CBP History and Properties of Money 2 — Questions and Answers
Question 1: Which property of money refers to the ability to divide it into smaller units for transactions of varying sizes?
- Portability
- Divisibility (Correct answer)
- Durability
- Fungibility
Correct answer: Divisibility
Divisibility means money can be broken into smaller denominations without losing proportional value, enabling precise transactions.
Question 2: The gold standard, where currency was backed by a fixed quantity of gold, was officially abandoned by the US in what year?
- 1944
- 1964
- 1971 (Correct answer)
- 1983
Correct answer: 1971
President Nixon ended the US dollar's convertibility to gold in 1971, effectively ending the Bretton Woods gold standard system.
Question 3: What term describes the gradual decrease in purchasing power of a currency over time?
- Deflation
- Stagflation
- Inflation (Correct answer)
- Devaluation
Correct answer: Inflation
Inflation is the rate at which the general level of prices rises, eroding the purchasing power of money over time.
Question 4: Which ancient civilization is credited with creating some of the earliest standardized coins around 600 BCE?
- Egypt
- Rome
- Lydia (Correct answer)
- Babylon
Correct answer: Lydia
The Kingdom of Lydia (in modern-day Turkey) produced the first standardized metal coins made of electrum around 600 BCE.
Question 5: What is 'commodity money'?
- Money backed by government decree
- Money with intrinsic value made from a valuable commodity (Correct answer)
- Digital tokens representing real assets
- Banknotes issued by central banks
Correct answer: Money with intrinsic value made from a valuable commodity
Commodity money has intrinsic value because it is made from a substance that has value in itself, such as gold or silver coins.
Question 6: What monetary system involves two metals, typically gold and silver, serving as legal tender at a fixed exchange ratio?
- Monometallism
- Bimetallism (Correct answer)
- Fiat standard
- Managed float
Correct answer: Bimetallism
Bimetallism is a monetary system that uses two metals (gold and silver) as the basis for currency, both accepted as legal tender.
Question 7: Which function of money allows people to set aside value today to be used in the future?
- Medium of exchange
- Unit of account
- Store of value (Correct answer)
- Standard of deferred payment
Correct answer: Store of value
The store of value function means money can be saved and retrieved later with its purchasing power reasonably intact.
CBP History and Properties of Money 2
Which property of money refers to the ability to divide it into smaller units for transactions of varying sizes?