The Economics of Money Banking and Financial Markets 6th Canadian Edition by Mishkin - Test Bank

The Economics Of Money Banking
And Financial Markets 6th Canadian

Edition By Mishkin – Test Bank
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Sample Test
Economics of Money, Banking, and Financial Markets 6e (Mishkin)
Chapter 3 What Is Money?
3.1 Meaning of Money
1) A person’s house is part of her ________.
1. A) money
2. B) income
3. C) liabilities
4. D) wealth
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 3.1 Describe what money is
2) Money is ________.
1. A) anything that is generally accepted in payment for goods and services

or in the repayment of debt
2. B) a flow of earnings per unit of time
3. C) the total collection of pieces of property that are a store of value
4. D) always based on a precious metal like gold or silver
Answer: A
Diff: 1 Type: MC
Skill: Recall
3) To an economist, ________ is anything that is generally accepted in payment for

goods and services or in the repayment of debt.
1. A) wealth
2. B) income
3. C) money
4. D) credit
Answer: C
Diff: 1 Type: MC
Skill: Recall
4) Currency is defined as ________.
1. A) anything accepted for payment of goods and services

2. B) paper money and coins
3. C) a unit of account
4. D) foreign exchange
Answer: B
Diff: 1 Type: MC
Skill: Recall
5) Money is ________.
1. A) the same as currency

2. B) anything that is generally accepted in payment of goods or services or
in the repayment of debts
3. C) not used as a unit of account
4. D) defined as paper money and coins
Answer: B
Diff: 1 Type: MC
Skill: Recall
6) Currency includes ________.
1. A) paper money and coins

2. B) paper money, coins, and cheques
3. C) paper money and cheques
4. D) paper money, coins, cheques, and savings deposits
Answer: A
Diff: 1 Type: MC
Skill: Recall
7) There is no single precise measure of money or the money supply for

economists because ________.
1. A) the government considers money supply statistics to be confidential

and refuses to publish them
2. B) deciding what is generally accepted in payment for goods and services
or in the repayment of debt is difficult to determine
3. C) economists cannot agree if currency should be considered money
4. D) definitions change all the time
Answer: B
Diff: 2 Type: MC
Skill: Recall
8) Even economists have no single, precise definition of money because ________.
1. A) money supply statistics are a state secret

2. B) the Bank of Canada does not employ or report different measures of the
money supply
3. C) the “moneyness” or liquidity of an asset is a matter of degree
4. D) economists find disagreement interesting and refuse to agree for
ideological reasons
Answer: C
Diff: 2 Type: MC
Skill: Recall
9) The total collection of pieces of property that serve to store value is a

person’s ________.
1. A) wealth
2. B) income
3. C) money
4. D) credit
Answer: A
Diff: 1 Type: MC
Skill: Recall
10) ________ is used to make purchases while ________ is the total collection of
pieces of property that serve to store value.
1. A) Money; income
2. B) Wealth; income
3. C) Income; money
4. D) Money; wealth
Answer: D
Diff: 1 Type: MC
Skill: Recall
11) ________ is a flow of earnings per unit of time.
1. A) Income
2. B) Money
3. C) Wealth
4. D) Currency
Answer: A
Diff: 1 Type: MC
Skill: Recall
12) An individual’s annual salary is her ________.
1. A) money
2. B) income
3. C) wealth
4. D) liabilities
Answer: B
Diff: 1 Type: MC
Skill: Recall
13) When we say that money is a stock variable, we mean that ________.
1. A) the quantity of money is measured at a given point in time

2. B) we must attach a time period to the measure
3. C) it is sold in the equity market
4. D) money never loses purchasing power
Answer: A
Diff: 2 Type: MC
Skill: Recall
14) The difference between money and income is that ________.
1. A) money is a flow and income is a stock

2. B) money is a stock and income is a flow
3. C) there is no difference—money and income are both stocks
4. D) there is no difference—money and income are both flows
Answer: B
Diff: 2 Type: MC
Skill: Recall
15) Income is a ________ and wealth is a ________.
1. A) stock; flow
2. B) flow; stock
3. C) variable; constant
4. D) constant; variable
Answer: B
Diff: 1 Type: MC
Skill: Recall
16) Which of the following is a true statement?
1. A) Money and income are flow variables.

