Question

Please answer all questions.

16) When compared to exchange systems that rely on money, disadvantages of the barter system include A) lowering the cost of exchange to those who would specialize. B) encouraging specialization and the division of labor. C) lowering the cost of exchanging goods over time. D) the requirement of a double coincidence of wants. 17) Which of the following is NOT included in the M1 measure of money but is included in the M2 measure of money? A) demand deposits B) small-denomination time deposits C) currency D) traveler's checks 18) If an individual moves money from currency to a demand deposit account A) M1 stays the same and M2 increases. B) M1 decreases and M2 stays the same. C) M1 increases and M2 stays the same. D) M1 stays the same and M2 stays the same. 19) With an interest rate of 6 percent, the present value of $100 to be received next year is approximately A) $106. B) $100. C) $94. D) $92 0) What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent? A) $500.00 B) $453.51 C) $476.25 D) $550.00

Answer 1

Question 16

Barter system involves exchange of goods for goods. This exchange of goods for goods works well when there is double coincidence of wants. In absence of that, multitude of irrelevant transaction have to be undertaken leading to wastage of resources.

So,

When compared to exchange systems that rely on money, disadvantages of the barter system includes the requirement of a double coincidence of wants.

Hence, the correct answer is the option (D).

Question 17

M1 measure of money supply is calculated as follows -

M1 = Currency + Demand deposits + Traveler's checks

M2 measure of money supply includes all components of M1 money supply but also includes small-domination time deposits, saving deposits, money market funds.

Hence, the correct answer is the option (B).

Question 18

Both currency and demand deposits are part of M1 and M2.

So, movement of money from currency to demand deposit account keep the total of M1 and M2 unchanged.

Thus,

M1 stays the same and M2 stays the same.

Hence, the correct answer is the option (D).

Question 19

Amount to be received = $100

Time period = 1 years

Interest rate = 6% or 0.06

Calculate the present value -

PV = $100/(1+0.06)¹

PV = $100/(1.06)¹

PV = $100/1.06 = $94.33

Thus, the present value is approximately $94.

Hence, the correct answer is the option (C).

Question 20

Amount to be paid = $500

Time period = 2 years

Interest rate = 5% or 0.05

Calculate the present value -

PV = $500/(1+0.05)²

PV = $500/(1.05)²

PV = $500/1.1025

PV = $453.51

The present value is $453.51

Hence, the correct answer is the option (B).