Chapter 3 Prediction Exam Questions 2024.

Chapter 3 Prediction Exam Questions 2024.Why is simply counting currency an inadequate measure of money? - ANSWER Since a lot of other assets have liquidity properties that are similar to currency but can be used as money to purchase goods and services, not counting them would understate an economy's access to liquidity for transactions purposes. For this reason, counting assets such as checking deposits or savings accounts more accurately reflects the stock of assets that can be considered money In prison, cigarettes are sometimes used amount inmates as a form of payment. How is it possible for cigarettes to solve the double coincidence of wants problem even if a prisoner does not smoke - ANSWER Even if he or she is a non-smoker, since the prisoner knows that others in the prison will accept cigarettes as a form of payment, they themselves would be willing to accept cigarettes as a form of payment. So, rather than prisoners having to barter and trade favors, cigarettes satisfy the double coincidence of wants in that both parties to a trade stand ready to use them to "purchase" goods or services. Why did cavemen not need money? - ANSWER Cavemen did not need money. In their primitive economy, they did not specialize in producing one type of good and they had little need to trade with other cavemen In Brazil, a country that underwent a rapid inflation before 1994, many transactions were conducted in dollars rather than in reals, the domestic currency. Why? - ANSWER Because of the rapid inflation in Brazil, the domestic currency, the real, was a poor store of value. Thus many people preferred to hold dollars, which were a better store of value, and used them in their daily shopping Was money a better store of value in the 1950s than in the 1970s? Why or why not? In which period would you have been more willing to hold money? - ANSWER Because money was losing value at a slower rate (the inflation rate was lower) in the 1950s than in the 1970s, it was a better store of value then, and you would have been willing to hold more of it. Why have some economists described money during a hyperinflation as a "hot potato" that is quickly passed from one person to another? - ANSWER Money loses its value at an extremely rapid rate in hyperinflation, so you want to hold it for as short a time as possible. Thus money is like a hot potato that is quickly passed from one person to another