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Money, Prices and Inflation: Definition of Money

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Money, Prices and Inflation: Definition of Money

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Questions and Answers

What is the primary function of money according to the text?

To make all prices easily comparable

To act as a store of value (correct)

To facilitate barter trade

To issue coins and banknotes

Which type of money has high intrinsic value, according to the text?

Paper currency

Bank deposits

Gold coins (correct)

Fiat money

What determines the money supply (Ms) of an economy, according to the text?

Mining corporations

Private commercial banks

Barter economies

Monetary authorities (correct)

In a barter economy, what is used for trade instead of money?

Goods directly exchanged for other goods Signup and view all the answers

What is the primary difference between fiat money and commodity money, according to the text?

Fiat money is widely accepted for trade Signup and view all the answers

What is the Cambridge equation used to represent?

Money demand function Signup and view all the answers

According to the dichotomy principle, what do nominal and real variables do?

Affect each other independently Signup and view all the answers

What does the neutrality of money imply in the long run?

Money supply changes only affect nominal variables Signup and view all the answers

In the context of money neutrality, what does the dichotomy principle help to simplify?

Macroeconomic models Signup and view all the answers

What does the neutral money assumption imply for changes in the money supply?

Lead to corresponding changes in real output Signup and view all the answers

What phenomenon can lead to the neutrality of money and the dichotomy principle not holding in the long run?

All of the above Signup and view all the answers

What does the nominal exchange rate represent?

The number of foreign currency units per domestic unit Signup and view all the answers

What does appreciation of the nominal exchange rate signify?

An increase in the value of the domestic currency Signup and view all the answers

What is the concept of hysteresis effects relevant to?

Economic production growth Signup and view all the answers

What is the primary function of a free banking system according to the text?

Issuing coins and banknotes Signup and view all the answers