Question 1

_____________ in the currency drain_____________  the money multiplier.

Accepted Answer

A)  An increase; decreases 
B)  A decrease; decreases 
C)  A decrease; does not change 
D)  An increase; increases 
A)  An increase; decreases 
B)  A decrease; decreases 
C)  A decrease; does not change 
D)  An increase; increases

Question 2

When money is accepted as payment in a market transaction, it is functioning as a

Accepted Answer

A)  store of value. 
B)  medium of exchange. 
C)  unit of accounting. 
D)  unit of investment. 
A)  store of value. 
B)  medium of exchange. 
C)  unit of accounting. 
D)  unit of investment.

Question 3

Discuss the quantity theory of money. Be sure to mention the velocity of circulation and the equation of exchange.

Accepted Answer

The quantity theory of money is the prop

Question 4

Matthew purchases a candy bar with his allowance. This purchase represents using money as

Accepted Answer

A)  a store of value. 
B)  an unit of account. 
C)  a medium of exchange. 
D)  none of the above 
A)  a store of value. 
B)  an unit of account. 
C)  a medium of exchange. 
D)  none of the above

Question 5

An increase in the opportunity cost of holding money creates a______________ the money demand curve and an increase in real GDP creates a_________ the money demand curve.

Accepted Answer

A)  movement up along; rightward shift of 
B)  leftward shift of; movement down along 
C)  movement up along; leftward shift of 
D)  rightward shift of; movement down along 
A)  movement up along; rightward shift of 
B)  leftward shift of; movement down along 
C)  movement up along; leftward shift of 
D)  rightward shift of; movement down along

Question 6

-In the figure above, if the interest rate is 6 percent,

Accepted Answer

A)  there is a $0.1 trillion excess quantity of money and the interest rate will fall. 
B)  there is a $0.1 trillion excess demand for money and the interest rate will rise. 
C)  there is a $0.1 trillion excess quantity of money and the interest rate will rise. 
D)  the money market is in equilibrium and the interest rate will remain constant. 
A)  there is a $0.1 trillion excess quantity of money and the interest rate will fall. 
B)  there is a $0.1 trillion excess demand for money and the interest rate will rise. 
C)  there is a $0.1 trillion excess quantity of money and the interest rate will rise. 
D)  the money market is in equilibrium and the interest rate will remain constant.

Question 7

If the Federal Reserve purchases government securities,

Accepted Answer

A)  the federal funds rate will rise. 
B)  banksʹ reserves will increase. 
C)  None of the above answers is correct because none of the effects occur. 
D)  the discount rate will be forced higher. 
A)  the federal funds rate will rise. 
B)  banksʹ reserves will increase. 
C)  None of the above answers is correct because none of the effects occur. 
D)  the discount rate will be forced higher.

Question 8

As a unit of account, money is used to

Accepted Answer

A)  state prices of all goods and services. 
B)  hold purchasing power over time. 
C)  pay off future debts. 
D)  exchange for goods and services. 
A)  state prices of all goods and services. 
B)  hold purchasing power over time. 
C)  pay off future debts. 
D)  exchange for goods and services.

Question 9

-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to _________could be explained by __________.

Accepted Answer

A)  point b; an increase in real GDP 
B)  point b; an increase in the nominal interest rate 
C)  point e; an increase in U.S. exports 
D)  point c; an increase in the use of credit cards 
A)  point b; an increase in real GDP 
B)  point b; an increase in the nominal interest rate 
C)  point e; an increase in U.S. exports 
D)  point c; an increase in the use of credit cards

Question 10

What is a ʺcurrency drain?ʺ How and why does it affect the money multiplier?

Accepted Answer

An increase in currency held outside the

Question 11

Check____________s money and checking deposits _________money.

Accepted Answer

A)  are not; are not 
B)  are not; are 
C)  are; are not 
D)  are; are 
A)  are not; are not 
B)  are not; are 
C)  are; are not 
D)  are; are

Question 12

Other things constant, the quantity theory of money concludes that any increase in the quantity of money

Accepted Answer

A)  decreases in the aggregate price level. 
B)  proportionally increases the price level. 
C)  decreases the demand for money. 
D)  decreases the aggregate level of nominal income. 
A)  decreases in the aggregate price level. 
B)  proportionally increases the price level. 
C)  decreases the demand for money. 
D)  decreases the aggregate level of nominal income.

Question 13

Between 2008 and 2009, U.S. real GDP decreased from $13.2 trillion to $12.9 trillion. As a result, the real demand for money ________and the demand for money curve_________ .

Accepted Answer

A)  decreased; shifted rightward. 
B)  did not change; did not shift 
C)  increased; shifted leftward 
D)  decreased; shifted leftward 
A)  decreased; shifted rightward. 
B)  did not change; did not shift 
C)  increased; shifted leftward 
D)  decreased; shifted leftward

Question 14

Why is the nominal interest rate the opportunity cost of holding money?

Accepted Answer

The nominal interest rate is the opportu

Question 15

ʺIf the currency drain increases, the monetary base decreases.ʺ Explain whether the previous statement is correct or incorrect.