2. B) Money is a flow variable.
3. C) Income is a flow variable.
4. D) Money and income are stock variables.
Answer: C
Diff: 1 Type: MC
Skill: Recall
17) Which of the following statements uses the economists’ definition of money?
1. A) I plan to earn a lot of money over the summer.

2. B) Betsy is rich—she has a lot of money.
3. C) I hope that I have enough money to buy my lunch today.
4. D) The job with New Company gave me the opportunity to earn more
money.
Answer: C
Diff: 2 Type: MC
Skill: Applied
18) In the country of Moneyland the law allows you to repay mortgage in rocks.
Thus, ________.
1. A) Moneyland is a poor country

2. B) rocks in this country are considered as money
3. C) money is scarce
4. D) Moneyland is a developing country
Answer: B
Diff: 2 Type: MC
Skill: Applied
19) Explain the concepts of wealth and income and how they relate to the
concept of money.
Answer: Non-economists often use money synonymously with wealth or

income. Wealth is a stock variable that describes the total collection of
property that is used to store value. Income is a flow of earnings over some
period of time. Money is a stock variable; it is a certain amount at a point of
time and can be used in the payment of goods and services.
Diff: 2 Type: ES
Skill: Applied
3.2 Functions of Money
1) If peanuts serve as a medium of exchange, a unit of account, and a store of

value, then peanuts are ________.
1. A) bank deposits
2. B) reserves
3. C) money
4. D) loanable funds
Answer: C
Diff: 1 Type: MC
Skill: Applied
Objective: 3.2 List and summarize the functions of money

2) For a commodity to function effectively as money it must be ________.
1. A) easily standardized, making it easy to ascertain its value

2. B) difficult to make change
3. C) deteriorate quickly so that its supply does not become too large
4. D) hard to carry around
Answer: A
Diff: 1 Type: MC
Skill: Recall
3) ________ are the time and resources spent trying to exchange goods and
services.
1. A) Bargaining costs
2. B) Transaction costs
3. C) Contracting costs
4. D) Barter costs
Answer: B
Diff: 1 Type: MC
Skill: Recall
4) Compared to an economy that uses a medium of exchange, in a barter

economy ________.
1. A) transaction costs are higher

2. B) transaction costs are lower
3. C) liquidity costs are higher
4. D) liquidity costs are lower
Answer: A
Diff: 1 Type: MC
Skill: Recall
5) Of money’s three functions, the one that distinguishes money from other
assets is its function as a ________.
1. A) store of value
2. B) unit of account
3. C) standard of deferred payment
4. D) medium of exchange
Answer: D
Diff: 1 Type: MC
Skill: Recall
6) When compared to exchange systems that rely on money, disadvantages of

the barter system include ________.
1. A) the requirement of a double coincidence of wants

2. B) lowering the cost of exchanging goods over time
3. C) lowering the cost of exchange to those who would specialize
4. D) encouraging specialization and the division of labor
Answer: A
Diff: 2 Type: MC
Skill: Recall
7) The conversion of a barter economy to one that uses money ________.
1. A) increases efficiency by reducing the need to exchange goods and

services
2. B) increases efficiency by reducing the need to specialize
3. C) increases efficiency by reducing transactions costs
4. D) does not increase economic efficiency
Answer: C
Diff: 2 Type: MC
Skill: Recall
8) Which of the following statements best explains how the use of money in an
economy increases economic efficiency?
1. A) Money increases economic efficiency because it is costless to produce.

2. B) Money increases economic efficiency because it discourages
specialization.
3. C) Money increases economic efficiency because it decreases
transactions costs.
4. D) Money cannot have an effect on economic efficiency.
Answer: C
Diff: 2 Type: MC
Skill: Recall
9) Which of the following is a true statement?
1. A) The conversion of a barter economy to one that uses money increases

efficiency by increasing the cost of exchange.
2. B) The conversion of a barter economy to one that uses money increases
efficiency by increasing the cost to those who wish to specialize.
3. C) The conversion of a barter economy to one that uses money increases
efficiency by reducing transactions costs.
4. D) The conversion of a barter economy to one that uses money does not
increases efficiency.
Answer: C
Diff: 3 Type: MC
Skill: Applied
10) When economists say that money promotes ________, they mean that money
encourages specialization and the division of labour.
1. A) bargaining
2. B) contracting
3. C) efficiency
4. D) greed
Answer: C
Diff: 1 Type: MC
Skill: Recall
11) Money ________ transaction costs, allowing people to specialize in what they
do best.
1. A) reduces
2. B) increases
3. C) enhances
4. D) eliminates
Answer: A
Diff: 1 Type: MC
Skill: Applied
12) All of the following are necessary criteria for a commodity to function as
money except ________.
1. A) it must deteriorate quickly

