Money and Inflation Day 1 and 2: Functions and History of Money

Money resolves the problem of double coincidence of wants by:

• Serving as a clear unit of account.

• Functioning as a medium of exchange.

• Establishing a reliable store of value.

• Being inherently valuable.

Which of the following is TRUE about the relationship between the development of money and specialization?

• As more and more people specialize in their work, they become more likely to prefer bartering to using money.

• The invention of money led to a decline in specialization, since workers could exchange goods more easily.

• The introduction of money enables more specialization in a society by lowering transaction costs.

• Specialization reduces the need for money as a form of payment.

True/False: A nation’s wealth is accurately represented by the total sum of money available to its citizens.

• True

• False

Which of the following is a DESIRABLE characteristic of money?

• Unstable

• Scarce

• Flexible

• Indivisible

Which of the following is a DESIRABLE characteristic of money?

• Unstable

• Durable

• Flexible

• Indivisible

Which of the following best describes commodity money?

• Commodity money is easily misplaced.

• Commodity money can ONLY be precious metals.

• Commodity money is what we call modern, paper money.

• Commodity money can be used as something other than money; it has its own value.

Which of the following is an example of fiat money?

• Gold

• Silver

• Honey Buns

• Paper money

The MOST important function of money is ​ (a)  

• as a medium of exchange
• as a store of wealth
• as a unit of account

In the 20th century, governments moved away from having their ​ (a)   be redeemable for ​ (b)   . (The U.S. formally left the gold standard in 1971 although it was somewhat off the standard since 1933).

• currency
• gold

​ (a)   money has no intrinsic value; it works only because we all believe it does.  The institution in charge of the money (​ (b)   ) has to be careful to maintain that trust.

• Fiat
• Central Bank
• commodity
• barter