Question 1

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A?

Accepted Answer

A)  zero, because Bank A has no excess reserves 
B)  $850 
C)  $50 
D)  $200 
A)  zero, because Bank A has no excess reserves 
B)  $850 
C)  $50 
D)  $200

Question 2

Fisheria is a country in which the quantity theory of money operates. The country has a constant population, cap stock, and technology. In 2008, real GDP was $300 million, the quantity of money was $60, and the velocity of cir of money was 10. In 2009, the price level rose by 20 percent.
a) What was the price level in 2008? (The price level is measured by the GDP deflator, which is 100 in 2000. So level from the equation of exchange needs to be multiplied by 100 to convert it to the GDP deflator.)
b) What was real GDP in 2009?
c) What was the velocity of circulation in 2009?
d) What was the quantity of money in 2009?

Accepted Answer

a) The equation of exchange states that

Question 3

Suppose that the nominal quantity of money is $200 billion and the value of nominal GDP is $1 trillion. It must be the case that

Accepted Answer

A)  the velocity of circulation is 5. 
B)  the average price paid for a "typical" good is $5. 
C)  the economy is suffering from inflation. 
D)  there will be a shortage of money balances in the economy. 
A)  the velocity of circulation is 5. 
B)  the average price paid for a "typical" good is $5. 
C)  the economy is suffering from inflation. 
D)  there will be a shortage of money balances in the economy.

Question 4

If the currency drain increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

Accepted Answer

If the currency drain increases, the siz

Question 5

The data show that money growth and inflation are

Accepted Answer

A)  positively correlated. 
B)  independent phenomena. 
C)  negatively correlated. 
D)  not correlated. 
A)  positively correlated. 
B)  independent phenomena. 
C)  negatively correlated. 
D)  not correlated.

Question 6

Monetary policy is conducted

Accepted Answer

A)  only by the Federal Reserve. 
B)  by the Federal Reserve, the President of the United States, and Congress. 
C)  by the Federal Reserve with veto power residing with the President of the United States. 
D)  by the Federal Reserve and the President of the United States. 
A)  only by the Federal Reserve. 
B)  by the Federal Reserve, the President of the United States, and Congress. 
C)  by the Federal Reserve with veto power residing with the President of the United States. 
D)  by the Federal Reserve and the President of the United States.

Question 7

When price levels rise, the quantity of nominal money demanded will and the quantity of real money demanded will .

Accepted Answer

A)  increase; decrease 
B)  increase; increase 
C)  increase; stay the same 
D)  decrease; increase 
A)  increase; decrease 
B)  increase; increase 
C)  increase; stay the same 
D)  decrease; increase

Question 8

Liquidity is the

Accepted Answer

A)  ability to use either your credit card or your debit card at retail point of sale and money kiosks. 
B)  ability to use your debit card at retail point- of- sale and money kiosks. 
C)  degree to which an asset substitutes for money. 
D)  ease of converting a means of payment into money with little or no loss of value. 
A)  ability to use either your credit card or your debit card at retail point of sale and money kiosks. 
B)  ability to use your debit card at retail point- of- sale and money kiosks. 
C)  degree to which an asset substitutes for money. 
D)  ease of converting a means of payment into money with little or no loss of value.

Question 9

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

Accepted Answer

A)  $6 trillion 
B)  $12 trillion 
C)  $3 trillion 
D)  $333 billion 
A)  $6 trillion 
B)  $12 trillion 
C)  $3 trillion 
D)  $333 billion

Question 10

Give an example of how money functions as a unit of account.

Accepted Answer

Money functions as a unit of a

Question 11

Suppose that the interest rate is greater than the equilibrium interest rate. Which of the following oc
I. There is an excess quantity of money.
II. The quantity of money automatically increases.
III. The interest rate falls.

Accepted Answer

A)  I only 
B)  I, II and III 
C)  I and II 
D)  I and III 
A)  I only 
B)  I, II and III 
C)  I and II 
D)  I and III

Question 12

M1 is a measure of

Accepted Answer

A)  money and includes both savings deposits and money market mutual funds. 
B)  liquidity and in which the most liquid asset is money. 
C)  money and includes both currency and checking deposits. 
D)  money and includes both savings deposits and currency. 
A)  money and includes both savings deposits and money market mutual funds. 
B)  liquidity and in which the most liquid asset is money. 
C)  money and includes both currency and checking deposits. 
D)  money and includes both savings deposits and currency.

Question 13

A bank cannot create money unless its .

