ECON 252 FINAL EXAM REVIEW QUESTIONS
Barter: - answer -a method of exchange whereby goods or services are traded directly
for other goods or services without the use of money or any other medium of exchange.
You need to get your house painted. You register with a barter website and offer your
car cleaning services to someone who will paint your house in return. What problems
are you likely to encounter? - answer -difficulty finding someone that needs you to
wash his car and paint your house in return, difficult to agree on how many car washes
is equivalent to painting a house, and it may take a lot of time to negotiate and finally
settle on a deal that you both find fair
Would the use of use of barter dollars resolve the problem? - answer -yes, because
you can both pay and be paid in barter dollars
Medium of exchange: - answer -money can be traded for goods and services
Unit of account: - answer -universal yardstick used to express/compare relative prices
of goods and services
Store of value: - answer -enables people to transfer purchasing power into the future
Fiat money: - answer -money that has value because the government has ordered that
it is an acceptable means to pay debts
In prison camps during wwii, and in some prisons today, cigarettes circulate among
prisoners. For example, today a cell phone might cost 600 cigarettes, whereas a
magazine might cost two cigarettes. Which functions of money are cigarettes fulfilling in
this case? - answer -store of value, medium of exchange, and unit of account
Over the last 50 years, credit cards have become an increasingly popular way for
people to purchase goods and services. Are credit cards themselves money? - answer
-no, because your credit cards are not assets
Almost every day, many people sign their names on checks, which are then accepted in
exchange for goods and services. Do these checks constitute money? - answer -no,
because checks simply represent a means of access to money, not money itself.
Because bitcoin can be used to buy goods and services, it serves as a: - answer -
medium of exchange
The value (in $) of bitcoin fluctuated dramatically in 2017. For savers, this has
diminished its function as a - answer -store of value
, The value (in $) of bitcoin fluctuated dramatically in 2017. For people trying to quote the
prices of goods and services, this has diminished its function as a - answer -unit of
account
What are some of the issues with bitcoins replacing major currencies? - answer -
hacking attacks, thefts, and other security problems. The value of a bitcoin is highly
volatile and so people that hold them may lose money. Bitcoin transactions often involve
"middlemen" and transaction fees for people buying goods and services. Bitcoin
deposits are not insured by the government.
Traditional currencies are controlled by central banks. What is a potential problem of
restricting the creation of bitcoins to a total of 21 million bitcoins? - answer -monetary
authorities cannot undertake expansionary monetary policy to stimulate the economy
during recessions
Given the way people have used bitcoin to earn a profit, many people believe bitcoin is
being used primarily as - answer -a financial investment
Why is bitcoin hard to value? - answer -it is not a value-producing asset, it does not
provide a stream of real capital, and it does not provide a steam of dividend income
What is the most important aspect of the "greater fool theory" of investing? - answer -
you have a "greater fool" willing to buy the asset at a higher price
What are the main forces behind the phasing out of cash and the push for digital
payment systems? - answer -younger consumers want payment systems that plug
seamlessly into their digital lives and banks, tech firms and telecoms companies are
developing fast, easy-to-use payment technologies from which they can pull data and
pocket fees
Why is cash cumbersome for banks? - answer -atm machines are expensive to run and
maintain, they need to sort it at the cash register, and they need to transport cash in
armored trucks and store it in very secure vaults
What is not a benefit of digital payment methods? - answer -it facilitates economic
transactions for low-income individuals
What are some of the benefits of digital payment methods? - answer -it creates a credit
history, helping consumers borrow funds. It enables small businesses to sell beyond
their borders. It is easier for governments to monitor tax evasion and fraud
What is not a downside of digital payment methods? - answer -it is harder for
consumers to keep track of their spending history
What is not a problem of a fast transition to a cashless economy? - answer -it is harder
for small businesses to receive payments
Barter: - answer -a method of exchange whereby goods or services are traded directly
for other goods or services without the use of money or any other medium of exchange.
You need to get your house painted. You register with a barter website and offer your
car cleaning services to someone who will paint your house in return. What problems
are you likely to encounter? - answer -difficulty finding someone that needs you to
wash his car and paint your house in return, difficult to agree on how many car washes
is equivalent to painting a house, and it may take a lot of time to negotiate and finally
settle on a deal that you both find fair
Would the use of use of barter dollars resolve the problem? - answer -yes, because
you can both pay and be paid in barter dollars
Medium of exchange: - answer -money can be traded for goods and services
Unit of account: - answer -universal yardstick used to express/compare relative prices
of goods and services
Store of value: - answer -enables people to transfer purchasing power into the future
Fiat money: - answer -money that has value because the government has ordered that
it is an acceptable means to pay debts
In prison camps during wwii, and in some prisons today, cigarettes circulate among
prisoners. For example, today a cell phone might cost 600 cigarettes, whereas a
magazine might cost two cigarettes. Which functions of money are cigarettes fulfilling in
this case? - answer -store of value, medium of exchange, and unit of account
Over the last 50 years, credit cards have become an increasingly popular way for
people to purchase goods and services. Are credit cards themselves money? - answer
-no, because your credit cards are not assets
Almost every day, many people sign their names on checks, which are then accepted in
exchange for goods and services. Do these checks constitute money? - answer -no,
because checks simply represent a means of access to money, not money itself.
Because bitcoin can be used to buy goods and services, it serves as a: - answer -
medium of exchange
The value (in $) of bitcoin fluctuated dramatically in 2017. For savers, this has
diminished its function as a - answer -store of value
, The value (in $) of bitcoin fluctuated dramatically in 2017. For people trying to quote the
prices of goods and services, this has diminished its function as a - answer -unit of
account
What are some of the issues with bitcoins replacing major currencies? - answer -
hacking attacks, thefts, and other security problems. The value of a bitcoin is highly
volatile and so people that hold them may lose money. Bitcoin transactions often involve
"middlemen" and transaction fees for people buying goods and services. Bitcoin
deposits are not insured by the government.
Traditional currencies are controlled by central banks. What is a potential problem of
restricting the creation of bitcoins to a total of 21 million bitcoins? - answer -monetary
authorities cannot undertake expansionary monetary policy to stimulate the economy
during recessions
Given the way people have used bitcoin to earn a profit, many people believe bitcoin is
being used primarily as - answer -a financial investment
Why is bitcoin hard to value? - answer -it is not a value-producing asset, it does not
provide a stream of real capital, and it does not provide a steam of dividend income
What is the most important aspect of the "greater fool theory" of investing? - answer -
you have a "greater fool" willing to buy the asset at a higher price
What are the main forces behind the phasing out of cash and the push for digital
payment systems? - answer -younger consumers want payment systems that plug
seamlessly into their digital lives and banks, tech firms and telecoms companies are
developing fast, easy-to-use payment technologies from which they can pull data and
pocket fees
Why is cash cumbersome for banks? - answer -atm machines are expensive to run and
maintain, they need to sort it at the cash register, and they need to transport cash in
armored trucks and store it in very secure vaults
What is not a benefit of digital payment methods? - answer -it facilitates economic
transactions for low-income individuals
What are some of the benefits of digital payment methods? - answer -it creates a credit
history, helping consumers borrow funds. It enables small businesses to sell beyond
their borders. It is easier for governments to monitor tax evasion and fraud
What is not a downside of digital payment methods? - answer -it is harder for
consumers to keep track of their spending history
What is not a problem of a fast transition to a cashless economy? - answer -it is harder
for small businesses to receive payments
