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Multiple Choice Quiz
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1
Tom bakes bread and Hans produces chocolates. Tom wants chocolates but Hans doesn't like bread. This situation is an example of which problem associated with a barter system?
A)None of the above.
B)The double coincidence of wants problem.
C)The law of diminishing returns.
D)Too much specialization.
E)Not enough prices.
2
The most commonly quoted monetary aggregate is: 
A)Public currency.
B)M1 since it is the most liquid.
C)M2 since its movement is most closely related to interest rates and economic growth.
D)M3 because it is the broadest.
3
Economic research has shown that between 1990 and 2000 in most industrialized countries:
A)Surprisingly there has not been any correlation between money growth in M2 and the rate of inflation.
B)The correlation between the growth rate of M2 and inflation was negative and quite high.
C)The correlation between the growth rate of M2 and inflation has been positive and quite high.
D)None of the above.
4
The purchasing power of money: 
A)Is not impacted by inflation.
B)Rises with inflation.
C)Decreases as the price level decreases.
D)Decreases with inflation.
5
The use of money makes us more efficient because:
A)We spend more time trading and more time producing.
B)People can specialize in what they do well.
C)With money we borrow less.
D)Money increases in value over time.
6
The store of value characteristic of money refers to the fact that:
A)People save most of their money.
B)Sellers are less likely to accept perishable items in exchange for goods they sell.
C)Money is not valuable unless it is stored.
D)Money is the only way people have to store value.
7
The fact that U.S. currency is legal tender means:
A)U.S. currency is good anywhere in the world.
B)The only money the government will accept for settlement of debts is U.S. currency.
C)Private businesses in the U.S. and the U.S. government must accept U.S. currency for payment of debt.
D)It cannot be backed by gold or other metals.
8
As a result of "Check 21—The Check Clearing for the 21st Century Act:
A)Banks no longer have to ship paper checks to complete the process of check clearing.
B)People can write checks and plan on having a couple of days to make a deposit to cover the check amount.
C)Canceled checks can no longer be used as proof of payment.
D)The Federal Reserve is no longer involved in the check-clearing process.
9
The value of fiat money:
A)Comes from its intrinsic value.
B)Is worth more as a commodity than its value as money.
C)Comes from government decree.
D)Means that it is more desirable than currency.
10
To say an asset is liquid implies that:
A)We are focusing on a category of assets that are in a physically liquid form, like oil.
B)We are considering assets that may be readily converted into a means of payment.
C)We are considering any asset that can be sold.
D)We are only considering U.S. currency.
11
M1 has decreased in its usefulness in understanding inflation due to:
A)The increased use of checks in the economy.
B)The introduction of money market mutual fund shares and similar checking account substitutes.
C)More reliance on the use of currency.
D)The increased use of electronic payments.
12
The Consumer Price Index (CPI):
A)Is an example of an index that uses variable expenditure weights.
B)Is a fixed-expenditure-weight index used to measure changes in the GDP Deflator.
C)Is a fixed-expenditure weight-index used to measure changes in purchasing power for households.
D)Is the least commonly used measure of inflation.
13
When the price level increases, the purchasing power of money:
A)Increases by a similar amount.
B)Stays the same since the purchasing power of money is not impacted by price levels.
C)Decreases.
D)First increases and then decreases as people get used to higher prices.
14
In countries with low inflation:
A)M2 growth is a very good forecaster of inflation.
B)There tends to be a greater reliance on checks than electronic payments.
C)M2 growth is a poor forecaster of inflation.
D)Money stocks are a larger percentage of GDP.
15
Identify which item is not one of the five parts of the financial system.
A)Financial markets.
B)Central banks.
C)Credit cards.
D)Financial institutions.





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