PF_2-1 Functions of Money_Lesson Quiz

Which of the following is NOT a function of money?

• Medium of exchange

• Unit of measure

• Store of value

• Durability

Answer explanation

A medium of exchange, store of value, and unit of measure are the three primary functions of money. Money is used to facilitate transactions (medium of exchange), to store wealth for future use (store of value), and to measure the value of goods and services (unit of measure). Durability is a characteristic of money, not a primary function.

What function of money allows individuals to save and use it in the future?

• Medium of exchange

• Store of value

• Unit of measure

• Limited Supply

Answer explanation

The store of value function of money ensures that it can be saved and used in the future without losing its value significantly. While medium of exchange and unit of measure are crucial functions, they do not directly pertain to the ability to save money. Limited supply is a characteristic of money, not a primary function.

Which characteristic of money ensures that all units of the same value are accepted as equal?

• Divisibility

• Uniformity

• Durability

• Limited supply

Answer explanation

Uniformity ensures that units of money are identical in value and appearance, making them reliably acceptable in transactions. Divisibility refers to breaking money into smaller units, limited supply ensures value by controlling money's availability, and durability pertains to the physical longevity of money.

What was the primary reason for the transition from a barter system to the use of money?

• Need for a durable medium

• Need for a portable medium

• Need for a divisible medium

• Need for a universally accepted medium of exchange

Answer explanation

The barter system's inefficiencies and limitations highlighted the need for a universally accepted medium of exchange. While durability, portability, and divisibility are important characteristics of money, the main driver for the transition was the need for a standard medium that could simplify transactions.

Which characteristic of money makes it easy to transport and use in transactions wherever you go?

• Durability

• Portability

• Divisibility

• Limited supply

Answer explanation

Portability allows individuals to carry money easily and make transactions conveniently. Durability ensures money's physical longevity, divisibility allows money to be broken into smaller units, and limited supply controls its availability to maintain value.

Why is money considered a unit of measure?

• It provides a standard numerical unit for the market value of goods and services

• It can be stored for future use which enables the ability to accurately calculate and measure future expenses.

• It is universally accepted

• It can be divided into smaller units

Answer explanation

As a unit of measure, money provides a consistent way to compare the value of different items. While storage, universal acceptance, and divisibility are important aspects of money, the function as a unit of measure specifically pertains to valuing and comparing goods and services.

Which form of money is described as the official form in active circulation within a country?

• The dollar

• Precious metals

• Cryptocurrencies

• Currency

Answer explanation

Currency is the official form of money in active circulation, including both physical forms like paper bills and coins, and digital representations. Dollars, precious metals, and cryptocurrencies are other forms of money or mediums of exchange, but they are not the official currency in circulation.

What problem does the characteristic of limited supply in money help to prevent?

• Inflation

• Durability issues

• Divisibility problems

• Uniformity discrepancies

Answer explanation

Limited supply helps to control the amount of money in circulation, preventing inflation which occurs when there is too much money available, reducing its purchasing power. Durability, divisibility, and uniformity are important characteristics but do not directly relate to preventing inflation.

Which characteristic of money ensures that it can be used for both large and small transactions?

• Durability

• 
  Portability

• Divisibility

• Acceptability

Answer explanation

Divisibility allows money to be broken into smaller units, facilitating transactions of various sizes. Durability pertains to physical longevity, portability to ease of transport, and acceptability to wide acceptance in transactions.

How does money act as a medium of exchange?

• By maintaining its value over time

• By being accepted in exchange for goods and services

• By providing a standard measure for goods and services

• By being durable and portable

Answer explanation

As a medium of exchange, money facilitates the buying and selling of goods and services. Maintaining value over time relates to the store of value function, providing a standard measure is the unit of measure function, and durability and portability are characteristics that support these functions.