1. Functions and Characteristics of Money · What are the four main functions of money, and how does each one help facilitate trade? · In what ways does money act as a unit of account? · Why is the store of value function important for long-term saving? · How does the standard of deferred payment function support lending and borrowing? · List six characteristics of effective money and explain why each one is important. · Why must money be scarce in order to retain its value? · How does uniformity in money help maintain trust in an economy? ---2. Barter and the Evolution of Money · What is the “double coincidence of wants” and how does it limit the efficiency of barter systems? · Why is bartering considered less effective in modern economies? · How does the use of money overcome the limitations of bartering? · Can you think of modern examples where barter might still be used today? ---3. Types and Value of Money · What is fiat money, and how is its value maintained without a physical backing? · What is commodity money, and how does it differ from fiat money? · What are some historical examples of commodity money? · Why do people continue to accept fiat currency even though it has no intrinsic value? · What role does government authority play in maintaining trust in fiat money? ---4. Inflation, Deflation, and Economic Impact · What is inflation, and how does it affect the purchasing power of money? · What economic conditions or government actions typically cause inflation? · What is hyperinflation, and what are the potential effects on individuals and businesses? · What is deflation, and how can it influence consumer behaviour and economic growth? What is the difference between nominal interest rates and real interest rates? · How do you calculate real interest using inflation and nominal interest rates? ---5. The Impact of Inflation on Stakeholders · How does inflation impact consumers in terms of their ability to afford goods and services? · Why are savers often disadvantaged during periods of high inflation? · What effect can inflation have on workers’ wages and real income? · In what ways does inflation impact the cost structure and profits of businesses? · Who tends to benefit from unexpected inflation, and why? --- 6. Gold and Inflation Protection · Why is gold often used as a hedge against inflation? · How does the scarcity and durability of gold support its use as a store of value? · What happens to the demand for gold during periods of high inflation? · Why might investors shift from fiat currencies to commodities like gold? ---7. Leverage and Property Investment – Case Study Revision Use the scenario you've studied about an investor using a deposit and loan to purchase a property. Reflect on the following: · What is leverage in financial terms, and how can it magnify gains or losses? · How can an investor use a small deposit to control a large asset? · How do you calculate the return on investment (ROI) from a capital gain? · How would you compare the financial implications of short-term vs long-term loan repayments? · Why does the total interest paid increase with longer loan terms, even if monthly payments are lower? · How does rental income affect the cash flow of a leveraged investment? · What are two key benefits of using leverage to invest in property? · What are two financial risks that come with borrowing to invest? · What does it mean for an investment to be positively or negatively geared, and what are the possible financial implications for the investor? PRACTICE EXAM SECTION A – Multiple Choice 1. In a barter system, good are exchanged: a. Using banknotes b. Through credit c. Directly without money d. With representative tokens 2. Which of these is not an advantage of using money over bartering? a. Unlimited supply b. Standardisation c. Speed of transaction d. Universal acceptability 3. The Interest rate is 3% and you expect inflation to be 5%, in this scenario, who would rather be? a. A saver earning less than inflation b. A lender receiving fixed interest c. A borrower repaying a loan with cheaper money d. A doomsday prepper investing in canned food and bunker supplies 4. What is one of the main causes of Venezuela’s recent economic crisis? a. Excessive reliance on tourism b. A prolonged drought and water shortage c. A major earthquake that destroyed infrastructure d. Overdependence on oil exports and mismanagement of resources 5. Which statement best describes why gold is considered to have intrinsic value? a. It is printed by governments b. Its price is fixed by central banks c. It is used in electronics, jewellery, and is scarce d. It can be used to settle legal debts 6. What is the main cause of hyperinflation? a. Too little government spending b. Excessive increase in money supply c. Sudden population growth d. Higher savings rates 7. What is the primary purpose of the Consumer Price Index (CPI)? a. Measure inflation b. Measure employment trends c. Set minimum wage d. Track interest rates 8. What happens when prices rise but your income remains fixed? a. You can buy more goods b. You save more money c. Your purchasing power decreases d. Inflation decreases 9. Which is an example of money lacking the characteristic of portability? a. Salt b. Cigarettes c. Gold coins d. Large boulders 10. In a deflationary environment, consumers are most likely to: a. Spend more quickly b. Delay purchases c. Demand higher wages d. Invest in risky assets 11. What is the primary risk of a collapsing gold-pegged currency? a. Reduced gold mining b. Digital currency takeovers c. Government losing control over monetary supply d. Increase in barter systems 12. In what KEY way is paper money SUPERIOR to gold coins? a. Paper money is more likely to catch fire than gold coins. b. Paper money is more portable than gold coins. c. Paper money can be easily printed and the supply expanded. d. Paper money is inherently valuable but gold is not. 13. If I deposit 100 dollars in the bank and the bank agrees to give me a dollar after a year in interest on that 100 dollars, what is the interest rate? a. 0.1% b. 1% c. 10% d. 100% 14. Which of the following is a function of money? a. Portability b. Divisibility c. Unit of account d. Durability 15. Which is a characteristic of money that ensures it can be used for small and large purchases? a. Acceptability b. Divisibility c. Trust d. Scarcity 16. What is the main reason honey buns were ineffective as money in prison economies? a. They were not trusted b. They had high intrinsic value c. They spoiled quickly and lacked durability d. They were illegal 17. What is intrinsic value? a. The face value printed on money b. The market value of a product c. The amount a bank agrees to lend d. The value derived from usefulness or essential qualities 18. Why does a $100 note not have intrinsic value? a. It can only be used within Australia b. It costs more to produce than it is worth c. Its value comes from public trust, not the materials used d. It is no longer backed by gold 19. What is the key difference between fiat money and gold-backed money? a. Fiat money has more purchasing power b. Gold-backed money can be exchanged for a commodity c. Fiat money is more durable d. Gold money is always more valuable 20. Which characteristic of money means that people agree to accept it in exchange? a. Acceptability b. Durability c. Portability d. Scarcity 21. What gives gold its intrinsic value? a. Its use in fashion b. Government recognition c. Its utility in electronics, durability, and scarcity d. Its association with wealth 22. What is the effect of inflation on purchasing power? a. It increases it b. It reduces it c. It stabilises it d. It has no impact 23. Which of the following best defines hyperinflation? a. Gradual price increases over time b. When the value of gold suddenly collapses c. Inflation exceeding 50% per month d. Deflation that causes market panic 24. What is deflation? a. Decrease in the supply of gold b. General fall in prices over time c. Rapid increase in wages d. A synonym for inflation 25. The Consumer Price Index (CPI) is used to: a. Measure productivity b. Track GDP growth c. Measure export performance d. Measure changes in the cost of a typical basket of goods 26. When governments print more money without economic growth, it leads to: a. Hyperinflation b. Deflation c. Appreciation of currency d. Recession 27. What does the wage-price spiral refer to? a. Falling wages and rising inflation b. Price rises triggering higher wage demands, and vice versa c. Inflation increasing productivity d. Recession-driven layoffs 28. A currency pegged to gold is: a. Valued according to CPI b. Fully digital c. Exchanged for a set amount of gold d. Unusable in foreign trade 29. Which of the following is a negative consequence of deflation? a. People buy more b. Increased investment c. Lower interest rates d. Delayed spending and job losses 30. What type of value is created when people believe money has value? a. Face value b. Market value c. Perceived value d. Intrinsic value 31. Which characteristic allows money to be used across multiple transactions over time? a. Scarcity b. Store of value c. Portability d. Uniformity 32. How does real interest rate differ from nominal interest rate? a. It adjusts for inflation b. It excludes tax c. It is higher than market rate d. It is only for savers 33. In Zimbabwe’s hyperinflation crisis, why did money lose its usefulness? a. Currency was backed by gold b. Citizens stopped paying taxes c. Prices rose too fast to maintain trust in money d. Digital banking collapsed 34. The Graph below shows Venezuela's inflation rate over time, which phenomena best describes the chart? a. Inflation b. Hyperinflation c. Deflation d. Stagflation 35. What type of money has value because a