Accepted Answer

A)  desired reserves are greater than actual reserves 
B)  required reserves are greater than actual reserves 
C)  excess reserves are zero 
D)  excess reserves equal deposits multiplied by the reserve ratio 
A)  desired reserves are greater than actual reserves 
B)  required reserves are greater than actual reserves 
C)  excess reserves are zero 
D)  excess reserves equal deposits multiplied by the reserve ratio

Question 14

In the short run, which of the following actions raise the interest rate?

Accepted Answer

A)  an increase in the quantity of money 
B)  a decrease in the demand for money 
C)  an increase in bond prices 
D)  an increase in the demand for money 
A)  an increase in the quantity of money 
B)  a decrease in the demand for money 
C)  an increase in bond prices 
D)  an increase in the demand for money

Question 15

In the quantity theory of money, the velocity of circulation is assumed to

Accepted Answer

A)  fall during recessions. 
B)  rise during recessions. 
C)  be not influenced by the quantity of money. 
D)  be unrelated to the equation of exchange. 
A)  fall during recessions. 
B)  rise during recessions. 
C)  be not influenced by the quantity of money. 
D)  be unrelated to the equation of exchange.

Question 16

Suppose Bank A has $1000 in deposits and $100 in reserves. If the desired reserve ratio is 8 percent, how much can this bank lend?

Accepted Answer

A)  $800 
B)  $720 
C)  $20 
D)  $80 
A)  $800 
B)  $720 
C)  $20 
D)  $80

Question 17

The Board of Governors of the Federal Reserve System is

Accepted Answer

A)  appointed by the Congress. 
B)  appointed by the President of the United States and confirmed by the U.S. Senate. 
C)  elected by members of the American Banking Association. 
D)  elected by the public. 
A)  appointed by the Congress. 
B)  appointed by the President of the United States and confirmed by the U.S. Senate. 
C)  elected by members of the American Banking Association. 
D)  elected by the public.

Question 18

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

Accepted Answer

A) True 
 B)False

Question 19

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

Accepted Answer

A)  double coincidence of want. 
B)  unit of account. 
C)  medium of exchange. 
D)  store of value. 
A)  double coincidence of want. 
B)  unit of account. 
C)  medium of exchange. 
D)  store of value.

Question 20

Which of the following is an example of a depository institution?

Accepted Answer

A)  a credit union 
B)  a money market mutual fund 
C)  a commercial bank 
D)  All of the above are examples of a depository institution. 
A)  a credit union 
B)  a money market mutual fund 
C)  a commercial bank 
D)  All of the above are examples of a depository institution.

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A?

Suppose that the nominal quantity of money is $200 billion and the value of nominal GDP is $1 trillion. It must be the case that

If the currency drain increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

The data show that money growth and inflation are

Monetary policy is conducted

When price levels rise, the quantity of nominal money demanded will and the quantity of real money demanded will .

Liquidity is the

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

Give an example of how money functions as a unit of account.

Suppose that the interest rate is greater than the equilibrium interest rate. Which of the following oc I. There is an excess quantity of money. II. The quantity of money automatically increases. III. The interest rate falls.

M1 is a measure of

A bank cannot create money unless its .

In the short run, which of the following actions raise the interest rate?

In the quantity theory of money, the velocity of circulation is assumed to

Suppose Bank A has $1000 in deposits and $100 in reserves. If the desired reserve ratio is 8 percent, how much can this bank lend?

The Board of Governors of the Federal Reserve System is

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

Which of the following is an example of a depository institution?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: They Keynesian Model

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 8: Money, the Price Level, and Inflation

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A?

Suppose that the nominal quantity of money is $200 billion and the value of nominal GDP is $1 trillion. It must be the case that

If the currency drain increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

The data show that money growth and inflation are

Monetary policy is conducted

When price levels rise, the quantity of nominal money demanded will and the quantity of real money demanded will .

Liquidity is the

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

Give an example of how money functions as a unit of account.

Suppose that the interest rate is greater than the equilibrium interest rate. Which of the following oc I. There is an excess quantity of money. II. The quantity of money automatically increases. III. The interest rate falls.

M1 is a measure of

A bank cannot create money unless its .

In the short run, which of the following actions raise the interest rate?

In the quantity theory of money, the velocity of circulation is assumed to

Suppose Bank A has $1000 in deposits and $100 in reserves. If the desired reserve ratio is 8 percent, how much can this bank lend?

The Board of Governors of the Federal Reserve System is

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

Which of the following is an example of a depository institution?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: They Keynesian Model

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters