Functions of Money and Say's Law Quiz
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Questions and Answers

What is required for a double coincidence of wants?

  • Two sellers who want the same thing
  • Two buyers who want the same thing
  • A buyer and a seller wanting the same thing
  • Two buyers each wanting what the other has (correct)
  • Which of the following is a recognized function of money?

  • Medium of value
  • Medium of store
  • Store of exchange
  • Unit of exchange (correct)
  • How does money function as a time machine for moving purchasing power?

  • Medium of exchange
  • Store of value (correct)
  • Medium of value
  • Store of exchange
  • What do people give up when they demand money instead of interest on bonds?

    <p>Interest income</p> Signup and view all the answers

    In the context of money, what does 'store of exchange' refer to?

    <p>Storing money for future transactions</p> Signup and view all the answers

    Why is money considered a unit of account?

    <p>To provide a standard measure for prices</p> Signup and view all the answers

    In a world where Say's Law always holds true, which function of money seems irrational?

    <p>Store of value</p> Signup and view all the answers

    Which function(s) of money are considered rational in a world where Say's Law always holds true?

    <p>Unit of account and medium of exchange</p> Signup and view all the answers

    Why does holding money to reduce uncertainty align more closely with Keynes' view of money?

    <p>Keynes' explanation of money as a store of value</p> Signup and view all the answers

    In a perfectly efficient market, which function of money would be least needed?

    <p>Store of value</p> Signup and view all the answers

    Which function of money becomes less relevant in a hyperinflationary economy?

    <p>Unit of account</p> Signup and view all the answers

    When interest rates are high, which function of money may be less attractive to individuals seeking to maximize returns?

    <p>Store of value</p> Signup and view all the answers

    What is the primary function of money that allows individuals to easily compare the relative prices of products and services?

    <p>Unit of account</p> Signup and view all the answers

    What is considered as the opportunity cost of holding money?

    <p>Liquidity</p> Signup and view all the answers

    Which of the following statements is FALSE regarding the opportunity cost of holding bonds?

    <p>It is liquidity</p> Signup and view all the answers

    What is the role of interest rate in relation to holding money, as mentioned in the text?

    <p>Serves as the opportunity cost of holding money</p> Signup and view all the answers

    Which function of money involves making transactions easier by acting as a generally accepted intermediary in trade?

    <p>Medium of exchange</p> Signup and view all the answers

    In terms of opportunity cost, what does holding bonds involve according to the text?

    <p>Forgone interest from not holding money</p> Signup and view all the answers

    What is the primary role of the Bank of Canada?

    <p>To maintain the stability and liquidity of the financial system</p> Signup and view all the answers

    Do liquid assets generally earn a higher interest rate compared to loans to consumers?

    <p>No</p> Signup and view all the answers

    Who creates money in Canada based on the text?

    <p>Both Bank of Canada and chartered banks</p> Signup and view all the answers

    Is the money supply in Canada solely determined by the Bank of Canada?

    <p>Yes, exclusively by the Bank of Canada</p> Signup and view all the answers

    What is the interest rate primarily according to the text?

    <p>The price of money</p> Signup and view all the answers

    Which institution earns a lower interest rate on liquid assets?

    <p>Bank of Canada</p> Signup and view all the answers

    Which statement is FALSE regarding bonds and money as a store of value?

    <p>Bonds are riskier than money.</p> Signup and view all the answers

    What is the term for the connection between changes in money markets and changes in aggregate demand?

    <p>Monetary Transmission Mechanism</p> Signup and view all the answers

    The quantity theory of money suggests that changes in the money supply primarily impact which of the following?

    <p>Inflation</p> Signup and view all the answers

    How do bond prices typically react to changes in interest rates?

    <p>Bond prices and interest rates move in opposite directions.</p> Signup and view all the answers

    Which factor is NOT directly impacted by changes in the money supply according to the quantity theory of money?

    <p>Unemployment</p> Signup and view all the answers

    What effect does an increase in the money supply have on inflation according to the quantity theory of money?

    <p>Increases inflation</p> Signup and view all the answers

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