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Chapter 24
The Nature and Creation of Money
Multiple Choice
1. In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to
buy items such as haircuts at the prison barber shop and laundry services. What function
do these packages of mackerel serve?
A) They functioned as money.
B) They served as a corruption deterrent.
C) They enabled prison officers to monitor illegal money flows.
D) They forced prisoners to engage in barter.
Ans: A
Difficulty: Easy
2. Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel
in exchange for goods and services. What function do these packages of mackerel perform?
A) They function as a store of value.
B) They function as a medium of exchange.
C) They function as a unit of account.
D) They function as a factor of production.
Ans: B
Difficulty: Easy
3. Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel
in exchange for goods and services. Why were they willing to accept mackerel in exchange
for goods and services?
A) because mackerel is a good source of protein

,B) because prison authorities deemed mackerel legal tender
C) because the inmates know that they could use the packages of mackerel to buy other
goods and services
D) because the inmates do not wish to consume mackerel
Ans: C
Difficulty: Easy
4. Any item that serves as a medium of exchange is called
A) gold.
B) capital.
C) silver.
D) money.
Ans: D
Difficulty: Easy
5. Money is any item that
A) serves as a medium of exchange for goods and services.
B) can be converted into silver with relatively little loss in value.
C) can be converted into gold with relatively little loss in value.
D) facilitates a connecting link between credit instruments and debt instruments.
Ans: A
Difficulty: Easy
6. Which of the following describes the medium-of-exchange function of money?
A) noting that Audible.com sells downloadable audio books for $10 per book
B) making a monthly payment toward your car loan
C) paying $30 for a haircut
D) putting away $50 each month into your savings account
Ans: C
Difficulty: Medium
7. You spend $20 to buy a used textbook at the college bookstore. What function does
money perform here?

,A) medium of exchange
B) store of value
C) unit of account
D) standard of deferred payment
Ans: A
?
Difficulty: Medium
8. Which of the following illustrates the medium-of-exchange function of money?
A) writing a check to buy a new Volkswagen
B) noting that the price of a $20,000 Volkswagen is 16,000 euros
C) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen
D) driving your $20,000 Volkswagen to a friend’s house
Ans: A
Difficulty: Medium
9. Which of the following is an advantage of using money as a medium of exchange?
A) It simplifies purchases because all prices are specified in money values.
B) There is no interest charged on using money for purchases.
C) It is easy to mass produce money.
D) It avoids having to rely on barter, the exchange of one good or service for another.
Ans: D
Difficulty: Medium
10. The functions of money are
A) a conductor of economic activity, a medium of exchange, and a store of value.
B) a medium of exchange, a store of value, and a factor of production.
C) a store of value, a medium of exchange, and a determinant of investment.
D) a store of value, a unit of account, and a medium of exchange.
Ans: D
Difficulty: Medium

, 11. When a person makes price comparisons among products, money is being used as a(n)
A) unit of account.
B) standard of quality.
C) medium of exchange.
D) checkable deposit.
Ans: A
Difficulty: Medium
12. When you buy a ticket to the rodeo, you are using money as a
A) source of economic activity.
B) store of value.
C) factor of production.
D) medium of exchange.
Ans: D
Difficulty: Medium
13. Money is essentially defined by
A) the intrinsic value of what is being used as money.
B) the judicial branch.
C) the government.
D) social usage.
Ans: D
Difficulty: Medium
14. When you discover money in your coat that you placed there last winter, you
unexpectedly find you were using money as a(n)
A) medium of exchange.
B) unit of account.
C) factor of production.
D) store of value.
Ans: D