Functions of Money: Master the Roles of Money in Economics

Question 1

What is the primary goal of the Bank of England's monetary policy?

Accepted Answer

Maintain stable prices

Answer

Promote full employment

Answer

Balance the government's budget

Answer

Boost economic growth

Question 2

How does inflation affect the purchasing power of money?

Accepted Answer

Inflation reduces the amount of goods and services you can buy with the same amount of money.

Answer

Inflation increases the amount of goods and services you can buy with the same amount of money.

Answer

Inflation has no impact on the purchasing power of money.

Answer

Inflation is always beneficial for the economy.

Question 3

Which of the following is a disadvantage of using fiat currency?

Accepted Answer

Intrinsic value

Answer

Convenience

Answer

Stability

Answer

Durability

Question 4

Which of the following is NOT a function of money?

Accepted Answer

Investment vehicle

Answer

Store of value

Answer

Medium of exchange

Answer

Unit of account

Question 5

Which of the following is the most important characteristic of an effective monetary system?

Accepted Answer

Stability

Answer

Contractionary

Answer

Flexibility

Answer

Expansionary

Question 6

Which of the following is NOT a characteristic of a good store of value?

Accepted Answer

Subject to inflation

Answer

Durable

Answer

Easily divisible

Answer

Stable

Question 7

Which of the following is an example of a medium of exchange?

Accepted Answer

Banknotes

Answer

Property

Answer

Bonds

Answer

Stocks

Question 8

Which of the following is NOT a function of money?

Accepted Answer

Investment

Answer

Store of value

Answer

Medium of exchange

Answer

Unit of account

Question 9

When you use a banknote to purchase a cup of coffee, money is acting as a:

Accepted Answer

Medium of exchange

Answer

Commodity

Answer

Store of value

Answer

Capital

Question 10

Which of the following is a limitation of using money as a unit of account?

Accepted Answer

It can be difficult to compare the value of goods and services over time

Answer

It can be difficult to use across borders

Answer

It is not universally accepted

Answer

It can lose its value over time

Question 11

Which of the following is NOT a characteristic of an effective medium of exchange?

Accepted Answer

Scarcity

Answer

Portability

Answer

Durability

Answer

Acceptability

Question 12

Money enables specialization in production by allowing individuals to:

Accepted Answer

Specialize in producing goods and services they are most efficient at

Answer

Store goods and services for future use

Answer

Easily compare the value of different goods and services

Question 13

Which of the following is not a function of a central bank?

Accepted Answer

Issuing postage stamps

Answer

Regulating banks

Answer

Setting interest rates

Answer

Controlling the money supply

Question 14

Which of the following is not a primary function of money?

Accepted Answer

Investment medium

Answer

Unit of account

Answer

Store of value

Answer

Medium of exchange

Question 15

The ability of money to maintain its purchasing power over time is known as its:

Accepted Answer

Store of value

Answer

Unit of account

Answer

Acceptability

Answer

Medium of exchange

Question 16

Money simplifies economic transactions by eliminating the need for:

Accepted Answer

Barter

Answer

Consumption

Answer

Saving

Answer

Investment

Question 17

Which characteristic of money ensures its wide acceptance in transactions?

Accepted Answer

Acceptability

Answer

Portability

Answer

Divisibility

Answer

Durability

Question 18

The use of money as a reference point for comparing the values of goods and services is its function as a:

Accepted Answer

Unit of account

Answer

Medium of exchange

Answer

Store of value

Answer

Standard of deferred payment

Question 19

Which of the following is not a characteristic of an effective monetary system?

Accepted Answer

Inflation

Answer

Stability

Answer

Acceptability

Answer

Flexibility

Question 20

Money serves as a store of value because it can maintain its purchasing power over:

Accepted Answer

Time

Answer

Space

Answer

Transactions

Answer

Investments

Question 21

The main reason for using money as a medium of exchange is to:

Accepted Answer

Reduce transaction costs

Answer

Control inflation

Answer

Increase investment opportunities

Answer

Facilitate credit expansion

Question 22

What is a key benefit of using money as a unit of account?

Accepted Answer

Enables comparisons of economic value

Answer

Eliminates economic inequality

Answer

Guarantees price stability

Answer

Makes banking obsolete

Question 23

The ability of money to be easily divided into smaller units without losing value is known as:

Accepted Answer

Divisibility

Answer

Acceptability

Answer

Portability

Answer

Durability

Question 24

Which of the following is NOT a primary function of money?

Accepted Answer

Capital asset

Answer

Unit of account

Answer

Store of value

Answer

Medium of exchange

Question 25

Which function of money allows goods and services to be easily exchanged?

Accepted Answer

Medium of exchange

Answer

Unit of account

Answer

Capital asset

Answer

Store of value

Question 26

Which advantage of money as a store of value relates to its role in saving and investment?

Accepted Answer

Facilitates saving and investment

Answer

Eliminates the need for barter

Answer

Provides a standardized measure of value

Answer

Reduces transaction costs

Question 27

Which concept best describes the role of money in comparing the values of different goods and services?

Accepted Answer

Unit of account

Answer

Medium of exchange

Answer

Legal tender

Answer

Store of value

Question 28

Which characteristic of fiat currency distinguishes it from other types of money?

