Question

Question 1

The existence of money enables us to avoid barter. In this capacity, money is functioning as a

a) Standard of value
b) Unit of barter
c) Medium of exchange
d) Store of value

Question 2

Money makes it possible to easily compare the prices of different products with one another. In this capacity, money is functioning as a

a) Standard of value
b) Store of value
c) Source of status
d) Medium of exchange

Question 3

Which of the following correctly defines the M-1 money supply?

a) Currency, checkable deposits, and savings deposits
b) Checkable deposits, coins and paper currency
c) None of the above
d) Coins plus paper currency

Question 4

A bank's excess reserves are defined as

a) Total reserves minus required reserves
b) Total reserves minus checkable deposits
c) Total reserves minus loans
d) Total bank assets minus bank liabilities

Question 5

If depositors become worried about the safety of their deposit accounts, they may trigger a(n)

a) run on the bank
b) required reserve increase
c) deposit surplus
d) fiscal policy crisis

Answer 1

1.

Money is anything which is used for the transaction in the economy and money have following functions

Three function of money are;

Medium of exchange; Money is very good medium of exchange and money has removed the problem of double coincidence need of the barter system. This is because everyone accepts money and they exchange goods for money and with the money they purchase whatever they wants.

Unit of Account; Money has provided many different unit of account which has provided the facility of purchasing different goods having different market values. It the barter system there was problem of divisibility of goods which was used for exchange.

Store of value; Money can be used for storing wealth because it does not perish easily and it is easy to preserve in the house. But in the barter system storing goods was not possible which was used for exchange.

The existence of money enables us to avoid barter. In this capacity, money is functioning medium of exchange because with the availability of money, the barter problem of want of double coincidence reduces.

Hence option C is the correct answer.

2.

Money makes it possible to easily compare the prices of different products with one another. In this capacity, money is functioning as a standard of value because with the availability of each good in money terms make transaction and calculation of value of goods and service easy.

Hence option a is the correct answer.

3.

M1=paper Currency held by public+ coins+ checkable deposits

Hence option b is the correct answer.

4.

Since bank excess reserve = total reserve- required reserve

Hence option a is the correct answer.