2. B) it must be divisible
3. C) it must be easy to carry
4. D) it must be widely accepted
Answer: A
Diff: 1 Type: MC
Skill: Recall
13) Whatever a society uses as money, the distinguishing characteristic is that it

must ________.
1. A) be completely inflation proof

2. B) be generally acceptable as payment for goods and services or in the
repayment of debt
3. C) contain gold
4. D) be produced by the government
Answer: B
Diff: 2 Type: MC
Skill: Recall
14) All but the most primitive societies use money as a medium of exchange,
implying that ________.
1. A) the use of money is economically efficient

2. B) barter exchange is economically efficient
3. C) barter exchange cannot work outside the family
4. D) inflation is not a concern
Answer: A
Diff: 1 Type: MC
Skill: Applied
15) Kevin purchasing concert tickets with his debit card is an example of the
________ function of money.
1. A) medium of exchange
3. C) store of value
4. D) specialization
Answer: A
Diff: 1 Type: MC
Skill: Applied
16) When money prices are used to facilitate comparisons of value, money is
said to function as a ________.
1. A) unit of account
2. B) medium of exchange
4. D) payments-system ruler
Answer: A
Diff: 1 Type: MC
Skill: Applied
17) A problem with barter exchange when there are many goods is that in a
barter system ________.
1. A) transactions costs are minimized

2. B) there exists a multiple number of prices for each good
3. C) there is only one store of value
4. D) exchange of services is impossible
Answer: B
Diff: 1 Type: MC
Skill: Applied

18) In a barter economy the number of prices in an economy with N goods is
________.
1. A) [N(N – 1)]/2
2. B) N(N/2)
3. C) 2N
4. D) N(N/2) – 1
Answer: A
Diff: 3 Type: MC
Skill: Recall
19) If there are five goods in a barter economy, one needs to know ten prices in
order to exchange one good for another. If, however, there are ten goods in a
barter economy, then one needs to know ________ prices in order to exchange one
good for another.
1. A) 20
2. B) 25
3. C) 30
4. D) 45
Answer: D
Diff: 2 Type: MC
Skill: Applied
20) If there are four goods in a barter economy, then one needs to know ________
prices in order to exchange one good for another.
1. A) 8
2. B) 6
3. C) 5
4. D) 4
Answer: B
Diff: 2 Type: MC
Skill: Applied
21) Because it is a unit of account, money ________.
1. A) increases transaction costs

2. B) reduces the number of prices that need to be calculated
3. C) does not earn interest
4. D) discourages specialization
Answer: B
Diff: 1 Type: MC
Skill: Recall
22) Dennis notices that jackets are on sale for $99. In this case money is
functioning as a ________.
4. D) payments-system ruler
Answer: B
Diff: 2 Type: MC
Skill: Applied
23) As a store of value, money ________.
1. A) does not earn interest

2. B) cannot be a durable asset
3. C) must be currency
4. D) is a way of saving for future purchases
Answer: D
Diff: 1 Type: MC
Skill: Recall
24) Patrick places his pocket change into his savings bank on his desk each
evening. By his actions, Patrick indicates that he believes that money is a
________.
4. D) unit of specialization
Answer: C
Diff: 2 Type: MC
Skill: Applied
25) ________ is the relative ease and speed with which an asset can be converted
into a medium of exchange.
1. A) Efficiency
2. B) Liquidity
3. C) Deflation
4. D) Specialization
Answer: B
Diff: 1 Type: MC
Skill: Recall
26) Increasing transactions costs of selling an asset make the asset ________.
1. A) more valuable
2. B) more liquid
3. C) less liquid
4. D) more moneylike
Answer: C
Diff: 1 Type: MC
Skill: Recall
27) Since it does not have to be converted into anything else to make purchases,
________ is the most liquid asset.
1. A) money
2. B) stock
3. C) artwork
4. D) gold
Answer: A
Diff: 1 Type: MC
Skill: Recall
28) Of the following assets, the least liquid is ________.
1. A) stocks
2. B) travellers cheques
3. C) chequing deposits
4. D) a house
Answer: D
Diff: 1 Type: MC
Skill: Applied

