Question 1

Federal Reserve policy tools include all of the following EXCEPT

Accepted Answer

A)  open market operations. 
B)  required reserve ratios. 
C)  desired reserve ratios. 
D)  the discount rate. 
A)  open market operations. 
B)  required reserve ratios. 
C)  desired reserve ratios. 
D)  the discount rate.

Question 2

The velocity of circulation is

Accepted Answer

A)  average quantity of money that exists during a year. 
B)  equal to the price level multiplied by real GDP. 
C)  equal to the quantity of money multiplied by nominal GDP. 
D)  the average number of times a dollar bill is used in a year to buy the goods and services in GDP. 
A)  average quantity of money that exists during a year. 
B)  equal to the price level multiplied by real GDP. 
C)  equal to the quantity of money multiplied by nominal GDP. 
D)  the average number of times a dollar bill is used in a year to buy the goods and services in GDP.

Question 3

A bank has no excess reserves. Then it receives a new deposit for $100,000. If it has a desired reserve ratio of 20 percent, by how much can it increase its loans?

Accepted Answer

A)  $80,000 
B)  $20,000 
C)  $400,000 
D)  $500,000 
A)  $80,000 
B)  $20,000 
C)  $400,000 
D)  $500,000

Question 4

The tools at the disposal of the Fed for changing the quantity of money do NOT include

Accepted Answer

A)  increasing the number of commercial banks. 
B)  changing discount rates. 
C)  open market operations. 
D)  changing the required reserve ratio. 
A)  increasing the number of commercial banks. 
B)  changing discount rates. 
C)  open market operations. 
D)  changing the required reserve ratio.

Question 5

M2 is

Accepted Answer

A)  equal to M1, but only when all three functions of money apply. 
B)  larger than M1. 
C)  equal to M1, given full employment. 
D)  smaller than M1. 
A)  equal to M1, but only when all three functions of money apply. 
B)  larger than M1. 
C)  equal to M1, given full employment. 
D)  smaller than M1.

Question 6

Which of the following is a service of depository institutions?

Accepted Answer

A)  monitoring the Federal Reserve 
B)  pooling risk 
C)  loaning funds to other depository institutions at the discount rate 
D)  decreasing the liquidity drain of funds in the banking system 
A)  monitoring the Federal Reserve 
B)  pooling risk 
C)  loaning funds to other depository institutions at the discount rate 
D)  decreasing the liquidity drain of funds in the banking system

Question 7

ʺEven though we can convert them into money, deposits at banks are not money.ʺ Is the previous statement correct or not?

Accepted Answer

The statement is incorrect. So

Question 8

The majority of money is created when

Accepted Answer

A)  banks make loans 
B)  new coins are minted 
C)  the Fed sells bonds 
D)  the federal government borrows from the public 
A)  banks make loans 
B)  new coins are minted 
C)  the Fed sells bonds 
D)  the federal government borrows from the public

Question 9

ʺWhen the Fed buys securities from a bank, the quantity of money eventually decreases by a fraction of the initial change in the monetary base.ʺ Is the previous statement correct or incorrect? Explain your answer.

Accepted Answer

The statement is wrong on two counts. Fi

Question 10

The monetary base consists of

Accepted Answer

A)  the quantity of money. 
B)  government securities held by the Fed. 
C)  the sum of Federal Reserve notes, coins, and depository institutionsʹ deposits at the Fed. 
D)  demand deposits and vault cash. 
A)  the quantity of money. 
B)  government securities held by the Fed. 
C)  the sum of Federal Reserve notes, coins, and depository institutionsʹ deposits at the Fed. 
D)  demand deposits and vault cash.

Question 11

If an economy has a velocity of circulation of 3, then

Accepted Answer

A)  in a year the average dollar is exchanged 3 times to purchase goods and services in GDP. 
B)  nominal GDP is 1/3 the size of the quantity of money. 
C)  the quantity of money is $3 for every dollar of GDP. 
D)  the quantity of money is 3 times real GDP. 
A)  in a year the average dollar is exchanged 3 times to purchase goods and services in GDP. 
B)  nominal GDP is 1/3 the size of the quantity of money. 
C)  the quantity of money is $3 for every dollar of GDP. 
D)  the quantity of money is 3 times real GDP.

