Ch 2 - The nature of money

Question 1

What is money

Answer 1

Anything which is in general use, and generally accepted, as a form of exchange and a means for performing transactions.

Question 2

What are the 4 functions of money?

Answer 2

1. Standard for deferred payment
2. Medium of exchange/means of payment
3. Unit of account
4. Store of value

Question 3

Name 4 types of money

Answer 3

1. Barter system
2. Commodity money
3. Fiat money
4. Credit money

Question 4

What is the Wicksell problem?

Answer 4

Self sufficiency arising due to it being impossible to secure trade gains through bilateral exchange in the absence of indirect barter, arising due to a double coincidence of wants.

Question 5

Name 6 properties of money

Answer 5

Durability, portability, homogeneous, divisibility, recognisability, acceptability

Question 6

A medium of exchange may not necessarily be a _________

Answer 6

Means of payment

Question 7

What is outside money?

Answer 7

Money that is not a liability for anyone ‘inside’ the economy

Question 8

What is inside money?

Answer 8

Money issued by the private intermediaries in the form of debt

Question 9

In general, fiat money is _____ volatile than commodity money

Answer 9

More

Question 10

What are some shortcomings of the Barter system?

Answer 10

Inability to separate the act of buying from the selling of a product
Uncertainty on the rate of exchange
Difficulty in transportation

Question 11

Fiat money won’t function in the absence of _______

Answer 11

Trust