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Chapter 14: Q1. (page 301)

The three functions of money are:

a. liquidity, store of value, and gifting.

b. medium of exchange, unit of account, and liquidity.

c. liquidity, unit of account, and gifting.

d. medium of exchange, unit of account, and store of value.

Short Answer

Expert verified

The correct answer is option d) medium of exchange, unit of account, and store of value.

Step by step solution

01

Step 1. Explanation for the correct option (d) 

The reasons for the correct option are:

  • Money is a medium of exchange asit is used to make purchasesand buy the goods and services one needs.

  • Money also serves as a unit of accountas it is used to measure the relative value of goods and services available in society.

Money as a store of value helps people to save it for future needs. Money is easy to store and does not deteriorate over time. It can be used to make transactions in future as well.

02

Step 2. Explanation for the incorrect options

Liquidity refers to how simply an asset can be converted into money. Liquidity is one of the key advantages of money, and it can’t be considered a function of money. Gifting is also a feature of money, so options a, b, and c are incorrect.

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Most popular questions from this chapter

Suppose that Lady Gaga goes to Las Vegas to play poker, and at the last minute, her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. Will Lady Gaga probably wager more or less as a result of the reimbursement offer? Explain.

Why do economists nearly uniformly support an independent Fed rather than one beholden directly to either the president or Congress?

How is the chairperson of the Federal Reserve System selected? Describe the relationship between the Board of Governors of the Federal Reserve System and the 12 Federal Reserve Banks. What is the purpose of the Federal Open Market Committee (FOMC)? What is its makeup?

Which two of the following financial institutions offer checkable deposits included within the M1 money supply: mutual fund companies; insurance companies; commercial banks; securities firms; thrift institutions? Which of the following items is not included in either M1 or M2: currency held by the public; checkable deposits; money market mutual fund balances; small-denominated (less than $100,000) time deposits; currency held by banks; savings deposits?

Suppose that a small country currently has \(4 million of currency in circulation, \)6 million of checkable deposits, \(200 million of savings deposits, \)40 million of small-denominated time deposits, and \(30 million of money market mutual fund deposits. From these numbers we see that this small country’s M1 money supply is _______ , while its M2 money supply is  _______.

a. \)10 million; \(280 million

b. \)10 million; \(270 million

c. \)210 million; \(280 million

d. \)250 million; $270 million
See all solutions

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