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35 Cards in this Set

  • Front
  • Back
The most prominent role for money is to serve as a
means of payment.
The M1 definition of money includes
currency outside banks plus checkable deposits plus traveler's checks.
Money functions as a standard of value when people
compare prices
A highly liquid asset is one that
can be quickly turned into the medium of exchange without loss.
Which of the following lists of assets is in the correct order from most liquid to least liquid?
A dollar bill, government bonds, a house
The difference between M1 and M2 definitions of the money supply is that M2 includes
retail money market mutual funds shares.
A difference between M2 and M3 measures of the money supply is that M3 includes
bank repurchase agreements.
The __________ measure of money is the only definition of money that is generally accepted as a means for payment.
The central bank in most countries is responsible for
monetary policy.
The Federal Reserve controls the money supply by
wholesaling coins and paper currency to local banks.
Which of the following is not an important advantage of the use of money over barter?
Inflation is a problem in a barter economy but not in one that uses money.
The value of money __________ the price level.
varies inversely with
Money increases economic growth by facilitating transfers from
savers to borrowers.
In a barter economy, the only way people can invest is if
they save by acquiring goods directly.
Financial markets increase the volume of saving and investment by
providing savers a variety of ways to lend to borrowers.
The primary role of financial institutions is to
package savings for transfer to borrowers.
When hyperinflation occurs, money becomes a less efficient medium of exchange because money ceases to be a reliable
store of value.
In the United States, currency is
backed by nothing tangible
When commercial banks make loans, they
create checking account money.
A bank can create new money only when
it has excess reserves.
The interest rate charged on overnight loans between banks is the
federal funds rate.
Changes in the money supply have an immediate effect on an economy's
By altering people's liquidity, an increase in the money supply relative to the demand for liquidity should lead to
more spending on either real assets or financial assets.
The velocity of money can be computed by
dividing GDP by the money supply.
If a 5 percent increase in the money supply always leads to a 5 percent increase in nominal GDP, this indicates that
velocity is constant.
Assume that nominal GDP is $2 trillion and the money supply is $400 billion. The velocity of money is __________.
The velocity of money is determined by the
The Federal Reserve cannot always control the level of total spending in the economy using monetary policy because it cannot control
the velocity of money is not always constant.
Changes in the money supply do not always cause predictable changes in the level of spending because
the velocity of money is not always constant.
Hyperinflation is most likely when it is fueled by
continuous increases in the money supply in ever-increasing volume.
If inflation in a country consistently averages 3 percent a year, prices will double in
24 years.
If a country is experiencing hyperinflation, it is safe to assume that
the country's money supply has risen rapidly.
Economists find no completely satisfactory way to measure money because
the "moneyness" or liquidity of an asset is a matter of degree.
Checkable deposits are money because
they serve the functions of money.
A problem with barter exchange is that barter requires
a double coincidence of wants.