Accepted Answer

Its value is established by government decree

Answer

It is made of precious metal

Answer

Its value is determined by market forces

Answer

It is not widely accepted

Question 29

What is a key problem for a monetary system if it lacks stability?

Accepted Answer

People lose trust in the system and may avoid using it.

Answer

It's easier to save for the future.

Answer

Transactions become more efficient.

Answer

People can easily compare prices.

Question 30

What makes money different from a bartered item?

Accepted Answer

Money is widely accepted as payment for any good or service.

Answer

Money never changes, it's a fixed concept.

Answer

Money always has some inherent value, like gold.

Question 31

If a country's money rapidly loses its value, what function of money is most directly affected?

Accepted Answer

Store of Value

Answer

Unit of Account

Answer

Standard of Deferred Payment

Answer

Medium of Exchange

Question 32

How does money's function as a unit of account help you when shopping?

Accepted Answer

You can quickly compare prices of different products.

Answer

You don't need to barter for goods.

Answer

You can avoid carrying cash.

Question 33

Imagine a world without money. What is the MOST likely way people would trade?

Accepted Answer

Bartering goods and services directly.

Answer

Creating IOUs as promises of future payment.

Answer

Using precious metals as a standard measure.

Question 34

Why might someone choose NOT to save all their money for a long time?

Accepted Answer

Inflation could erode the value of their savings.

Answer

They worry about losing their money.

Answer

It's easier to spend money than save it.

Answer

Banks might charge fees for holding their money.

Question 35

If a new form of money is introduced, what must happen for it to be successful?

Accepted Answer

People need to trust and accept it as payment.

Answer

It must be physically durable and long-lasting.

Answer

It must be easily portable and carried around.

Answer

There must be a limited supply of the new money.

Question 36

Which function of money is MOST important when planning for your retirement many years in the future?

Accepted Answer

Store of Value

Answer

Standard of Deferred Payment

Answer

Unit of Account

Answer

Medium of Exchange

Question 37

How does money help businesses make decisions about what to produce?

Accepted Answer

Prices expressed in money units allow clear comparison of costs and profits.

Answer

Money helps protect businesses from losing money.

Answer

Businesses can pay their employees more easily.

Question 38

Without money serving as a unit of account, what would be the biggest challenge when trading?

Accepted Answer

Figuring out the relative value of different goods and services.

Answer

Ensuring both parties trust each other in the trade.

Answer

Finding someone who wants what you have to offer.

Answer

Agreeing on a time and place to meet for the exchange.

Question 39

Which of the following is NOT a factor that contributes to the demand for money as a store of value?

Accepted Answer

Expectation of a decrease in the price of goods and services

Answer

Precautionary motive

Answer

Uncertainty about future income

Question 40

Which of the following is NOT a primary function of money?

Accepted Answer

Capital investment

Answer

Store of value

Answer

Medium of exchange

Answer

Unit of account

Question 41

Which advantage of using money as a store of value is most directly related to economic growth?

Accepted Answer

Facilitates saving and investment

Answer

Eliminates barter

Answer

Reduces transaction costs

Answer

Promotes price stability

Question 42

Which function of money allows us to compare the relative worth of different goods and services?

Accepted Answer

Unit of account

Answer

Standard of deferred payment

Answer

Medium of exchange

Answer

Store of value

Question 43

Which of the following is considered a 'near money' asset?

Accepted Answer

Certificate of deposit

Answer

Stock

Answer

Gold

Question 44

Which function of money allows us to easily buy and sell goods and services without needing to find someone who wants exactly what we have to trade?

Accepted Answer

Medium of exchange

Answer

Unit of account

Answer

Store of value

Question 45

Sarah wants to buy a new laptop that costs £500. She plans to save up for it by working overtime. This demonstrates which function of money?

Accepted Answer

Store of value

Answer

Barter

Answer

Medium of exchange

Answer

Unit of account

Question 46

When prices rise rapidly, which function of money is most negatively affected?

Accepted Answer

Store of value

Answer

Medium of exchange

Answer

Unit of account

Question 47

A barter system relies on what condition for successful exchange?

Accepted Answer

Double coincidence of wants

Answer

A central bank

Answer

A common currency

Question 48

Which of the following is NOT a key characteristic of an effective monetary system?

Accepted Answer

Unlimited supply

Answer

Portability

Answer

Divisibility

Answer

Durability

Question 49

The price tag on a textbook shows £25. This illustrates which function of money?

Accepted Answer

Unit of account

Answer

Store of value

Answer

Medium of exchange

Question 50

Using a credit card to buy a meal is an example of which function of money?

Accepted Answer

Medium of exchange

Answer

Unit of account

Answer

Store of value

Answer

None of the above

Question 51

Which of the following assets is generally considered the most liquid, meaning it can be easily converted into cash?

Accepted Answer

Cash

Answer

Real estate

Answer

Bonds

Answer

Stocks

Question 52

If a society uses salt as its medium of exchange, what potential problem could arise?

Accepted Answer

Salt is not easily divisible for smaller transactions.

Answer

Salt is not durable and can easily be destroyed.

Answer

Salt is not widely accepted.

Question 53

Taking out a loan to buy a car shows which function of money?

Accepted Answer

Standard of deferred payment

Answer

Store of value

Answer

Medium of exchange