Question 12

When the velocity of circulation equals 4 in 2010, this fact means that

Accepted Answer

A)  for each additional dollar of money injected into the economy, the price level rose 4 percent in 2010. 
B)  real output of goods and services in GDP rose by four dollars for each additional dollar of money consumers saved. 
C)  on average, each dollar of money in the economy purchased four dollars of goods and services in GDP in 2010. 
D)  consumers held four dollars in wealth for each dollar they spent in 2010. 
A)  for each additional dollar of money injected into the economy, the price level rose 4 percent in 2010. 
B)  real output of goods and services in GDP rose by four dollars for each additional dollar of money consumers saved. 
C)  on average, each dollar of money in the economy purchased four dollars of goods and services in GDP in 2010. 
D)  consumers held four dollars in wealth for each dollar they spent in 2010.

Question 13

-In the figure above, a decrease in the monetary base would create a change such as a

Accepted Answer

A)  shift from the supply of money curve MS1 to the supply of money curve MS0. 
B)  movement from point a to point b along the supply of money curve MS0. 
C)  shift from the supply of money curve MS0 to the supply of money curve MS1. 
D)  movement from point b to point a along the supply of money curve MS0. 
A)  shift from the supply of money curve MS1 to the supply of money curve MS0. 
B)  movement from point a to point b along the supply of money curve MS0. 
C)  shift from the supply of money curve MS0 to the supply of money curve MS1. 
D)  movement from point b to point a along the supply of money curve MS0.

Question 14

The opportunity cost of holding money refers to

Accepted Answer

A)  the pleasure that would have been received if the money balances had been used to buy a good or service. 
B)  the service fees charged to withdraw currency from an ATM. 
C)  the price level. 
D)  the interest that could have been earned if the money balances had been changed into an interest-bearing asset. 
A)  the pleasure that would have been received if the money balances had been used to buy a good or service. 
B)  the service fees charged to withdraw currency from an ATM. 
C)  the price level. 
D)  the interest that could have been earned if the money balances had been changed into an interest-bearing asset.

Question 15

If the money multiplier is 3.5, a $10 billion increase in the monetary base

Accepted Answer

A)  increases the quantity of money by $3.5 billion. 
B)  increases the quantity of money by $10 billion. 
C)  increases the quantity of money by $35 billion. 
D)  increases the quantity of money but not by an amount given above. 
A)  increases the quantity of money by $3.5 billion. 
B)  increases the quantity of money by $10 billion. 
C)  increases the quantity of money by $35 billion. 
D)  increases the quantity of money but not by an amount given above.

Question 16

The Fed buys securities and gives the bank a check for the amount. After the check has cleared,

Accepted Answer

A)  reserves have increased by the amount of the check because the Fed pays for the check by increasing the amount of the bankʹs deposits with the Fed. 
B)  reserves have decreased by the amount of the check because the Fed pays for the check by decreasing the bankʹs deposits at the Fed. 
C)  reserves remain unchanged because the increase of reserves at the bank are offset by an increase in reserves at the Fed. 
D)  reserves have increased by the amount of the reserves multiplied by the required reserve ratio, and the quantity of money increases by the difference between the amount of the check and the increase in the reserves. 
A)  reserves have increased by the amount of the check because the Fed pays for the check by increasing the amount of the bankʹs deposits with the Fed. 
B)  reserves have decreased by the amount of the check because the Fed pays for the check by decreasing the bankʹs deposits at the Fed. 
C)  reserves remain unchanged because the increase of reserves at the bank are offset by an increase in reserves at the Fed. 
D)  reserves have increased by the amount of the reserves multiplied by the required reserve ratio, and the quantity of money increases by the difference between the amount of the check and the increase in the reserves.

Question 17

-The figure above illustrates the effect of

Accepted Answer

A)  a decrease in the monetary base. 
B)  an increase in the monetary base. 
C)  an increase in real GDP. 
D)  a decrease in real GDP. 
A)  a decrease in the monetary base. 
B)  an increase in the monetary base. 
C)  an increase in real GDP. 
D)  a decrease in real GDP.

Question 18

The money multiplier determines how much

Accepted Answer

A)  real GDP will be expanded given an increase in autonomous investment. 
B)  money demand will expand given a change in the quantity of money. 
C)  the quantity of money will be expanded given a change in the monetary base. 
D)  the monetary base will be expanded given a change in the quantity of money. 
A)  real GDP will be expanded given an increase in autonomous investment. 
B)  money demand will expand given a change in the quantity of money. 
C)  the quantity of money will be expanded given a change in the monetary base. 
D)  the monetary base will be expanded given a change in the quantity of money.

