Money

Traps in Money

• Chooses a true but irrelevant statement
  Re-read the question's key term and test each option against it, not against whether it is true in general.
• Picks a closely related concept
  Learn related terms as contrasting pairs with one-line definitions, and identify which one the stem describes.
• Confuses functions of money
  Medium of exchange removes double coincidence of wants; unit of account measures value; store of value keeps purchasing power over time; standard of deferred payment settles future debts.
• Applies the rule for the opposite case
  Before answering, name the case in the stem (inelastic? price floor ABOVE equilibrium? point INSIDE the PPC?) and recall the rule for that case only.
• Inflation misconceptions
  Demand-pull: too much money chasing few goods. Cost-push: rising costs. Debtors and holders of real assets gain; creditors and fixed-income earners lose.
• Confuses central and commercial bank functions
  Central bank: issues currency, banker to government and banks, lender of last resort, monetary policy. Commercial banks: deposits, loans, payments for the public.
• Reverses the direction of the effect
  Trace the chain step by step (e.g. buying securities → banks gain cash → money supply rises) and check the sign at every link.
• Uses the everyday meaning of a term
  Economic terms have precise definitions. Recall the textbook definition before matching.
• Picks another type in the same classification
  Learn each classification as a table of types with one defining feature each (monopoly: one seller; monopsony: one buyer; command economy: central planning).