1.2 Function of money

Of moneyʹs three functions, the one that distinguishes money from other assets is its function asa

• Store of value
• Unit of account
• Standard of deferred payment
• Medium of exchange

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanutsare

• Bank deposits
• Reserves
• Money
• Loanable funds

________ are the time and resources spent trying to exchange goods and services.

• Bargaining costs
• Transaction costs
• Contracting costs
• Barter costs

Compared to an economy that uses a medium of exchange, in a barter economy

• Transaction costs are higher
• Transaction costs are lower
• Liquidity costs are higher
• Liquidity costs are lower

When compared to exchange systems that rely on money, disadvantages of the barter systeminclude:

• The requirement of a double coincidence of wants
• Lowering the cost of exchanging goods over time
• Lowering the cost of exchange to those who would specialize
• Encouraging specialization and the division of labor

The conversion of a barter economy to one that uses money

• Increases efficiency by reducing the need to exchange goods and services
• Increases efficiency by reducing the need to specialize
• Increases efficiency by reducing transactions costs
• Does not increase economic efficiency

Which of the following statements best explains how the use of money in an economy increaseseconomic efficiency?

• Money increases economic efficiency because it is costless to produce
• Money increases economic efficiency because it discourages specialization
• Money increases economic efficiency because it decreases transactions costs
• Money cannot have an effect on economic efficiency

When economists say that money promotes ________, they mean that money encouragesspecialization and the division of labor.

• Bargaining
• Contracting
• Efficiency
• Greed

Money ________ transaction costs, allowing people to specialize in what they do best.

• Reduces
• Increases
• Enhances
• Eliminates

For a commodity to function effectively as money it must be

• Easily standardized, making it easy to ascertain its value
• Difficult to make change
• Deteriorate quickly so that its supply does not become too large
• Hard to carry around