1. Test Your Knowledge What Is Money
Click on the letter choices to test your understanding A B C

2. Question 1
Medium of exchange, unit of account, and store of value are all: A
Characteristics of money B
Functions of money C
Types of money

3. Try again!
Money has six characteristics. In order to be efficient, money needs to be portable, divisible, durable, relatively scarce, acceptable, and distinguishable.
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4. Correct!
Money is an item, or commodity, that people agree to accept in trade. Money has three functions: medium of exchange, standard of value, and store of value.
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5. Try again!
There are three types of money: commodity money, representative money, and fiat money.
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6. Question 2
Anything that is widely accepted as a payment for goods and services is considered: A
Specialization B
Coincidence of wants C
Money

7. Try again!
Specialization is when a person or organization concentrates on producing a limited good or service at a lower price or higher quality than others.
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8. Try again!
Barters consist of swapping goods and services for other goods and services. A barter can make trading difficult because it requires a coincidence of wants, which involves two people each wanting to have what the other wants to trade.
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9. Correct!
Inflation often causes saving and investment to decrease as economic growth falls and unemployment rises.
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10. Question 3
Which of the following does NOT describe a characteristic of money? A
Backed by gold B
Durable and relatively scarce C
Divisible and portable

11. Correct!
Our currency is fiat money, which is backed up by faith and trust in the U.S. government, not by precious metal.
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12. Try again!
Both durability and scarcity are characteristics of money. Money should be durable so that it can last, and relatively scarce so that it maintains its value.
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13. Try again!
Both divisibility and portability are characteristics of money. Money should be easily divided into smaller parts to facilitate exchange. It should also be easy to transport or carry around.
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14. Question 4 Which type of money is used in the United States? CommodityB
Fiat C
Representative

15. Try again!
Commodity money serves as currency and also has an intrinsic value. The ancient Chinese used tea, which has intrinsic value as a beverage, as money. Salt and tobacco are other examples of commodities once used as money. The United States currently does not use commodity money.
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16. Correct!
Fiat money is money that has no intrinsic value and can’t be redeemed for a commodity such as a precious metal. It is made legal tender through government decree. Federal Reserve notes are fiat money and are legal tender. These notes must be accepted in payment of debt, or else the creditor forfeits the privilege of charging interest and the right to sue the debtor for nonpayment.
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17. Try again!
Representative money consists of tokens or pieces of paper that are not intrinsically valuable themselves but that can be exchanged for a specific commodity such as gold or silver. A silver certificate is an example of representative money.
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18. Question 5
One of the biggest problems with barter is that it requires: A
A double coincidence of wants B
Exchange rate calculation C
Larger amounts of money than in other types of exchanges

19. Correct!
Barters consist of swapping goods and services for other goods and services. Bartering can make trading difficult because it requires a coincidence of wants (sometimes referred to as “double coincidence of wants”), which involves two people each wanting to have what the other wants to trade.
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20. Try again!
Barter is the swapping of goods for other goods—no money is exchanged.
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21. Try again!
Barter is the swapping of goods for other goods. Money does not exchange hands in barter arrangements.
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22. Question 6
Different measures of money are characterized by different degrees of what? A
Deflation B
Inflation C
Liquidity

23. Try again!
Deflation is a decrease in the general level of prices of goods and services in an economy over a period of time.
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24. Try again!
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
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25. Correct!
Different measures of money are characterized by different degrees of liquidity, or how easily the asset can be converted to cash.
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26. Question 7 What happens if we have too much money in the economy?
Prices will fall B
Prices will rise C
Prices will remain stable

27. Try again!
If there is too little money in the economy, then the price level will fall which can lead to deflation.
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28. Correct!
If there is too much money in the economy, then the price level will rise which can lead to inflation.
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29. Try again!
If there is too little money in the economy, then the price level will fall which can lead to deflation. If there is too much money in the economy, then the price level will rise which can lead to inflation.
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30. Question 8 M1 and M2 are: Measures of inflationB
Ways to measure interest rates C
Measures of the money supply

31. Try again!
Inflation is usually measured by the Consumer Price Index, the Producer Price Index, and the Personal Consumption Expenditures (PCE) index.
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32. Try again!
The Federal Reserve’s monetary policy actions affect interest rates, but they are not included in M1 and M2.
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33. Correct!
M1 and M2 are two widely used measures of the money supply in the United States.
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34. Question 9
The most liquid of assets—consisting of currency held by the public, traveler’s checks, demand deposits, and other checkable deposits—is: A M1 B M2 C
Both of the above

35. Correct!
M1 is the most liquid of assets, consisting of currency held by the public, traveler’s checks, demand deposits, and other checkable deposits
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36. Try again!
M2 is a broader definition of money. M2 includes M1 as well as “near-monies,” such as savings deposits, money market deposits accounts, small-time deposits, and money market mutual funds.
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37. Try again!
M1 and M2 are two widely used measures of the money supply in the United States.
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38. Question 10
M1 plus savings deposits, money market deposits accounts, small-time deposits, and money market mutual funds is: A
Liquidity B
Inflation C M2

39. Try again!
Liquidity is the measure of how easily an asset can be converted to cash.
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40. Try again!
If there is too much money in the economy, then the price level will rise which can lead to inflation.
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41. Correct
M2 is a broader definition of money, including M1 and “near-monies,” such as savings deposits, money market deposits accounts, small-time deposits, and money market mutual funds.
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42. Thank you for participating in “Test Your Knowledge”