ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 02
EXERCISE 3: 6 POINTS TOTAL DUE: Tuesday, February 12, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*INSTRUCTIONS:*
(1) Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of your bubble sheet and write "353 SECTION 1-EXERCISE 3" in the top margin
of Side 1.
(2) Use a #2 pencil# to MARK YOUR ANSWERS on Side 1 of the bubble sheet to
the following six multiple choice questions.
(3) Please note that these six questions continue onto the back side of
this question sheet. Each question is worth 1 point.
Q1. By definition, whatever a society uses as money must ________
A. be completely inflation proof.
B B. be generally acceptable as payment for goods and services
and repayment of debts.
C. be legal tender
D. contain at least some amount of a precious metal.
E. both B and C
Q2. Which of the following statements about "fiat money" are accurate:
A. fiat money is paper money
B. fiat money is legal tender -- i.e., by law, citizens must accept
it as repayment for debts.
C. fiat money is backed (convertible into a precious metal or some
other commodity)
D. all of the above are true by definition of fiat money.
E E. only A and B
Q3. If the U.S. aggregate price level were to fall by half, then (all else
equal) the purchasing power of a U.S. dollar would be expected to
A. more than double.
B B. double.
C. rise but not double due to diminishing returns.
D. fall by half.
E. fall by more than half.
Q4. During hyperinflations,
A. the inflation rate exceeds 50% per month.
B. money no longer functions as a good store of value, so the volume of
barter transactions tends to increase.
C. holders of bonds benefit because bond prices rise.
D. all of the above occur.
E E. only A and B occur.
Q5. The conversion of a barter economy to one that uses money tends to
A. decrease efficiency by reducing the volume of trade.
B B. increase efficiency by encouraging specialization (division of labor).
C. increase efficiency by increasing reliance on double coincidence of wants.
D. decrease efficiency by increasing the number of prices.
E. both B and C
Q6. During the years immediately preceding the American Revolution, the
colonies relied heavily on ________ as their principal form(s) of money.
A. collateralized notes issued by the Bank of North America
B. greenbacks
C. British coins and gold reserves
D D. commodity monies and backed paper monies
E. Federal Reserve Notes
