ECO 212
Fall 2011
Quiz 2
Instructions: Select the best answer to the following questions:
1.
The tendency of poorer-quality commodity money to circulate as money while
higher-quality commodity money is devoted to other uses is:
a.
b.
c.
d.
e.
seigniorage
Gresham’s Law.
arbitrage.
parity
barter
2.
When gold coins become so well-accepted in our markets that small bits of gold
that have not been formed into coins are not often accepted as payment, then the gold that
is not formed into a coin is:
a.
b.
c.
d.
e.
seigniorage
arbitrage.
not money
commodity-backed money.
backing for commodity money.
3.
Suppose we are stuck on our island, and form our own economy. We carry out
trades using pineapples, because pineapples are long-lasting and easy to identify, and
acceptable to all sellers of other goods. Pineapples are therefore:
a.
b.
c.
d.
e.
a unit of account.
commodity money.
an instrument of barter.
a store of value.
commodity-backed money.
4.
Under the gold standard system when each country set an official price of gold in
terms of its own currency, this system led automatically to:
a.
b.
c.
d.
e.
high inflation.
fixed exchange rates.
current account balances equal to zero.
an international currency.
the need to establish an International Monetary Fund.
5.
If our Treasury sets an official price of gold of BGN 40 per gram, but gold in the
market place can be bought or sold for BGN 35 per gram, then there is:
a.
b.
c..
d.
e.
Gresham’s Law
arbitrage opportunity
seigniorage opportunity
gold exports from the Treasury.
devaluation.
6.
In the LONG RUN, a country maintains imports equal to exports under a gold
standard system by:
a.
borrowing or lending from the IMF to keep its gold reserves sufficient.
b.
re-setting the official price of gold whenever demand for currency is not equal to
supply.
c.
adjusting tariffs or customs duties to ensure that imports are not more than
exports.
d.
allowing its own money supply to rise (if gold is coming into the country) or fall
(if gold is going out of the country) so that the value of the currency adjusts to make
imports equal to exports.
e.
forcing interest rates up (if gold is coming into the country) or down (if gold is
going out of the country) so that money neither flows in or out of the country.