government maintains its value? a. Commodity money b. Fiat money c. Representative money d. Intrinsic money 36. Which of the following best describes the "store of value" function of money? a. Money makes it easier to barter b. Money divides into smaller units c. Money maintains its value over time d. Money has intrinsic value 37. Which of the following would be classified as commodity money? a. Bitcoin b. Gold c. Banknotes d. Credit cards 38. Representative money refers to: a. Currency backed by a physical asset b. Money used to elect officials c. Digital cryptocurrency d. Fiat-based systems 39. Money is best described as a: a. Resource b. Tool for taxation c. Piece of wealth d. Technology for exchange 40. What does scarcity mean in economics? a. More resources than needs b. Limited availability of resources c. Free trade with no cost d. Overproduction of goods 41. If the inflation rate is 5% and the nominal interest rate is 7%, what is the real interest rate? a. 2% b. 5% c. 7% d. 12% 42. If the nominal interest rate is 8%, and the real interest rate is 1%, what is the rate of inflation? a. 1% b. 7% c. 8% d. 9% 43. If inflation is 4% and your boss gives you a 2% raise, which of the following is TRUE? a. Your nominal wage decreased. b. Your real wage increased. c. Your purchasing power decreased. d. Your effective wage remains the same. 44. The inflation rate is 10%, how much of a raise would you need to receive for your real wages to stay the same? a. 1% b. 5% c. 7% d. 10% 45. Which of the following is an example of fiat money? a. Gold b. Cigarettes c. Paper money d. Honey buns 46. What type of money has value because a government maintains its value? a. Commodity money b. Fiat money c. Representative money d. Intrinsic money 47. What is hyperinflation? a. A gradual increase in prices b. Prices rising faster than wages c. A sharp and uncontrolled rise in prices d. A fall in consumer demand 48. Which economic situation did Venezuela experience during its crisis? a. Low inflation and stable currency b. Strong GDP growth c. Hyperinflation and bartering d. Deflation and savings growth 49. Which of the following best describes the "store of value" function of money? a. Money makes it easier to barter b. Money maintains its value over time c. Money divides into smaller units d. Money has intrinsic value 50. What does inflation reduce? a. Money’s purchasing power b. Currency circulation c. Government spending d. National debt 51. Representative money refers to: a. Money used to elect officials b. Currency backed by a physical asset c. Digital cryptocurrency d. Fiat-based systems 52. What is fiat money backed by? a. Gold reserves b. Private companies c. Foreign currency d. Government trust and law 53. Which of the following is an example of deflation? a. Rising fuel prices b. Increasing housing demand c. Falling grocery prices d. High taxation levels 54. Which of the following is true? a. Money cannot be digitised b. Money has intrinsic value c. Money is the same as wealth d. Innovation increases national wealth 55. Which of the following is the most important advantage of the medium of exchange function of money? a. money reduces the complications of barter b. money transfers purchasing power from the present to the future c. money measures the relative worth of products d. money allows people use credit cards instead of currency 56. When a consumer wants to compare the price of one product with another, money is being used primarily for which function? a. store of value b. unit of account c. checkable deposit d. medium of exchange 57. Where does the value for United States currency come from? a. It is legal tender and is backed by the gold and silver of the Federal government b. It is generally acceptable in exchange for goods or services and is backed by the gold and silver of the Federal government c. It is legal tender and is generally acceptable in exchange for goods and services d. It is legal tender and maintains the exact same value over time 58. Which of the following describes representative money? a. Money without intrinsic value backed only by government. b. Physical money backed by a tangible commodity. c. Cryptocurrency operating via blockchain. d. Money created by commercial banks. 59. Which of the following is true about hyperinflation? a. Hyperinflation harms the richest members of a country the most. b. If anticipated, hyperinflation doesn’t have a detrimental effect on economic activity. c. Hyperinflation boosts the value of long term savings. d. Hyperinflation decreases the purchasing power of money. 60. Honey buns are used as money in prisons primarily because: a. They are backed by the government. b. They are scarce, trusted, and desirable. c. They are highly divisible. d. They are extremely durable. 