29) Ranking assets from most liquid to least liquid, the correct order is ________.
1. A) savings bonds; house; currency

2. B) currency; savings bonds; house
3. C) currency; house; savings bonds
4. D) house; savings bonds; currency
Answer: B
Diff: 1 Type: MC
Skill: Applied
30) People hold money even during inflationary episodes when other assets
prove to be better stores of value. This can be explained by the fact that money
is all of the following except ________.
1. A) perfectly liquid
2. B) a unique good for which there are no substitutes
3. C) the only thing accepted in economic exchange
4. D) backed by gold
Answer: A
Diff: 3 Type: MC
Skill: Applied
31) If the price level doubles, the value of money ________.
1. A) doubles
2. B) more than doubles, due to scale economies
3. C) rises but does not double, due to diminishing returns
4. D) falls by half
Answer: D
Diff: 1 Type: MC
Skill: Recall
32) A fall in the level of prices ________.
1. A) does not affect the value of money

2. B) has an uncertain effect on the value of money
3. C) increases the value of money
4. D) reduces the value of money
Answer: C
Diff: 1 Type: MC
Skill: Recall
33) A hyperinflation is ________.
1. A) a period of extreme inflation generally greater than 50 percent per

month
2. B) a period of anxiety caused by rising prices
3. C) an increase in output caused by higher prices
4. D) impossible today because of tighter regulations
Answer: A
Diff: 1 Type: MC
Skill: Recall
34) During hyperinflations, ________.
1. A) the value of money rises rapidly

2. B) money no longer functions as a good store of value and people may
resort to barter transactions on a much larger scale
3. C) middle-class savers benefit as prices rise
4. D) money’s value remains fixed to the price level; that is, if prices double
so does the value of money
Answer: B
Diff: 2 Type: MC
Skill: Recall
35) Because inflation in Germany after World War I sometimes exceeded 1000
percent per month, one can conclude that the German economy suffered from
________.
1. A) deflation
2. B) disinflation
3. C) hyperinflation
4. D) superdeflation
Answer: C
Diff: 1 Type: MC
Skill: Recall
36) If merchants in the country Zed choose to close their doors, preferring to be
stuck with rotting merchandise rather than worthless currency, then one can
conclude that Zed is experiencing a ________.
1. A) superdeflation
2. B) hyperdeflation
3. C) disinflation
4. D) hyperinflation
Answer: D
Diff: 1 Type: MC
Skill: Applied

37) Explain how cigarettes could be called “money” in prisoner-of-war camps of
World War II.
Answer: The cigarettes performed the three functions of money. They served as
the medium of exchange because individuals did exchange items for cigarettes.
They served as a unit of account because prices were quoted in terms of the
number of cigarettes required for the exchange. They served as a store of value
because an individual would be willing to save their cigarettes even if they did
not smoke because they believed that they could exchange the cigarettes for
something that they did want at some time in the future.
Diff: 2 Type: ES
Skill: Applied
38) Can packs of cigarettes be used as commodity money?
Answer: We must see whether cigarettes satisfy the 5 criteria for a commodity
to function effectively as money:
1. Easily standardized—yes they are, cigarettes come is packs.

2. Widely accepted—yes, if they are used in a setting such as WW II prisoners
of war.
3. Divisible—yes, packs of cigarettes are divisible to single cigarettes.
4. Easy to carry—yes, cigarettes are lightweight.
5. Must not deteriorate quickly—yes, cigarettes do not deteriorate easily.
Diff: 2 Type: ES
Skill: Applied
39) Economists say that money is a store of value. since there are other assets
that are a more desirable store of money, why do people hold money at all?
Answer: People hold money although it is not the best store of value, because
of an important economic feature of money, liquidity. Liquidity is a highly desired
property of assets. Liquidity measures how easily and fast an asset can be
converted into a medium of exchange. Since money is a medium of exchange it
is the most liquid asset, and thus, highly desirable although it is not the best
store of value.
Diff: 2 Type: ES
Skill: Applied
40) Why are people are willing to hold money even if it is not the most attractive
store of value?
Answer: The answer to this question relates to the economic concept

