Functions of Money Quiz

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Questions and Answers

What is the term for the requirement in a barter economy where a trader must find another trader willing to trade what the first trader wants and wants what the first trader has?

  • Double Coincidence of Wants (correct)
  • Medium of Exchange
  • Supply and Demand
  • Barter

Which function of money refers to the ability of an item to hold value over time?

  • Double Coincidence of Wants
  • Store of Value (correct)
  • Medium of Exchange
  • Unit of Account

What is the narrow definition of the money supply, consisting of the most liquid forms of money?

  • M1 (correct)
  • Currency
  • M2
  • Checkable deposits

What is the broad measure of the money supply, consisting of small-denomination time deposits and retail money market mutual funds?

<p>M2 (A)</p> Signup and view all the answers

What is the term for anything that is generally acceptable in exchange for goods and services?

<p>Medium of Exchange (C)</p> Signup and view all the answers

What is the term for a type of bank account that allows the account holder to write checks or drafts against the account balance?

<p>Checkable deposit (C)</p> Signup and view all the answers

Which one of the following is a function of money that refers to a common measure in which relative values are expressed?

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

In a barter economy, what does the term 'Double Coincidence of Wants' specify?

<p>The requirement for a trade to occur (C)</p> Signup and view all the answers

What is the term for the broad measure of the money supply, consisting of small-denomination time deposits and retail money market mutual funds?

<p>M2 (A)</p> Signup and view all the answers

What is the term for coins and paper money that are legal tender and creditors are required to accept them as payment?

<p>Currency (A)</p> Signup and view all the answers

Flashcards

Double Coincidence of Wants

A situation where two parties each possess something desired by the other, facilitating a trade.

Store of Value

Money's ability to maintain its purchasing power over time.

M1

The most liquid forms of money, like cash and checking accounts.

M2

A broader measure of money including less liquid assets like savings accounts.

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Medium of Exchange

Anything widely accepted as payment for goods and services.

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Checkable Deposit

Bank accounts where you can write checks against the balance.

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Unit of Account

A standard way to measure the relative value of different goods/services.

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Currency

Legal tender including coins and paper money.

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Study Notes

Barter Economy and Functions of Money

  • In a barter economy, the "Double Coincidence of Wants" specifies the requirement for a trader to find another trader willing to trade what the first trader wants and wants what the first trader has.
  • The ability of an item to hold value over time is referred to as the "store of value" function of money.

Money Supply

  • The narrow definition of the money supply, known as M1, consists of the most liquid forms of money.
  • The broad measure of the money supply, known as M2, consists of small-denomination time deposits and retail money market mutual funds.

Characteristics of Money

  • Anything that is generally acceptable in exchange for goods and services is referred to as "medium of exchange".
  • The function of money that refers to a common measure in which relative values are expressed is known as the "unit of account".

Types of Bank Accounts

  • A type of bank account that allows the account holder to write checks or drafts against the account balance is known as a "checking account".

Forms of Money

  • Coins and paper money that are legal tender and creditors are required to accept them as payment are referred to as "fiat money".

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