above.
36) Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model
that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is
an example of money used as a
A) medium of exchange.
B) unit of account
C) store of value.
D) All of the above answers are correct.
37) In a world with no money, costs are expressed in terms of other goods. If one video game
costs two hamburgers, and a hamburger costs three sodas, how many sodas would it take to buy
a video game?
A) 6
B) 5
C) 3
D) 3/2
38) Which of the following is an example of using money as a store of value?
A) paying for a new dress with a credit card
B) paying cash for a new automobile
C) paying rent with a check on a demand deposit
D) keeping $200 on hand for an emergency
39) When you toss your spare quarters into a jar so you can use them later at the laundromat, you
are using money in its function as a
A) medium of exchange.
B) unit of account.
C) store of value.
D) record keeping device.
40) During periods of inflation, which function of money is most severely affected?
A) medium of exchange
B) unit of account
C) means of payment
D) store of value
41) Which of the following applies to an object serving as a store of value?
I. If an object can be held and exchanged later for a good or service, it serves as a store of
value.
II. The less stable an object’s value, the better it serves as a store of value.
III. A work of art can serve as a store of value.
A) I only
B) I and II
C) I and III
D) I, II and III
42) If an economy tried to use bananas as money, which function would bananas likely have the
most difficult time fulfilling?
A) a store of value
B) a unit of account
C) a medium of exchange
D) a means of payment
43) Which of the following applies to money when it serves as a store of value?
I. Money is a store of value because it is an agreed measure for stating goods’ prices.
II. The more stable money’s value, the better it serves as a store of value.
III. When money serves as a store of value, it requires a double coincidence of wants.
A) I only
B) II only
C) I and II
D) II and III
44) Nicholas is saving money collected from his paper route in order to purchase a new bicycle.
His saving represents using money as
A) a medium of exchange.
B) a store of value.
C) an unit of account.
D) none of the above
45) U.S. currency ________.
A) is less efficient than barter
B) includes tobacco
C) is the sum of M1 and M2
D) is composed of the bills and coins held by individual and businesses
46) In the United States today, money consists of
A) currency only.
B) deposits at banks only.
C) coins only.
D) currency and deposits at banks.
47) Checking deposits are
A) not part of money.
B) part of money.
C) small in volume relative to currency in circulation.
D) quite different from checking accounts.
48) Which of the following is money?
A) checking deposits
B) checks in the checkbook
C) credit cards
D) All of the above are money.
49) Which of the following counts as part of money?
A) $10,000 in gold bars
B) $10,000 in government bonds
C) $10,000 in a checking account
D) $10,000 in corporate bonds
50) Checking deposits at banks are
A) money.
B) not money because they are an intangible.
C) money only because they are insured by the FDIC.
D) not money until they are converted into currency.
51) M1 includes
A) currency, checking deposits and traveler’s checks.
B) money, stocks and bonds.
C) money, checking deposits and traveler’s checks.
D) money market mutual funds, stocks and bonds.
52) The money aggregate M1 consists of
A) currency and savings accounts.
B) currency and checking deposits, including traveler’s checks.
C) only checking deposits and time deposits.
D) checking accounts, savings accounts and Treasury bills.
53) M1 is a measure of
A) money and includes both currency and checking deposits.
B) liquidity and in which the most liquid asset is money.
C) money and includes both savings deposits and currency.
D) money and includes both savings deposits and money market mutual funds.
54) Which of the following is NOT included in M1?
A) currency held outside banks
B) time deposits
C) traveler’s checks
D) checking deposits
55) M1 includes all the following items EXCEPT ________.
A) checking deposits owned by individuals and businesses
B) traveler’s checks
C) deposits in money market mutual funds
D) currency owned by individuals and businesses
56) Which of the following is NOT included in M1?
A) currency
B) checking deposits owned by individuals
C) saving deposits
D) traveler’s checks
57) Which of the following is NOT included in the M1 measure of money?
A) currency held outside banks
B) currency held in bank vaults
C) checking deposits at commercial banks
D) checking deposits at credit unions
58) Which of the following is NOT included in the M1 measure of money?
