Question 1

A bank can create new money only when

Accepted Answer

A)  its reserves fall below the amount required by the Federal Reserve. 
B)  it has excess reserves. 
C)  its has vault cash. 
D)  it is loaned up. 
A)  its reserves fall below the amount required by the Federal Reserve. 
B)  it has excess reserves. 
C)  its has vault cash. 
D)  it is loaned up.

Question 2

A rising price level (inflation)causes

Accepted Answer

A)  reduced barter activity. 
B)  consumers to shift from checking accounts to currency. 
C)  a decrease in the money supply. 
D)  a decrease in the value of money. 
A)  reduced barter activity. 
B)  consumers to shift from checking accounts to currency. 
C)  a decrease in the money supply. 
D)  a decrease in the value of money.

Question 3

Which of the following characteristics is required of a good medium of exchange?

Accepted Answer

A)  High intrinsic value 
B)  Low uncertainty over value in trade 
C)  Deteriorating exchange value over time 
D)  A high rate of return 
A)  High intrinsic value 
B)  Low uncertainty over value in trade 
C)  Deteriorating exchange value over time 
D)  A high rate of return

Question 4

If a country is experiencing hyperinflation, it is safe to assume that

Accepted Answer

A)  the velocity of money has decreased. 
B)  the country has returned to a barter economy. 
C)  the country's money supply has risen rapidly. 
D)  real GDP in the country has fallen. 
A)  the velocity of money has decreased. 
B)  the country has returned to a barter economy. 
C)  the country's money supply has risen rapidly. 
D)  real GDP in the country has fallen.

Question 5

An asset that can be quickly turned into the medium of exchange without taking a loss is said to be very

Accepted Answer

A)  accountable. 
B)  liquid. 
C)  divisible. 
D)  profitable. 
A)  accountable. 
B)  liquid. 
C)  divisible. 
D)  profitable.

Question 6

Which of the following statements is incorrect?

Accepted Answer

A)  The flow of spending depends on the supply of money and the velocity of money. 
B)  A higher level of GDP can be caused by higher prices or by increased production. 
C)  The determinants of the velocity of money are well-known and can be easily influenced by the Fed. 
D)  The Fed's main job is to regulate the flow of spending. 
A)  The flow of spending depends on the supply of money and the velocity of money. 
B)  A higher level of GDP can be caused by higher prices or by increased production. 
C)  The determinants of the velocity of money are well-known and can be easily influenced by the Fed. 
D)  The Fed's main job is to regulate the flow of spending.

Question 7

During the 1980s, M1 doubled, and the price level increased about __________ percent.

Accepted Answer

A)  100 
B)  60 
C)  200 
D)  300 
A)  100 
B)  60 
C)  200 
D)  300

Question 8

An effective medium of exchange must

Accepted Answer

A)  be a good store of value. 
B)  be a unit of account. 
C)  exhibit low uncertainty over its value in trade. 
D)  All of the above. 
A)  be a good store of value. 
B)  be a unit of account. 
C)  exhibit low uncertainty over its value in trade. 
D)  All of the above.

Question 9

Banks destroy money when they

Accepted Answer

A)  lend securities. 
B)  sell securities. 
C)  buy securities. 
D)  purchase government bonds. 
A)  lend securities. 
B)  sell securities. 
C)  buy securities. 
D)  purchase government bonds.

Question 10

The primary role of financial institutions is to

Accepted Answer

A)  regulate the money supply. 
B)  transfer funds from investors to borrowers. 
C)  package savings for transfer to borrowers. 
D)  lend money to consumers. 
A)  regulate the money supply. 
B)  transfer funds from investors to borrowers. 
C)  package savings for transfer to borrowers. 
D)  lend money to consumers.

Question 11

When hyperinflation occurs,

Accepted Answer

A)  GDP falls to zero. 
B)  interest rates fall. 
C)  savings rates rise. 
D)  money is a less effective medium of exchange. 
A)  GDP falls to zero. 
B)  interest rates fall. 
C)  savings rates rise. 
D)  money is a less effective medium of exchange.

Question 12

If inflation in a country consistently averages 3 percent a year, prices will double in

Accepted Answer

A)  3 years. 
B)  72 years. 
C)  24 years. 
D)  36 years. 
A)  3 years. 
B)  72 years. 
C)  24 years. 
D)  36 years.

Question 13

Which of the following is not an important advantage of the use of money over barter?

Accepted Answer

A)  It is not necessary to remember a large number of exchange ratios of goods for other goods. 
B)  Uncertainty in trading is reduced to a minimum. 
C)  Inflation is a problem in a barter economy but not in one that uses money. 
D)  The use of money reduces the amount of time people spend making transactions. 
A)  It is not necessary to remember a large number of exchange ratios of goods for other goods. 
B)  Uncertainty in trading is reduced to a minimum. 
C)  Inflation is a problem in a barter economy but not in one that uses money. 
D)  The use of money reduces the amount of time people spend making transactions.

Question 14

The M1 definition of money does not include

Accepted Answer

A)  demand deposits. 
B)  negotiable order of withdrawal accounts. 
C)  money market deposit accounts. 
D)  checking accounts with savings and loan associations. 
A)  demand deposits. 
B)  negotiable order of withdrawal accounts. 
C)  money market deposit accounts. 
D)  checking accounts with savings and loan associations.

Question 15

The Federal Reserve cannot always control the level of total spending in the economy using monetary policy because it cannot control

Accepted Answer

A)  the money supply. 
B)  velocity. 
C)  total reserves. 
D)  total bank lending. 
A)  the money supply. 
B)  velocity. 
C)  total reserves. 
D)  total bank lending.

Exam 2: The Role of Money in the Macroeconomy

A bank can create new money only when

A rising price level (inflation)causes

Which of the following characteristics is required of a good medium of exchange?

If a country is experiencing hyperinflation, it is safe to assume that

An asset that can be quickly turned into the medium of exchange without taking a loss is said to be very

Which of the following statements is incorrect?

During the 1980s, M1 doubled, and the price level increased about __________ percent.

An effective medium of exchange must

Banks destroy money when they

The primary role of financial institutions is to

When hyperinflation occurs,

If inflation in a country consistently averages 3 percent a year, prices will double in

Which of the following is not an important advantage of the use of money over barter?

The M1 definition of money does not include

The Federal Reserve cannot always control the level of total spending in the economy using monetary policy because it cannot control

Introducing Money, Banking, and Financial Markets

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

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