of liquidity, the relative ease and speed with which an asset can be converted
into a medium of exchange. Money is the most liquid asset of all because it is
the medium of exchange; it does not have to be converted into anything else in
order to make purchases. Other assets involve transaction costs when they are
converted into money.
Diff: 2 Type: ES
Skill: Applied
3.3 Evolution of the Payments System
1) The payments system is ________.
1. A) the method of conducting transactions in the economy

2. B) used by union officials to set salary caps
3. C) an illegal method of rewarding contracts
4. D) used by your employer to determine salary increases
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 3.3 Identify different types of payment systems
2) As the payments system evolves from barter to a monetary system, ________.
1. A) commodity money is likely to precede the use of paper currency

2. B) transaction costs increase
3. C) the number of prices that need to be calculated increase rather
dramatically
4. D) specialization decreases
Answer: A
Diff: 1 Type: MC
Skill: Recall
3) A disadvantage of ________ is that it can be very heavy and hard to transport

from one place to another.
1. A) commodity money
2. B) fiat money
3. C) electronic money
4. D) paper money
Answer: A
Diff: 1 Type: MC
Skill: Recall
4) Paper currency that has been declared legal tender but is not convertible into
coins or precious metals is called ________ money.
1. A) commodity
2. B) fiat
3. C) electronic
4. D) funny
Answer: B
Diff: 1 Type: MC
Skill: Recall

5) When paper currency is decreed by governments as legal tender, legally it

must be ________.
1. A) paper currency backed by gold

2. B) a precious metal such as gold or silver
3. C) accepted as payment for debts
4. D) convertible into an electronic payment
Answer: C
Diff: 1 Type: MC
Skill: Recall
6) The evolution of the payments system from barter to precious metals, then to
fiat money, then to cheques can best be understood as a consequence of the
fact that ________.
1. A) paper is more costly to produce than precious metals

2. B) precious metals were not generally acceptable
3. C) precious metals were difficult to carry and transport
4. D) paper money is less accepted than cheques
Answer: C
Diff: 2 Type: MC
Skill: Recall
7) Compared to cheques, paper currency and coins have the major drawbacks
that they ________.
1. A) are easily stolen

2. B) are hard to counterfeit
3. C) are not the most liquid assets
4. D) must be backed by gold
Answer: A
Diff: 1 Type: MC
Skill: Recall
8) Introduction of cheques into the payments system reduced the costs of

exchanging goods and services. Another advantage of cheques is that ________.
1. A) they provide convenient receipts for purchases

2. B) they can never be stolen
3. C) they are more widely accepted than currency
4. D) the funds from a deposited cheque are available for use immediately
Answer: A
Diff: 2 Type: MC
Skill: Recall
9) The evolution of the payments system from barter to precious metals, then to
fiat money, then to cheques can best be understood as a consequence of
________.
1. A) government regulations designed to improve the efficiency of the

payments system
2. B) government regulations designed to promote the safety of the payments
system
3. C) innovations that reduced the costs of exchanging goods and services
4. D) competition among firms to make it easier for customers to purchase
their products
Answer: C
Diff: 2 Type: MC
Skill: Applied

10) Compared to an electronic payments system, a payments system based on
cheques has the major drawback that ________.
1. A) cheques are less costly to process

2. B) cheques take longer to process, meaning that it may take several days
before the depositor can get her cash
3. C) fraud may be more difficult to commit when paper receipts are
eliminated
4. D) legal liability is more clearly defined
Answer: B
Diff: 3 Type: MC
Skill: Recall
11) Which of the following sequences accurately describes the evolution of the
payments system?
1. A) Barter, coins made of precious metals, paper currency, cheques,

electronic funds transfers
2. B) Barter, coins made of precious metals, cheques, paper currency,
3. C) Barter, cheques, paper currency, coins made of precious metals,
4. D) Barter, cheques, paper currency, electronic funds transfers
Answer: A
Diff: 2 Type: MC
Skill: Applied
12) During the past two decades an important characteristic of the modern
payments system has been the rapidly increasing use of ________.
1. A) cheques and decreasing use of currency

