#1
Which of the following is NOT a function of money in an economy?
Unit of labor
ExplanationMoney doesn't serve as a unit of labor; it functions as a medium of exchange, a store of value, and a unit of account.
#2
Which of the following is an example of fiat money?
Paper currency
ExplanationFiat money has no intrinsic value and is declared legal tender by a government; paper currency is a common example.
#3
What term describes a situation where a country's imports exceed its exports, leading to a deficit in the balance of trade?
Current account deficit
ExplanationA current account deficit occurs when a country spends more on imports of goods, services, and transfers than it receives.
#4
Which organization is responsible for issuing the currency in the United States?
Federal Reserve System
ExplanationThe Federal Reserve System, often referred to as the Fed, is the central bank of the United States and issues currency.
#5
What term refers to the total amount of money circulating in the economy, including currency, demand deposits, and checking accounts?
M2 money supply
ExplanationM2 money supply includes cash, checking deposits, and easily convertible near money, providing a broader measure of money in circulation.
#6
What is the term for the ratio of the money supply to the total value of all final goods and services produced in an economy during a given period?
Velocity of money
ExplanationVelocity of money refers to the rate at which money is exchanged in transactions in an economy.
#7
What is the primary tool used by central banks to control the money supply in an economy?
Open market operations
ExplanationOpen market operations involve buying and selling government securities to influence the money supply.
#8
Which of the following is NOT a characteristic of commodity money?
Accepted by government decree
ExplanationCommodity money derives its value from the material it is made of, like gold or silver, not from government declaration.
#9
What is the term for the interest rate at which a central bank lends money to commercial banks?
Discount rate
ExplanationThe discount rate is the rate at which the central bank lends funds to commercial banks.
#10
What is the term for a sudden and significant decline in the value of a currency relative to other currencies?
Currency depreciation
ExplanationCurrency depreciation occurs when a currency loses value against other currencies, often due to market forces or economic factors.
#11
In the context of currency systems, what does the term 'pegging' refer to?
Tying the value of one country's currency to another currency or standard
ExplanationPegging involves fixing the exchange rate of a country's currency to another currency or a commodity like gold.
#12
Which of the following is a characteristic of a floating exchange rate system?
Exchange rates fluctuate based on market supply and demand
ExplanationIn a floating exchange rate system, currency values are determined by market forces without government intervention.
#13
What term describes a situation where a country's government or central bank allows its currency to freely float against other currencies, without intervention?
Currency float
ExplanationCurrency float refers to a system where the exchange rate is determined by market forces rather than fixed by the government or central bank.
#14
Which of the following is an example of a dual exchange rate system?
Currency board
ExplanationA currency board is an example of a system where two exchange rates exist, typically a fixed rate for international transactions and a floating rate for domestic transactions.
#15
Which of the following is a disadvantage of a fixed exchange rate system?
Loss of monetary policy independence
ExplanationIn a fixed exchange rate system, a country may lose control over its monetary policy as it must adjust its interest rates to maintain the fixed rate.