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MONEY AND BANKING QUESTIONS CHAP 2 - 5 Q2)

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MONEY AND BANKING QUESTIONS CHAP 2 - 5 Q2) How many prices must a barter economy have if the economy has four goods? What if it has 400 goods? Explain why having a money in the second case is beneficial. - CORRECT ANSWER -•4 goods = 6 prices; 400 goods = 79,800 prices. •Money allows us to reduce the number of stated prices we need. Q3) You read a news story about a country that is suffering from rapid, ongoing increases in the cost of living. Which characteristic of money is being directly negatively impacted in the economy? - CORRECT ANSWER -c. Store of value Q2) Proponents of the Gold Standard, or using gold as money, often argue that it will keep inflation under control. How does the experience of Europe in the sixteenth century raise doubts about that claim? - CORRECT ANSWER -•If people start to hoard gold or silver, there may not be enough money, an economy could slide into recession. If gold or silver increases too rapidly the economy could suffer inflation Q3) Ricardo and Friedman agree that if the money supply increases "too quickly" the following happens: - CORRECT ANSWER -c. The rate of inflation increases Q6) A critic of money economics once stated, "if you cannot measure the money supply

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