61. Which of the following is true? a. Money has intrinsic value b. Money is the same as wealth c. Innovation increases national wealth d. Money cannot be digitised 62. Which of the following best describes the similarities or differences between the development of money and the invention of the wheel? a. The wheel brought communities together but the invention of money discouraged trade. b. The invention of the wheel and the development of money both encouraged laziness. c. The invention of the wheel had a substantial impact on economic development, but the development of money did not. d. The invention of the wheel and the development of money both enabled increased trade and civilization growth. 63. Which of the following is TRUE about the difference between commodity money and fiat money? a. Fiat money has inherent value but commodity money does not. b. Commodity money is divisible but fiat money is not. c. Fiat money is durable but commodity money is not. d. Commodity money has an alternate use but fiat money is merely asserted to have value. ________________________________________ SECTION B – Short Answer Questions Core Definitions and Concepts of Money 1. Define the “double coincidence of wants” and explain how money solves this problem. 2. What are the three main functions of money? 3. Define intrinsic value. How does it differ from market value? 4. What is fiat money? How is its value maintained? 5. Does money have intrinsic value? Explain your answer. 6. How is money a form of technology? 7. What are the six characteristics of good money? 8. Why are divisibility and portability important characteristics of money? 9. Imagine we used meat as money. Which functions of money would it fail to fulfil and why? ________________________________________ 🔸 Inflation, Deflation and Hyperinflation 10. Describe two key differences between inflation and deflation. 11. Define hyperinflation. What impact does it have on money as a medium of exchange? 12. Describe two consequences of hyperinflation on everyday life (e.g. Zimbabwe or Venezuela). 13. What is the Consumer Price Index (CPI) and how is it used to measure inflation? 14. How does inflation impact the value of savings? Give an example. 15. Explain how inflation affects both savers and borrowers. 16. Describe how inflation reduces the purchasing power of money. 17. Why does unexpected inflation benefit borrowers more than lenders? 18. What happens when too much money is in circulation? 19. Describe one historical case of hyperinflation and its consequences. ________________________________________ 🔹 Comparisons: Barter vs Money 18. Evaluate one advantage and one limitation of bartering in a crisis, using Venezuela as an example. 19. What problem did money solve in a barter economy, and how did it make life easier? 20. Compare the problems of a barter system with the advantages of using money in a modern economy. ________________________________________ 🔸 Financial Decision-Making and Interest Rates 22. What are the differences between nominal and real interest rates? Provide an example. 23. If inflation is higher than your savings rate, what kind of investment should you avoid? 24. You expect inflation to rise over the next 5 years. How would this affect your savings or borrowing decisions? 25. What can you do to protect your purchasing power during periods of inflation? 26. How does uncertainty about future inflation impact financial decision-making? ________________________________________ 🔹 Trust, Government, and the Value of Money 27. What is the role of trust in the effectiveness of money? 28. Explain why fiat money, which has no intrinsic value, is still accepted in trade. 29. Explain why modern paper money is considered 'fiat money'. 30. How do central banks help maintain the value of money in a fiat system? 31. Analyse how trust and government policy maintain the value of fiat money. 32. Why do we trust money even though it has no intrinsic value? ________________________________________ 🟩 Applied & Higher Order Thinking (Long Responses / Essay) 31. Explain how money can be seen as a form of technology. Use examples from history and the modern economy. 32. Critically analyse how inflation affects the value and function of money in a modern economy. 33. Critically evaluate: “Money has no value in itself – it is not wealth.” 34. Compare modern fiat money with commodity money such as gold. Evaluate intrinsic value, trust, inflation, and economic stability. 35. Critically evaluate how the characteristics of money influence its effectiveness in a modern economy. ________________________________________ 🔸 Simulation-Based & Scenario Questions 36. In a scenario where inflation is expected at 1% and your bank offers 2% interest, which savings option is better? 37. What happens to your raise in a deflationary environment if it's fixed vs linked to inflation? 38. In a high inflation scenario (e.g. 40%), why is an inflation-linked asset preferable to a fixed-rate savings account?