Economics of Money, Banking, and Financial Markets, 11e, Global Edition (Mishkin) Chapter 3 What Is 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
AACSB: Application of Knowledge
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
AACSB: Application of Knowledge
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
AACSB: Analytical Thinking
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 "moneyness" or liquidity of an asset is a matter of degree.
D) economists find disagreement interesting and refuse to agree for ideological reasons. Answer:    C
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5) The total collection of pieces of property that serve to store value is a person's
A) wealth.
B) income.
C) money.
D) credit.
Answer:    A
AACSB: Application of Knowledge
6) A person's house is part of her
A) money.
B) income.
C) liabilities.
D) wealth.
Answer:    D
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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
AACSB: Reflective Thinking
8) ________ is a flow of earnings per unit of time.
A) Income
B) Money
C) Wealth
D) Currency
Answer:    A
AACSB: Application of Knowledge
9) An individual's annual salary is her
A) money.
B) income.
C) wealth.
D) liabilities.
Answer:    B
AACSB: Analytical Thinking
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
AACSB: Reflective Thinking
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 difference—money and income are both stocks.
D) there is no difference—money and income are both flows.
Answer:    B
AACSB: Reflective Thinking
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
AACSB: Reflective Thinking
13) Which of the following statements uses the economists' definition of money?
A) I plan to earn a lot of money over the summer.
B) Betsy is rich—she 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
AACSB: Analytical Thinking
time is money
3.2 Functions of Money
1) Of money's 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
AACSB: Reflective Thinking
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
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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
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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
AACSB: Reflective Thinking
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
AACSB: Reflective Thinking
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
AACSB: Reflective Thinking
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
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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
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9) Money ________ transaction costs, allowing people to specialize in what they do best.
A) reduces
B) increases
C) enhances
D) eliminates
Answer:    A
AACSB: Application of Knowledge
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
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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
AACSB: Analytical Thinking
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
AACSB: Reflective Thinking
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
AACSB: Reflective Thinking
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
AACSB: Analytical Thinking
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
AACSB: Analytical Thinking
16) 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
AACSB: Reflective Thinking
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
AACSB: Analytical Thinking