Functions and Characteristics of Money (Econ)

Questions and Answers

Which of the following are functions of money? (Select all that apply)

Medium of exchange (correct)

Store of value (correct)

Standard of value (unit of account) (correct)

None of the above

Which of the following are characteristics of money? (Select all that apply)

Durability (correct)

Portability (correct)

Divisibility (correct)

All of the above (correct)

What is durability?

When money lasts for a while.

What is portability?

When money is able to be carried easily. Signup and view all the answers

What is divisibility?

When money can be split easily. Signup and view all the answers

What is uniformity?

A standard form of payment. Signup and view all the answers

What is limited supply?

When there is not an abundance of printed bills. Signup and view all the answers

What is acceptability?

The confidence that the money can be constantly used. Signup and view all the answers

What are the types of money? (Select all that apply)

Fiat Signup and view all the answers

What is fiat money?

Money that has value because the government has decreed it as valuable. Signup and view all the answers

What is commodity money?

Items that hold inherent value and can be used as money. Signup and view all the answers

What is representative money?

Receipts that claim the person has 'money'. Signup and view all the answers

What is default?

Failure to pay back a loan. Signup and view all the answers

Study Notes

Functions of Money

Serves as a medium of exchange, facilitating trade and transactions.
Acts as a store of value, preserving purchasing power over time.
Provides a standard of value (unit of account), allowing for the comparison of different goods and services.

Characteristics of Money

Durability: Money must withstand physical wear and tear to retain its functionality.
Portability: Money should be easy to carry and transport, enhancing its usability in transactions.
Divisibility: Money can be divided into smaller units without losing its value, accommodating various transaction sizes.
Uniformity: Ensures standardization in form, which means each unit is identical in value and appearance.
Limited Supply: A controlled quantity of money in circulation prevents inflation and maintains value; involves recycling of currency.
Acceptability: Money must be widely accepted and trusted by users as a valid medium for transactions.

Types of Money

Fiat Money: Has value assigned by government decree rather than intrinsic worth; its legitimacy comes from legal status.
Commodity Money: Physical items with inherent value (such as gold or silver) that are used as a medium of exchange.
Representative Money: Represents a claim on a commodity; for instance, receipts that confer ownership of a specific amount of a commodity.

Additional Term

Default: The failure to repay a loan, which can have serious financial consequences for the borrower.

Description

This quiz focuses on the essential functions and characteristics of money in economics. It covers concepts such as medium of exchange, store of value, and the key properties that make money effective. Test your understanding of these fundamental economic principles.