2. B) electronic payments
3. C) commodity monies
4. D) fiat money
Answer: B
Diff: 1 Type: MC
Skill: Recall
13) Which of the following is not a form of e-money?
1. A) A debit card
2. B) A credit card
3. C) A stored-value card
4. D) A smart card
Answer: B
Diff: 1 Type: MC
Skill: Applied
14) E-cash is used for payments ________.
1. A) that are always secure

2. B) that are very important
3. C) on the internet
4. D) in any transaction
Answer: C
Diff: 2 Type: MC
Skill: Recall
15) A smart card is the equivalent of ________.
1. A) cash
2. B) savings bonds
3. C) savings deposits
4. D) certificates of deposit
Answer: A
Diff: 1 Type: MC
Skill: Applied
16) An electronic payments system has not completely replaced the paper
payments system because of all of the following reasons except ________.
1. A) expensive equipment is necessary to set up the system

2. B) security concerns
3. C) privacy concerns
4. D) transportation costs
Answer: D
Diff: 1 Type: MC
Skill: Recall
17) In explaining the evolution of money, ________.
1. A) government regulation is the most important factor

2. B) commodity money, because it is valued more highly, tends to drive out
paper money
3. C) new forms of money evolve to lower transaction costs
4. D) paper money is always backed by gold and therefore more desirable
than cheques
Answer: C
Diff: 2 Type: MC
Skill: Applied

18) What factors have slowed down the movement to a system where all
payments are made electronically?
Answer: The equipment necessary to set up the system is expensive, security

of the information, and privacy concerns are issues that need to be addressed
before an electronic payments system will be widely accepted.
Diff: 1 Type: ES
Skill: Recall
19) What is a cheque? what are their advantages and disadvantages?
Answer: A cheque is an instrument used to transfer money from your account to

someone else’s account when she deposits the cheque.
Advantages: Reduces transportation costs associated with the payments system

as they frequently cancel each other. Also, they make the transactions for large
amounts much easier as they can be written for any amount up to the balance in
the account. Finally loss from theft is greatly reduced and they provide
convenient receipts for purchases.
Disadvantages: It takes time to get cheques from one place to another, it takes
several days for a cheque to be processed from your bank, and the paper work
required to process them is costly.
Diff: 1 Type: ES
Skill: Recall
20) Explain the evolution of the payments system. Is the system headed towards
a cashless society?
Answer: Societies begin with a barter system and then introduce commodity
money which was replaced with paper money. Fiat money, is legal tender,
based on the backing of an authority — typically the government. Cheques and
electronic payments were the next evolution in the system. A cashless society is
unlikely due to several concerns: 1) it is expensive to set up and 2) it raises
privacy and security concerns.
Diff: 1 Type: ES
Skill: Recall
21) What are electronic payments? how do they reduce transaction costs? by
how much?
Answer: In the past when paying bills you had to mail a cheque but now banks
provide a website in which you log on, make a few clicks and make the payment
that is transmitted electronically. You can even avoid logging in as reoccurring
bills can be automatically deducted from your bank account. Electronic
payments reduce transaction costs as you do not have to pay a stamp to send a
cheque and also you save time paying your bills electronically. Estimated cost
savings when a bill is paid electronically rather than a cheques exceed one
dollar.
Diff: 2 Type: ES
Skill: Recall
3.4 Measuring Money
1) If an individual moves money from a demand deposit account to a money

market mutual fund, ________.
1. A) M1+ decreases and M2 stays the same

2. B) M1+ stays the same and M2+ increases
3. C) M1+ stays the same and M2 stays the same
4. D) M1+ decreases and M2 decreases
Answer: D
Diff: 3 Type: MC
Skill: Applied
Objective: 3.4 Compare and contrast the M1 and M2 money supplies

2) If an individual moves money from a chequing account to a money market
mutual fund, ________.
1. A) M1+ decreases and M2+ increases

2. B) M1+ stays the same and M2+ increases
3. C) M1+ decreases and M2+ stays the same
4. D) M1+ increases and M2+ decreases
Answer: C
Diff: 3 Type: MC
Skill: Applied
3) Defining money becomes ________ difficult as the pace of financial innovation

