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The real interest rate adjusts the nominal interest rate for:

• exchange rate movements

• income growth

• inflation

• government controls

• None of these are correct.

____ are not a factor that causes currency supply and demand schedules to change.

• relative inflation rates

• relative interest rates

• relative income levels

• expectations

• All of these are factors that cause currency supply and demand schedules to change.

If the Fed announces that it will decrease U.S. interest rates, and the European Central Bank takes no action, then the value of the euro will ____ against the value of U.S. dollar (holding other factors constant).

• be unchanged

• depreciate

• appreciate

• depreciate but only briefly

Assume that British corporations begin to purchase more supplies from the United States as a result of several labor strikes by British suppliers. This action reflects:

• an increased demand for British pounds.

• a decrease in the demand for British pounds.

• an increase in the supply of British pounds for sale.

• a decrease in the supply of British pounds for sale.

If U.S. inflation suddenly increased while European inflation stayed the same, there would be:

• a decreased U.S. demand for euros and a decreased supply of euros for sale.

• an increased U.S. demand for euros and an increased supply of euros for sale.

• a decreased U.S. demand for euros and an increased supply of euros for sale.

• an increased U.S. demand for euros and a decreased supply of euros for sale.

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

• store of value

• medium of exchange

• unit of account

• None of the above is correct.

Which of the following best illustrates the medium of exchange function of money?

• You keep some money hidden in your shoe.

• You keep track of the value of your assets in terms of currency.

• You pay for your double latte using currency.

• None of the above is correct.

Economists use the word “money” to refer to

• income generated by the production of goods and services.

• those assets regularly used to buy goods and services.

• the value of a person’s assets.

• the value of stocks and bonds.

Liquidity refers to

• the ease with which an asset is converted to the medium of exchange.

• a measurement of the intrinsic value of commodity money.

• the suitability of an asset to serve as a store of value.

• how many time a dollar circulates in a given year.

Which list ranks assets from most to least liquid?

• currency, fine art, stocks

• currency, stocks, fine art

• fine art, currency, stocks

• fine art, stocks, currency