Which event indicates that deflation is occurring?
(1 point)
Responses
A savings account can suddenly buy much more than before.
A savings account can suddenly buy much more than before.
The profits of a clothing factory increase rapidly.
The profits of a clothing factory increase rapidly.
The length of time it takes to pay off a home loan decreases by five years.
The length of time it takes to pay off a home loan decreases by five years.
A local store begins offering ice cream bars at two for $5.00 instead of three for $5.00.
The event that indicates deflation is occurring is when "A savings account can suddenly buy much more than before."
During deflation, the value of money increases in terms of the goods and services it can buy. This means that with the same amount of money saved, one can purchase more items than before because the prices of goods and services have decreased.
The other events listed may be results of various factors and do not specifically indicate deflation:
- The profits of a clothing factory increase rapidly could be due to increased efficiency, higher demand, or other business-related reasons.
- The length of time it takes to pay off a home loan decreases by five years could be due to extra payments being made or a refinancing of the loan at a lower interest rate, rather than deflation.
- A local store begins offering ice cream bars at two for $5.00 instead of three for $5.00 could be a sales promotion or a response to a decrease in demand for that particular item, rather than an indicator of widespread deflation.
How does money differ from barter?
(1 point)
Responses
Money is mostly important as a way to get goods and services.
Money is mostly important as a way to get goods and services.
Money is used to exchange goods and services.
Money is used to exchange goods and services.
Money has value only because people agree that it has value.
Money has value only because people agree that it has value.
Money has been used for thousands of years.
Money has been used for thousands of years.
Money differs from barter in that "Money has value only because people agree that it has value."
Barter is a system of exchange where goods or services are directly exchanged for other goods or services without a medium of exchange, like money. The key issue with barter is that it requires a double coincidence of wants; both parties must have what the other wants and be willing to trade for it.
Money, on the other hand, serves as a medium of exchange, a unit of account, and a store of value. It does not have intrinsic value (like gold or silver might have); instead, its value is derived from a communal or governmental agreement or belief that it will be accepted by others in exchange for goods and services. This consensus about the value of money allows it to facilitate transactions much more efficiently than barter.
Bryan needs a new backpack. He compares the prices of three different backpacks at a local store to find the best deal. Which function of money is Bryan demonstrating?
(1 point)
Responses
unit of account
unit of account
store of value
store of value
acceptance of payment
acceptance of payment
medium of exchange
Bryan is demonstrating the "unit of account" function of money.
As a unit of account, money provides a standard measure of the value of goods and services, which allows individuals like Bryan to compare prices and value different items against one another. By comparing the prices of three different backpacks, he is using money as a way to gauge the relative cost of each backpack to determine which one offers the best value for the price.
The other functions of money include:
- Store of value, which refers to the ability to hold value over time,
- Acceptance of payment, which isn't a widely recognized function, but means being widely accepted as a settlement for debts, and
- Medium of exchange, which is about money being accepted as payment for goods and services.
The correct answer is: A savings account can suddenly buy much more than before.
Explanation:
Deflation is a decrease in the general price level of goods and services, meaning that the purchasing power of money increases. One of the most common indicators of deflation is when the prices of goods and services decrease, causing the value of money to increase. When prices decrease, a savings account can buy more than before, indicating that deflation is occurring.
To choose the correct answer, we need to understand the concept of deflation and how it affects the purchasing power of money. Deflation is the opposite of inflation, where prices rise and the value of money decreases. When deflation occurs, the prices of goods and services decrease, making the money in a savings account worth more in terms of what it can buy. Therefore, if a savings account suddenly has more purchasing power, it suggests that deflation is happening.
In the given responses, option A correctly indicates deflation because it states that a savings account can suddenly buy much more than before. This aligns with the concept of deflation where prices decrease, and the purchasing power of money increases.
The other options do not indicate deflation:
- Option B mentions an increase in profits of a clothing factory. This is not directly related to deflation, as an increase in profits can be influenced by various factors.
- Option C states that the length of time to pay off a home loan decreases by five years. This is not directly related to deflation, as the time to repay a loan can be influenced by factors such as interest rates or changes in personal finances.
- Option D mentions a local store offering ice cream bars at two for $5.00 instead of three for $5.00. This is not directly related to deflation, as it could be a promotional offer or a change in pricing strategy by the store.
Therefore, option A is the correct response as it indicates that a savings account can suddenly buy much more than before, aligning with the occurrence of deflation.