________.
1. A) less; quickens
2. B) more; quickens
3. C) more; slows
4. D) more; stops
Answer: B
Diff: 1 Type: MC
Skill: Recall
4) Monetary aggregates are ________.
1. A) measures of the money supply reported by the Bank of Canada

2. B) measures of the wealth of individuals
3. C) never redefined since “money” never changes
4. D) reported by the Department of Finance annually
Answer: A
Diff: 1 Type: MC
Skill: Recall
5) Recent financial innovation makes the Bank of Canada’s job of conducting

monetary policy ________.
1. A) easier, since the Bank of Canada now knows what to consider money
2. B) more difficult, since the Bank of Canada now knows what to consider
money
3. C) easier, since the Bank of Canada no longer knows what to consider
money
4. D) more difficult, since the Bank of Canada no longer knows what to
consider money
Answer: D
Diff: 1 Type: MC
Skill: Recall
6) ________ is the narrowest monetary aggregate that the Bank of Canada reports.
1. A) M0
2. B) M1+
3. C) M2
4. D) M3
Answer: B
Diff: 1 Type: MC
Skill: Recall
7) The currency component includes paper money and coins held in ________.
1. A) bank vaults
2. B) ATMs
3. C) the hands of the nonbank public
4. D) the central bank
Answer: C
Diff: 1 Type: MC
Skill: Recall
8) The components of the M1+ monetary aggregate are chequable deposits plus
________.
1. A) currency
2. B) currency plus savings deposits
3. C) currency outside banks
4. D) currency plus money market deposits
Answer: C
Diff: 2 Type: MC
Skill: Recall
9) The M1+ measure of money includes ________.
1. A) small denomination time deposits

2. B) chequable deposits
3. C) money market deposit accounts
4. D) money market mutual fund shares
Answer: B
Diff: 1 Type: MC
Skill: Recall

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The Economics Of Money Banking

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Chapter 3 What Is Money?

3.1 Meaning of Money

1) A person’s house is part of her ________.

Objective: 3.1 Describe what money is

1. A) anything that is generally accepted in payment for goods and services

Objective: 3.1 Describe what money is

3) To an economist, ________ is anything that is generally accepted in payment for

Objective: 3.1 Describe what money is

4) Currency is defined as ________.

1. A) anything accepted for payment of goods and services

Objective: 3.1 Describe what money is

1. A) the same as currency

Objective: 3.1 Describe what money is

6) Currency includes ________.

1. A) paper money and coins

Objective: 3.1 Describe what money is

7) There is no single precise measure of money or the money supply for

1. A) the government considers money supply statistics to be confidential

Objective: 3.1 Describe what money is

8) Even economists have no single, precise definition of money because ________.

1. A) money supply statistics are a state secret

Objective: 3.1 Describe what money is

9) The total collection of pieces of property that serve to store value is a

Objective: 3.1 Describe what money is

11) ________ is a flow of earnings per unit of time.

Objective: 3.1 Describe what money is

12) An individual’s annual salary is her ________.

1. A) the quantity of money is measured at a given point in time

Objective: 3.1 Describe what money is

14) The difference between money and income is that ________.

1. A) money is a flow and income is a stock

Objective: 3.1 Describe what money is

15) Income is a ________ and wealth is a ________.

Objective: 3.1 Describe what money is

16) Which of the following is a true statement?

1. A) Money and income are flow variables.

Objective: 3.1 Describe what money is

1. A) I plan to earn a lot of money over the summer.

Objective: 3.1 Describe what money is

1. A) Moneyland is a poor country

Objective: 3.1 Describe what money is

Answer: Non-economists often use money synonymously with wealth or

Objective: 3.1 Describe what money is

3.2 Functions of Money

1) If peanuts serve as a medium of exchange, a unit of account, and a store of

Objective: 3.2 List and summarize the functions of money

2) For a commodity to function effectively as money it must be ________.

1. A) easily standardized, making it easy to ascertain its value

Objective: 3.2 List and summarize the functions of money

Objective: 3.2 List and summarize the functions of money

4) Compared to an economy that uses a medium of exchange, in a barter

1. A) transaction costs are higher

Objective: 3.2 List and summarize the functions of money

Objective: 3.2 List and summarize the functions of money

15) Income is a and wealth is a .