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35 Cards in this Set
- Front
- Back
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The most prominent role for money is to serve as a
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means of payment.
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The M1 definition of money includes
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currency outside banks plus checkable deposits plus traveler's checks.
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Money functions as a standard of value when people
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compare prices
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A highly liquid asset is one that
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can be quickly turned into the medium of exchange without loss.
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Which of the following lists of assets is in the correct order from most liquid to least liquid?
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A dollar bill, government bonds, a house
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The difference between M1 and M2 definitions of the money supply is that M2 includes
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retail money market mutual funds shares.
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A difference between M2 and M3 measures of the money supply is that M3 includes
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bank repurchase agreements.
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The __________ measure of money is the only definition of money that is generally accepted as a means for payment.
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M1
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The central bank in most countries is responsible for
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monetary policy.
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The Federal Reserve controls the money supply by
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wholesaling coins and paper currency to local banks.
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Which of the following is not an important advantage of the use of money over barter?
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Inflation is a problem in a barter economy but not in one that uses money.
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The value of money __________ the price level.
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varies inversely with
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Money increases economic growth by facilitating transfers from
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savers to borrowers.
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In a barter economy, the only way people can invest is if
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they save by acquiring goods directly.
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Financial markets increase the volume of saving and investment by
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providing savers a variety of ways to lend to borrowers.
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The primary role of financial institutions is to
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package savings for transfer to borrowers.
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When hyperinflation occurs, money becomes a less efficient medium of exchange because money ceases to be a reliable
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store of value.
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In the United States, currency is
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backed by nothing tangible
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When commercial banks make loans, they
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create checking account money.
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A bank can create new money only when
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it has excess reserves.
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The interest rate charged on overnight loans between banks is the
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federal funds rate.
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Changes in the money supply have an immediate effect on an economy's
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liquidity.
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By altering people's liquidity, an increase in the money supply relative to the demand for liquidity should lead to
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more spending on either real assets or financial assets.
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The velocity of money can be computed by
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dividing GDP by the money supply.
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If a 5 percent increase in the money supply always leads to a 5 percent increase in nominal GDP, this indicates that
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velocity is constant.
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Assume that nominal GDP is $2 trillion and the money supply is $400 billion. The velocity of money is __________.
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5.0
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The velocity of money is determined by the
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public.
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The Federal Reserve cannot always control the level of total spending in the economy using monetary policy because it cannot control
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the velocity of money is not always constant.
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Changes in the money supply do not always cause predictable changes in the level of spending because
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the velocity of money is not always constant.
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Hyperinflation is most likely when it is fueled by
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continuous increases in the money supply in ever-increasing volume.
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If inflation in a country consistently averages 3 percent a year, prices will double in
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24 years.
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If a country is experiencing hyperinflation, it is safe to assume that
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the country's money supply has risen rapidly.
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Economists find no completely satisfactory way to measure money because
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the "moneyness" or liquidity of an asset is a matter of degree.
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Checkable deposits are money because
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they serve the functions of money.
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A problem with barter exchange is that barter requires
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a double coincidence of wants.
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