"economics"exercise:Statement of currency characteristics

【analysis】

B is correct. For money to serve as a medium of exchange, economic agents must have a shared belief in its value and that it will retain its value. Without such shared beliefs, money would not be able to fulfill its role as a store of value, thereby jeopardizing its status as a medium of exchange. 

A is incorrect because in its role as a unit of account, money drastically reduces the number of prices in an economy compared to a barter economy. In a barter economy, prices must be established for a good in terms of all other goods for which it might be exchanged. 

C is incorrect because a high value (rather than low value) relative to its weight is a characteristic of money that enables it to serve as a medium of exchange. Money’s high value relative to its weight offers the convenience of wealth portability in fulfilling a variety of transaction needs.

【analysis】

A is correct. A reduction in the money supply (leftward shift) leads to an increase in nominal rates. Furthermore, on the basis of the quantity theory of money, a reduced money supply makes money more valuable (thus a higher interest rate), which reduces aggregate price levels. 

B is incorrect because a reduction in the money supply decreases, rather than increases, aggregate price levels. 

C is incorrect because a reduction in the money supply will increase, rather than decrease, nominal interest rates.