A) checking deposits
B) currency
C) traveler’s checks
D) savings deposits
59) Which of the following is included in M1?
A) the $200 you charged on your credit card to purchase your textbooks
B) the $200 check you wrote to purchase your textbooks
C) the $200 in cash you used to purchase your textbooks
D) the $200 loan you arranged to purchase your textbooks
60) In an economy, there is $200 million in currency held outside banks, $100 million in
traveler’s checks, $250 million in currency held inside the banks, $300 million in checking
deposits, and $600 million in savings deposits. The value of M1 is ________.
A) $750 million
B) $1,200 million
C) $1,150 million
D) $600 million
61) M2 ________.
A) does not include currency
B) does not include traveler’s checks
C) is a broader measure of money than M1
D) does not include checking deposits held at credit unions
62) The definition of M2 includes
A) M1.
B) savings deposits.
C) time deposits.
D) all of the above.
63) The definition of M2 includes
I. M1.
II. money market mutual funds.
III. currency held outside of banks.
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III
64) Which of the following is NOT included in the M2 definition of money?
A) currency held by banks
B) money market mutual fund balances
C) savings deposits
D) checkable deposits
65) Which of the following is NOT included in the M2 measure of money?
A) checking deposits
B) traveler’s checks
C) time deposits
D) shares of the stocks of large companies
66) The largest component of M2 is
A) savings deposits.
B) currency.
C) money market mutual funds.
D) travelers checks.
67) Which of the following is part of M2?
A) checks
B) credit cards
C) currency held inside a bank
D) none of these are part of M1 or M2
68) M2 is
A) smaller than M1.
B) larger than M1.
C) equal to M1, given full employment.
D) equal to M1, but only when all three functions of money apply.
69) Checking deposits are included in
A) M1 only.
B) M2 only.
C) M1 and M2.
D) neither M1 nor M2.
70) Currency held outside the banking system is included
A) in M1 but not M2.
B) in M2 but not M1.
C) in both M1 and M2.
D) in neither M1 nor M2.
71) Comparing M1 and M2 we know that
A) M1 is larger because it contains currency.
B) M2 is approximately equal to M1.
C) M2 is larger because it contains M1 and other assets.
D) M2 is larger because it contains more liquid assets than does M1.
72) Suppose you cash in a Certificate of Deposit (a small time deposit) to acquire the traveler’s
checks you’ll need for your vacation. What happens to M1 and M2?
A) M1 and M2 both increase.
B) M1 stays the same and M2 increases.
C) M1 increases and M2 decreases.
D) M1 increases and M2 stays the same.
73) If you use $500 of currency to make a deposit in a saving deposit
A) M1 decreases, but M2 is unchanged.
B) M1 decreases and M2 increases.
C) M1 is unchanged, but M2 increases.
D) M1 and M2 both increase.
74) Sam has $500 in traveler’s checks. He cashes a $100 traveler check, deposits $150 into his
checking account at a Savings and Loan Association, and deposits the remaining $250 into a
savings account at a credit union. Immediately, ________.
A) M1 decreases by $250 and M2 does not change
B) M1 decreases by $400 and M2 increases by $250
C) M1 does not change and M2 increases by $250
D) M1 and M2 do not change
75) A new financial innovation results in people switching their funds from checking deposits to
savings accounts. The quantity of M1 ________ and the quantity of M2 ________.
A) decreases; decreases
B) increases; decreases
C) decreases; does not change
D) decreases; increases
Component
Amount
(billions of dollars)
Money market mutual
fund deposits
4,400
Time deposits
1,237
Savings deposits
1,589
Checking deposits
752
Currency
609
76) Based on the data in the table above, what is the value of M1?
A) $2,950 billion
B) $1,361 billion
C) $752 billion
D) $609 billion
77) Based on the data in the table above, what is the value of M2?
A) $2,950 billion
B) $4,187 billion
C) $7,978 billion
D) $8,587 billion