ECO 301 TEST QUESTIONS WITH VERIFIED
ANSWERS
When a coffee shop lists a tall coffee on its menu at $2.95, the coffee shop is using
money as a - Answers - unit of account.
Correct. Money has three functions in society: a medium of exchange, a unit of account,
and a store of value. In this example, the price of the coffee represents a unit of
account. A unit of account is an agreed upon method of placing relative value on goods
and services.
Financial assets include which of the following? - Answers - Money, bonds, and stocks
Correct. Financial assets include all of the following: money, stocks, bonds, deposits in
checking accounts, and deposits in savings accounts.
Which of these most accurately defines possible effects of fluctuating interest rates in
the financial markets? - Answers - Prices and levels of employment
In a barter economy, the number of prices necessary will - Answers - depend on the
number of goods exchanged in the economy.
Correct. The number of prices in a barter economy is equal to the number of paired
goods. Therefore, a single good "A" may have a price measured in terms of many other
goods that people might trade for good "A."
If gold and silver became the primary types of commodity money in circulation, what
would most likely be expected if there was a sudden and great amount of hoarding of
these two items? - Answers - There would likely not be enough money, and the
economy could slide into an economic recession.
Correct. With a sudden and great amount of hoarding of the primary commodity money,
it would become difficult to buy and sell, and the economy could slide into an economic
recession.
Which of the following statements most accurately describes the measurements of the
money supply known as M1 and M2? - Answers - M1 was a measure of the money
supply that worked well until the mid-1970s; then M2 became a more accurate measure
until the 1990s.
Correct. M1 was used until the mid-1970s, M2 was used successfully until the early
1990s, and there is currently no agreed-upon monetary aggregate.
Imagine you live in a country suffering from extreme inflation of 20% per month. The
money you earn, every single molino, is worth a little less each week, so you and many
others around you begin to use the currency of a more prosperous neighboring country,
, the dolingo. What is the term for this practice of adopting another country's currency? -
Answers - Dollarization
Correct. Dollarization occurs when the citizens and merchants of a country begin to use
the currency of another country for their transactions. Note that it is not always the US
dollar that serves in this capacity.
Sherry says that she requires a 3% rate of interest in order to lend you some money.
This implies that for Sherry the present value of $100 to be received one year from
today is - Answers - $97.09.
Correct. The present value of $X to be received one year from today at i% interest is
$X/(1 + i). Thus, the present value of $100 to be received one year from today at 3%
interest is $100/(1 + 0.03) = $97.09.
Money is most accurately defined by which of the following statements? - Answers -
Money is anything generally accepted in exchange for goods and services.
Correct. Money is what individuals and businesses use to buy the things they want or
need. It does not have to come from the government or a central bank.
On payday you get paid in cash, so each week you put $10 into a shoebox in your
closet so that you can buy a big-screen TV at the end of the year. In this situation,
money is serving as a - Answers - store of value.
Joshua says that he would need 3% interest in order to lend you money which you will
pay back in two years. This implies that for Joshua the present value of $100 to be
received two years from today is what amount? - Answers - $94.26
Financial markets bring together __________ and __________. - Answers - borrowers;
lenders
Financial assets include intangibles that can change in value, such as stocks and bonds
- Answers - True
Financial assets are defined as including both tangible money and intangibles that have
monetary value.
Commonly accepted and widely used money that has no intrinsic value is known as -
Answers - fiat money.
Correct. Fiat money is an asset that functions throughout society as money but has no
intrinsic value, such as US currency.
If the interest rate is 5%, the value of $1,000 at the end of 10 years is - Answers -
$1,628.89.
If the market interest rate exceeds the coupon rate on a bond, the selling price of the
bond will be greater than the bond's face value. - Answers - False
If the market interest rate exceeds the coupon rate on a bond, the selling price of the
bond will be less than the bond's face value.
ANSWERS
When a coffee shop lists a tall coffee on its menu at $2.95, the coffee shop is using
money as a - Answers - unit of account.
Correct. Money has three functions in society: a medium of exchange, a unit of account,
and a store of value. In this example, the price of the coffee represents a unit of
account. A unit of account is an agreed upon method of placing relative value on goods
and services.
Financial assets include which of the following? - Answers - Money, bonds, and stocks
Correct. Financial assets include all of the following: money, stocks, bonds, deposits in
checking accounts, and deposits in savings accounts.
Which of these most accurately defines possible effects of fluctuating interest rates in
the financial markets? - Answers - Prices and levels of employment
In a barter economy, the number of prices necessary will - Answers - depend on the
number of goods exchanged in the economy.
Correct. The number of prices in a barter economy is equal to the number of paired
goods. Therefore, a single good "A" may have a price measured in terms of many other
goods that people might trade for good "A."
If gold and silver became the primary types of commodity money in circulation, what
would most likely be expected if there was a sudden and great amount of hoarding of
these two items? - Answers - There would likely not be enough money, and the
economy could slide into an economic recession.
Correct. With a sudden and great amount of hoarding of the primary commodity money,
it would become difficult to buy and sell, and the economy could slide into an economic
recession.
Which of the following statements most accurately describes the measurements of the
money supply known as M1 and M2? - Answers - M1 was a measure of the money
supply that worked well until the mid-1970s; then M2 became a more accurate measure
until the 1990s.
Correct. M1 was used until the mid-1970s, M2 was used successfully until the early
1990s, and there is currently no agreed-upon monetary aggregate.
Imagine you live in a country suffering from extreme inflation of 20% per month. The
money you earn, every single molino, is worth a little less each week, so you and many
others around you begin to use the currency of a more prosperous neighboring country,
, the dolingo. What is the term for this practice of adopting another country's currency? -
Answers - Dollarization
Correct. Dollarization occurs when the citizens and merchants of a country begin to use
the currency of another country for their transactions. Note that it is not always the US
dollar that serves in this capacity.
Sherry says that she requires a 3% rate of interest in order to lend you some money.
This implies that for Sherry the present value of $100 to be received one year from
today is - Answers - $97.09.
Correct. The present value of $X to be received one year from today at i% interest is
$X/(1 + i). Thus, the present value of $100 to be received one year from today at 3%
interest is $100/(1 + 0.03) = $97.09.
Money is most accurately defined by which of the following statements? - Answers -
Money is anything generally accepted in exchange for goods and services.
Correct. Money is what individuals and businesses use to buy the things they want or
need. It does not have to come from the government or a central bank.
On payday you get paid in cash, so each week you put $10 into a shoebox in your
closet so that you can buy a big-screen TV at the end of the year. In this situation,
money is serving as a - Answers - store of value.
Joshua says that he would need 3% interest in order to lend you money which you will
pay back in two years. This implies that for Joshua the present value of $100 to be
received two years from today is what amount? - Answers - $94.26
Financial markets bring together __________ and __________. - Answers - borrowers;
lenders
Financial assets include intangibles that can change in value, such as stocks and bonds
- Answers - True
Financial assets are defined as including both tangible money and intangibles that have
monetary value.
Commonly accepted and widely used money that has no intrinsic value is known as -
Answers - fiat money.
Correct. Fiat money is an asset that functions throughout society as money but has no
intrinsic value, such as US currency.
If the interest rate is 5%, the value of $1,000 at the end of 10 years is - Answers -
$1,628.89.
If the market interest rate exceeds the coupon rate on a bond, the selling price of the
bond will be greater than the bond's face value. - Answers - False
If the market interest rate exceeds the coupon rate on a bond, the selling price of the
bond will be less than the bond's face value.