Question 19

$$\begin{array} { | l | l | } 
\hline \text { Component } & \begin{array} { l } 
\text { Amount } \
\text { (billions of } \
\text { dollars) }
\end{array} \
\hline \text { Currency } & 235 \
\hline \text { Checking deposits } & 570 \
\hline \text { Savings deposits } & 416 \
\hline \text { Traveler's checks } & 8 \
\hline \text { Time deposits } & 1,144 \
\hline \begin{array} { l } 
\text { Money market } \
\text { mutual } \
\text { funds }
\end{array} & 930 \
\hline \begin{array} { l } 
\text { Available credit on } \
\text { credit } \
\text { cards }
\end{array} & 675 \
\hline
\end{array}$$
-According to the table above, the value of M1 is__________ and the value of M2 is__________ .

Accepted Answer

A)  $813 billion; $3303 billion 
B)  $805 billion; $2490 billion 
C)  $813 billion; $2490 billion 
D)  $1,488 billion; $3978 billion 
A)  $813 billion; $3303 billion 
B)  $805 billion; $2490 billion 
C)  $813 billion; $2490 billion 
D)  $1,488 billion; $3978 billion

Question 20

-In the figure above, an increase in the monetary base would create a change such as a

Accepted Answer

A)  shift from the supply of money curve MS0 to the supply of money curve MS1. 
B)  shift from the supply of money curve MS1 to the supply of money curve MS0. 
C)  movement from point a to point b along the supply of money curve MS0. 
D)  movement from point b to point a along the supply of money curve MS0. 
A)  shift from the supply of money curve MS0 to the supply of money curve MS1. 
B)  shift from the supply of money curve MS1 to the supply of money curve MS0. 
C)  movement from point a to point b along the supply of money curve MS0. 
D)  movement from point b to point a along the supply of money curve MS0.

Federal Reserve policy tools include all of the following EXCEPT

The velocity of circulation is

A bank has no excess reserves. Then it receives a new deposit for $100,000. If it has a desired reserve ratio of 20 percent, by how much can it increase its loans?

The tools at the disposal of the Fed for changing the quantity of money do NOT include

M2 is

Which of the following is a service of depository institutions?

ʺEven though we can convert them into money, deposits at banks are not money.ʺ Is the previous statement correct or not?

The majority of money is created when

ʺWhen the Fed buys securities from a bank, the quantity of money eventually decreases by a fraction of the initial change in the monetary base.ʺ Is the previous statement correct or incorrect? Explain your answer.

The monetary base consists of

If an economy has a velocity of circulation of 3, then

When the velocity of circulation equals 4 in 2010, this fact means that

-In the figure above, a decrease in the monetary base would create a change such as a

The opportunity cost of holding money refers to

If the money multiplier is 3.5, a $10 billion increase in the monetary base

The Fed buys securities and gives the bank a check for the amount. After the check has cleared,

-The figure above illustrates the effect of

The money multiplier determines how much

Component Amount (billions of dollars) Currency 235 Checking deposits 570 Savings deposits 416 Traveler's checks 8 Time deposits 1,144 Money market mutual funds 930 Available credit on credit cards 675 -According to the table above, the value of M1 is and the value of M2 is .

-In the figure above, an increase in the monetary base would create a change such as a

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: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 8: Money, the Price Level, and Inflation

Federal Reserve policy tools include all of the following EXCEPT

The velocity of circulation is

A bank has no excess reserves. Then it receives a new deposit for $100,000. If it has a desired reserve ratio of 20 percent, by how much can it increase its loans?

The tools at the disposal of the Fed for changing the quantity of money do NOT include

M2 is

Which of the following is a service of depository institutions?

ʺEven though we can convert them into money, deposits at banks are not money.ʺ Is the previous statement correct or not?

The majority of money is created when

ʺWhen the Fed buys securities from a bank, the quantity of money eventually decreases by a fraction of the initial change in the monetary base.ʺ Is the previous statement correct or incorrect? Explain your answer.

The monetary base consists of

If an economy has a velocity of circulation of 3, then

When the velocity of circulation equals 4 in 2010, this fact means that

-In the figure above, a decrease in the monetary base would create a change such as a

The opportunity cost of holding money refers to

If the money multiplier is 3.5, a $10 billion increase in the monetary base

The Fed buys securities and gives the bank a check for the amount. After the check has cleared,

-The figure above illustrates the effect of

The money multiplier determines how much

Component Amount (billions of dollars) Currency 235 Checking deposits 570 Savings deposits 416 Traveler's checks 8 Time deposits 1,144 Money market mutual funds 930 Available credit on credit cards 675 -According to the table above, the value of M1 is__________ and the value of M2 is__________ .

-In the figure above, an increase in the monetary base would create a change such as a

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: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Component Amount (billions of dollars) Currency 235 Checking deposits 570 Savings deposits 416 Traveler's checks 8 Time deposits 1,144 Money market mutual funds 930 Available credit on credit cards 675 -According to the table above, the value of M1 is and the value of M2 is .