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ECO 4223 Luther Exam 1 Questions with 100% correct answers | verified | latest update 2024
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ECO 4223 Luther Exam 1Money - ANS-commonly accepted medium of exchange
·Common functions of money - ANS-o Medium of exchange (necessary, but not sufficient)
o Store of value (necessary, but trivial)
o Unit of account (unnecessary)
Inside Money - ANS-(bank money) created within banking system and is a claim to some other
asset that is used to make payments.
Inside Money Example - ANS-Checking account, bank owes you that money and you can use a
debit card to make a payment.
Outside Money - ANS-(base money) created outside banking system and is money used for
final settlement because it's not redeemable.
Outside Money Example - ANS-$100 bill (cash is not redeemable)
Commodity Money - ANS-is a good that is used as money. Historical examples include gold,
silver and salt.
Fiat Money - ANS-is an item that has no use apart from being a commonly accepted medium of
exchange. Modern examples the dollar and euros.
Why Do We Use Money? (2 views) - ANS-1) Historical Materialist View
2) Economic View
Historical Materialist View - ANS-(Anthropologist favor) money is a revenue-raising technology
introduced by governments to collect taxes more effectively.
Economic View - ANS-(Economists favor) money is a productive technology that reduces
transaction costs hence, facilitates exchange.
State Theory of Money - ANS-or chartalism, maintains that money was created by the
government.
Tools governments use to determine medium of exchange (4) - ANS-o Public receivability
o Legal tender status
o Forced money laws
o Ban alternatives
, Public Receivability - ANS-the government commits to accepting taxes and making purchases
with it.
Legal tender status - ANS-courts are required to recognize the item as satisfactory payment of
any debt, and settle disputes by requiring payment in the item.
Forced money laws - ANS-the government punishes those refusing to accept its preferred
money.
Ban alternatives - ANS-the government punishes those using some alternative money.
Epistemic Problem of State Theory of Money - ANS-you have to accept someone recognized
the potential for money- before money had ever existed
Spontaneous Order Theory of Money - ANS-describes a situation where the outcomes is not the
intention of the relevant decision makers. The outcome-money-is a product of human action, but
not design.
Characteristics of a good money (6) - ANS-o Saleable (widely accepted)
o Durable
o Portable
o Divisible
o Uniform
o Limited, predictable supply
Common measures of the price level (3) - ANS-o Consumer Price Index
o Personal Consumption Expenditures Price Index
o GDP Deflator
Consumer Price Index - ANS-designed to measure the prices consumers face when spending
their discretionary income.
Problems with CPI - ANS-survey based and ignores substitution
Personal Consumption Expenditures Price Index *Fed's preferred measure? - ANS-designed to
measure ALL the prices consumers face.
actual expenditures are used to determine the basket.
GDP Deflator - ANS-designed to measure the prices of all final goods and services produced in
the country.
Inflation - ANS-denotes an increase in the average level of prices (positive growth rate)
Deflation - ANS-denotes a decrease in the average level of prices (negative growth rate)
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