Gottheil Quiz: Money

Quiz
Money

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1. In any economy that involves more than a handful of individuals reliance on barter becomes very awkward because: a. the good chosen as money may not be durable.
b. the good chosen as money may not be portable.
c. the good chosen as money may not be divisible.
d. the good chosen as money may not be homogeneous.
e. it is hard to discover a double coincidence of wants.

2. In all societies, money is best defined as: a. anything that is generally acceptable in exchange for goods and services.
b. anything that can be used to express relative values.
c. anything that is able to store value over time.
d. anything that performs the three functions listed as (a) through (c) above.
e. coins, paper bills, and checking accounts.

3. The nature of money is best understood by focussing on: a. the typical object that serves as money.
b. who it is that creates money.
c. why the value of money often changes over time.
d. what money does rather than what it is made of.
e. legal tender for all debts private and public.

4. The compilation of macroeconomic statistics on the GDP and its components clearly presupposes the existence of some kind of money that is universally used as: a. a medium of exchange.
b. a store of value.
c. a measure of value.
d. a basis for purchasing power calculations.
e. a deflator.

5. Which of the following correctly states Gresham's Law?: a. Gold-backed paper money is as good as gold because it represents the power to purchase any good at any time.
b. Bad money drives good money out of circulation.
c. Good money drives bad money out of circulation.
d. If a society chooses fiat money as its money form, it must be particularly vigilant about controlling the quantity of money.
e. Paper money that is not backed by or convertible into any good is totally worthless.

6. One common definition of the U.S. money supply, known as M1, includes: a. all existing coins, paper money, checkable deposits, and time deposits.
b. coins and paper money held outside banks, checkable deposits, and traveler's checks.
c. coins, paper money, checkable deposits, and time deposits held outside banks.
d. all existing currency, Federal Reserve Notes, and money market accounts.
e. all existing liquid assets, credit card balances, and savings deposits.

7. Which of the following is included in the common M1 definition of the U.S. money supply?: a. Credit cards.
b. Debit cards.
c. Overnight Eurodollar deposits.
d. Savings deposits.
e. Traveler's checks.

8. An agreement by a financial institution to sell short-term securities to its customers, combined with an agreement to repurchase the securities at a higher price at a specified future date is called: a. a money market deposit account.
b. a money market mutual fund account.
c. a savings deposit.
d. a time deposit.
e. none of the above.

9. The equation of exchange is best described as: a. an identity stating that the money supply times (income) velocity must equal the price level times real GDP.
b. an identity stating that the money supply times (income) velocity must equal the price level times nominal GDP.
c. an identity stating that the money supply times (income) velocity must equal the price level divided by real GDP.
d. an identity stating that the money supply times (income) velocity must equal the real GDP divided by price level.
e. a theory that predicts that changes in the money supply lead to strictly proportional changes in the general level of prices.

10. The equation of exchange can be turned into the quantity theory of money by assuming: a. a constant money supply.
b. a constant (income) velocity.
c. a constant price level.
d. a constant real GDP.
e. both (b) and (d).

11. Classical economists used the equation of exchange to show how: a. the money supply affects the general level of prices (after assuming a constant V and a constant Q, fixed at the full-employment level).
b. the price level inevitably equals money supply times (income) velocity.
c. the real GDP inevitably equals the price level time (income) velocity.
d. (income) velocity divided by price level inevitably equals the nominal GDP.
e. (income) velocity divided by price level inevitably equals the real GDP.

12. The classical quantity theory of money predicts that: a. the price level, multiplied by real GDP, equals the nominal GDP.
b. the money supply, multiplied by (income) velocity, equals the nominal GDP.
c. a 10 percent increase in the price level will lead to a 10 percent increase in the money supply.
d. a 10 percent decrease in the price level will lead to a 10 percent decrease in the money supply.
e. a 12.3 percent increase in the money supply will lead to a 12.3 percent increase in the price level.

13. Economists who call themselves monetarists: a. rely on the classical quantity theory of money: in the short run, (income) velocity is constant and the real GDP is constant; therefore, the price level moves in strict proportion to the money supply.
b. do not hold that velocity is constant, but believe it to move in predictable ways.
c. believe that (income) velocity rises whenever interest rates fall.
d. believe that (income) velocity rises whenever people expect a decrease in the rate of inflation.
e. are correctly described by (b) through (d).

14. Economists who call themselves monetarists predict decreases in (income) velocity: a. when interest rates increase.
b. when people expect an increase in the inflation rate.
c. when employees receive paychecks more frequently.
d. to bring about increases in the quantity of money demanded.
e. to bring about decreases in the quantity of money supplied.

15. In the Keynesian view,: a. the equation of exchange is simply wrong.
b. neither V nor Q is constant or stable.
c. changes in M can affect Q or P, depending on circumstances.
d. both (b) and (c) hold.
e. over time, V is continually falling and Q is continually rising.

16. In the classical view, the economy's demand for liquidity (that is, money): a. is infinite because of the scarcity problem.
b. consists of nothing but transactions demand, derived from the need of households and businesses to have money in order to carry out their buying and selling of goods and services efficiently.
c. equals PQ/V.
d. is correctly described by (b) and (c).
e. is entirely a function of interest rates.

17. According to Keynes, the demand for money can be traced to: a. people's need to transact their buying and selling of goods and services.
b. people's need to have cash for unexpected emergencies.
c. people's desire to satisfy their speculative proclivities.
d. all of the above motives.
e. low interest rates that make the holding of interest-bearing accounts not worthwhile.

18. In the Keynesian model, the demand for money represents: a. the inverse relationship between the quantity of money demanded and the price of holding money balances (which is the interest rate).
b. the direct relationship between the quantity of money demanded and the price of holding money balances (which is the interest rate).
c. the inverse relationship between the quantity of money demanded and the nominal GDP.
d. the direct relationship between the quantity of money demanded and the nominal GDP.
e. the inverse relationship between the quantity of money demanded and the real GDP.

19. According to the Keynesian transmission mechanism, an increase in the money supply: a. raises the interest rate and, thus, lowers the quantity of money demanded.
b. raises investment in bonds, stocks, and other financial instruments.
c. raises the aggregate expenditures line and shifts the aggregate demand curve to the right.
d. raises the price level, while leaving the real GDP unaffected.
e. leads to all of the above and more.

20. According to the Keynesian transmission mechanism, a decrease in the money supply: a. raises the interest rate and, thus, lowers the quantity of money demanded.
b. raises investment in bonds, stocks, and other financial instruments.
c. raises the aggregate expenditures line and shifts the aggregate demand curve to the right.
d. raises the price level, while leaving the real GDP unaffected.
e. leads to all of the above and more.