Accepted Answer

The statement is false. If the

Question 16

Explain how the money market determines the equilibrium interest rate.

Accepted Answer

The demand for money curve, MD, is downw

Question 17

A depository institution is

Accepted Answer

A)  an insurance agency, such as the FDIC. 
B)  the most powerful body within the Federal Reserve. 
C)  as a financial that accepts deposits from households and firms. 
D)  the lender of last resort. 
A)  an insurance agency, such as the FDIC. 
B)  the most powerful body within the Federal Reserve. 
C)  as a financial that accepts deposits from households and firms. 
D)  the lender of last resort.

Question 18

Which of the following best describes the chain of events in the money creation process?

Accepted Answer

A)  Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. 
B)  The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves. 
C)  Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. 
D)  Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money. 
A)  Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. 
B)  The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves. 
C)  Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. 
D)  Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money.

Question 19

Suppose a bank is exactly meeting its desired reserve ratio of 10 percent and a new deposit of
$75,000 is made. Immediately after the deposit is made, the bankʹs excess reserves equal

Accepted Answer

A)  $7,500. 
B)  $67,500. 
C)  zero. 
D)  It is impossible to determine without additional information. 
A)  $7,500. 
B)  $67,500. 
C)  zero. 
D)  It is impossible to determine without additional information.

Question 20

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have___________of desired reserves and __________of excess reserves.

Accepted Answer

A)  $600,000; $200,000 
B)  $600,000; $0 
C)  $400,000; $200,000 
D)  $400,000; $600,000 
A)  $600,000; $200,000 
B)  $600,000; $0 
C)  $400,000; $200,000 
D)  $400,000; $600,000

_ in the currency drain_ the money multiplier.

When money is accepted as payment in a market transaction, it is functioning as a

Discuss the quantity theory of money. Be sure to mention the velocity of circulation and the equation of exchange.

Matthew purchases a candy bar with his allowance. This purchase represents using money as

An increase in the opportunity cost of holding money creates a______ the money demand curve and an increase in real GDP creates a_ the money demand curve.

-In the figure above, if the interest rate is 6 percent,

If the Federal Reserve purchases government securities,

As a unit of account, money is used to

-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to _could be explained by __.

What is a ʺcurrency drain?ʺ How and why does it affect the money multiplier?

Check____s money and checking deposits _money.

Other things constant, the quantity theory of money concludes that any increase in the quantity of money

Between 2008 and 2009, U.S. real GDP decreased from $13.2 trillion to $12.9 trillion. As a result, the real demand for money and the demand for money curve_ .

Why is the nominal interest rate the opportunity cost of holding money?

ʺIf the currency drain increases, the monetary base decreases.ʺ Explain whether the previous statement is correct or incorrect.

Explain how the money market determines the equilibrium interest rate.

A depository institution is

Which of the following best describes the chain of events in the money creation process?

Suppose a bank is exactly meeting its desired reserve ratio of 10 percent and a new deposit of $75,000 is made. Immediately after the deposit is made, the bankʹs excess reserves equal

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have_of desired reserves and of excess reserves.

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

_____________ in the currency drain_____________ the money multiplier.

When money is accepted as payment in a market transaction, it is functioning as a

Discuss the quantity theory of money. Be sure to mention the velocity of circulation and the equation of exchange.

Matthew purchases a candy bar with his allowance. This purchase represents using money as

An increase in the opportunity cost of holding money creates a______________ the money demand curve and an increase in real GDP creates a_________ the money demand curve.

-In the figure above, if the interest rate is 6 percent,

If the Federal Reserve purchases government securities,

As a unit of account, money is used to

-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to _________could be explained by __________.

What is a ʺcurrency drain?ʺ How and why does it affect the money multiplier?

Check____________s money and checking deposits _________money.

Other things constant, the quantity theory of money concludes that any increase in the quantity of money

Between 2008 and 2009, U.S. real GDP decreased from $13.2 trillion to $12.9 trillion. As a result, the real demand for money ________and the demand for money curve_________ .

Why is the nominal interest rate the opportunity cost of holding money?

ʺIf the currency drain increases, the monetary base decreases.ʺ Explain whether the previous statement is correct or incorrect.

Explain how the money market determines the equilibrium interest rate.

A depository institution is

Which of the following best describes the chain of events in the money creation process?

Suppose a bank is exactly meeting its desired reserve ratio of 10 percent and a new deposit of $75,000 is made. Immediately after the deposit is made, the bankʹs excess reserves equal

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have___________of desired reserves and __________of excess reserves.

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

_ in the currency drain_ the money multiplier.

An increase in the opportunity cost of holding money creates a______ the money demand curve and an increase in real GDP creates a_ the money demand curve.

-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to _could be explained by __.

Check____s money and checking deposits _money.

Between 2008 and 2009, U.S. real GDP decreased from $13.2 trillion to $12.9 trillion. As a result, the real demand for money and the demand for money curve_ .

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have_of desired reserves and of excess reserves.