Characteristics of Money

Question 1

What is the definition of durability in the context of money?

Answer 1

Money must withstand wear and tear over time.

Question 2

What are examples of physical forms of money designed to be long-lasting?

Answer 2

Metal coins and polymer banknotes.

Question 3

When was the Roman denarius first introduced?

Answer 3

In the 3rd century BCE.

Question 4

How long did the Roman denarius remain in circulation?

Answer 4

For centuries.

Question 5

How do modern polymer banknotes compare to traditional paper-based currency in terms of durability?

Answer 5

Modern polymer banknotes exhibit far greater resistance to wear and tear.

Question 6

What is a potential benefit of more durable money for governments?

Answer 6

Lowers government expenditure on currency production and replacement.

Question 7

How does durable money impact everyday exchanges?

Answer 7

Reduces friction in everyday exchanges, supporting stable economic activity.

Question 8

What do cryptocurrencies like Bitcoin exemplify in terms of durability?

Answer 8

Extreme durability.

Question 9

Why are cryptocurrencies considered durable?

Answer 9

They are maintained on a decentralized blockchain ledger, theoretically impervious to physical degradation.

Question 10

What does portability refer to in the context of money?

Answer 10

Portability refers to money’s ease of transport and transfer.

Question 11

What were the historical forms of money before modern representations?

Answer 11

Historical forms of money included cumbersome commodities such as gold and silver.

Question 12

What are the more efficient representations of money that evolved from commodities?

Answer 12

More efficient representations include paper currency and digital payment systems.

Question 13

What drove the transition from commodity money to modern forms?

Answer 13

The transition was driven by the need to facilitate larger and more frequent transactions while minimizing transaction costs and inefficiencies.

Question 14

How have digital advancements affected the liquidity of money?

Answer 14

Digital advancements have made money more liquid by reducing the reliance on physical cash.

Question 15

What are some examples of modern payment methods that enhance portability?

Answer 15

Examples include mobile payments, cryptocurrencies, and near-instantaneous bank transfers.

Question 16

What is one benefit of improved money portability for economic agents?

Answer 16

Improving financial inclusion and market participation.

Question 17

What new vulnerabilities arise from reliance on electronic transactions?

Answer 17

Financial systems require stable internet and electricity infrastructure.

Question 18

Why might electronic transactions be less viable in certain regions?

Answer 18

They may be less viable in underdeveloped or rural regions.

Question 19

What does divisibility in money refer to?

Answer 19

The ability of money to be divided into smaller units to accommodate transactions of varying sizes.

Question 20

What historical issue did commodity money, like gold and silver, face regarding divisibility?

Answer 20

It struggled with practical constraints, such as the need for precise weighing and assaying.

Question 21

How did the transition to standardized coinage affect the divisibility of money?

Answer 21

It helped mitigate issues related to divisibility but did not eliminate them entirely.

Question 22

How does modern fiat money address divisibility concerns?

Answer 22

Most fiat currencies are denominated in small fractional units, ensuring granularity in exchange.

Question 23

What advantage does electronic money (e-money) provide for transactions?

Answer 23

It allows for more precise transactions, enabling transfers down to the smallest unit without requiring physical division.

Question 24

True or False: Many retailers enforce minimum spending requirements for card payments.

Answer 24

True

Question 25

Fill in the blank: Many retailers enforce minimum spending requirements for card payments due to _______.

Answer 25

fixed processing fees

Question 26

What effect do minimum spending requirements have on the usability of money's divisibility?

Answer 26

They effectively reduce the usable divisibility of money in such contexts.

Question 27

What does uniformity in money refer to?

Answer 27

Each unit of money must be identical in terms of value and usability.

Question 28

Why is uniformity important in trade?

Answer 28

It ensures that one £10 note is interchangeable with another, preventing discrepancies in trade.

Question 29

What could happen without uniformity in money?

Answer 29

The value of money would be subject to fluctuations, leading to hesitance in accepting payments.

Question 30

What historical example illustrates the importance of uniformity in the U.S.?

Answer 30

Prior to the Federal Reserve's creation in 1913, different banks issued their own banknotes, leading to inconsistencies in value.

Question 31

How has the significance of uniformity been reinforced in modern times?

Answer 31

Through regulation of money supply, standardized designs for banknotes, and technological advancements for authenticity.

Question 32

What issue can dilute the uniformity of money?

Answer 32

The production of counterfeit notes.

Question 33

Fill in the blank: Uniformity prevents discrepancies in _______.

Answer 33

[trade]

Question 34

True or False: Uniformity in money allows for different values of banknotes.

Answer 34

False

Question 35

What is one effect of counterfeit notes on the economy?

Answer 35

They create fake units that differ in quality, diluting the uniformity of money.

Question 36

What is necessary for money to function as a medium of exchange?

Answer 36

Money must be widely accepted ## Footnote Acceptability is a key characteristic of money, allowing it to facilitate transactions.

Question 37

What role do legal tender laws play in currency acceptability?

Answer 37

They mandate that a particular currency must be accepted in payment of debts ## Footnote Legal tender laws provide a legal framework that ensures the use of national currency.

Question 38

What typically backs the currency mandated by legal tender laws?

Answer 38

State-backed currency ## Footnote This backing ensures that the currency is recognized and accepted within a jurisdiction.

Question 39

What can happen to the acceptability of national currency during hyperinflation?

Answer 39

It can dramatically erode ## Footnote Trust in the state or its institutions may falter, affecting currency stability.

Question 40

What helps reinforce the perceived stability and acceptability of a currency?

Answer 40

Reliable financial institutions ## Footnote Trust in institutions can enhance confidence in the currency.

Question 41

What is one of the primary challenges facing cryptocurrencies?

Answer 41

Regulatory uncertainty surrounding their use ## Footnote Governments are still determining how to classify and regulate digital currencies.

Question 42

How does the lack of clear regulatory frameworks affect cryptocurrencies?

Answer 42

It increases the risk associated with their use ## Footnote This risk undermines the widespread acceptability of cryptocurrencies.

Question 43

Fill in the blank: Money must be widely accepted to function as a _______.

Answer 43

medium of exchange

Question 44

True or False: Legal tender laws create a uniform standard for transactions.

Answer 44

True ## Footnote These laws ensure that a specific currency is used consistently across transactions.

Question 45

What is the relationship between limited supply and money value?

Answer 45

For money to maintain its value, it must be limited in supply.

Question 46

What does scarcity ensure regarding money?

Answer 46

Scarcity ensures that money maintains its purchasing power over time and prevents rampant inflation.

Question 47

What do central banks control through monetary policy?

Answer 47

Central banks control fiat money supply through monetary policy.

Question 48

What historical example illustrates the dangers of excessive money supply?

Answer 48

The Weimar Republic's hyperinflation (1921–1923).

Question 49

How do some digital currencies, like Bitcoin, differ from fiat money in terms of supply?

Answer 49

Some digital currencies operate under a fixed supply mechanism.

Question 50

What is the cap of Bitcoin in terms of coin supply?

Answer 50

Bitcoin has a cap of 21 million coins.

Question 51

What can excessive restriction on money supply cause?

Answer 51

Excessive restriction on money supply can stifle economic growth.

Question 52

True or False: Central banks must carefully balance money supply.

Answer 52

True.

Question 53

Fill in the blank: Central banks control fiat money supply through _______.

Answer 53

[monetary policy]

Question 54

What does excessive money supply lead to in terms of currency value?

Answer 54

Excessive money supply can lead to rampant inflation, eroding the real value of the currency.