Question 1

Why is it not the case that changes in reserves are certain to cause changes in the money supply?

Accepted Answer

There are two reasons for this

Question 2

The amount of money ultimately created per dollar deposited is the:

Accepted Answer

A) money multiplier. 
B) excess reserve ratio. 
C) required reserve ratio. 
D) deposit multiplier. 
A) money multiplier. 
B) excess reserve ratio. 
C) required reserve ratio. 
D) deposit multiplier.

Question 3

Many state lotteries have advertised "instant millionaire" lottery games. However, if one wins the game, the state does not write a check for a million dollars. Rather it pays $50,000 a year for 20 years. Using the tables shown and assuming the interest rate is 4, which of the following statements must be true? $\begin{array}{|r|l|}
\hline\begin{array}{c}
 \text { Annuity Table } \
 \text {  (value now of \$1 Per year To be } \
 \text {  received for x-years) } \
\begin{array}{c|c|c|c}
\hline {\text { Year }} & \mathbf{3 \%} & \mathbf{4 \%} & \mathbf{6 \%} \
\hline 10 & 8.53 & 8.11 & 7.36 \
\hline 15 & 11.94 & 11.12 & 9.71 \
\hline 20 & 14.88 & 13.59 & 11.47 \
\hline 30 & 19.60 & 17.29 & 13.76 \
\hline
\end{array}
\end{array}& \begin{array}{c}
 \text { Present Value Table } \
 \text { (Value now to \$ 1 to be received} \
 \text {   x-years un the future) } \
\begin{array}{c|c|c|c}
\hline \text { Year } & \mathbf{3} \% & \mathbf{4 \%} & \mathbf{6 \%} \
\hline 10 & 0.74 & 0.68 & 0.53 \
\hline 15 & 0.64 & 0.56 & 0.42 \
\hline 20 & 0.55 & 0.46 & 0.31 \
\hline 30 & 0.41 & 0.31 & 0.17 \
\hline
\end{array}
\end{array}\
\hline
\end{array}$

Accepted Answer

A) Since the winner will be given actually a million dollars over 20 years, the state is correct in advertising these games as "instant millionaire." 
B) If the winner invests his annual payout, at the end of 20 years he will have a lot more than a million dollars. Hence the state is understating the winnings when it advertises these games as "instant millionaire." 
C) The true value of winning is much less than a million. The state has misrepresented the true value of the payout. 
D) The state does not care whether it gives a million as a lump sum or spread over 20 years. 
A) Since the winner will be given actually a million dollars over 20 years, the state is correct in advertising these games as "instant millionaire." 
B) If the winner invests his annual payout, at the end of 20 years he will have a lot more than a million dollars. Hence the state is understating the winnings when it advertises these games as "instant millionaire." 
C) The true value of winning is much less than a million. The state has misrepresented the true value of the payout. 
D) The state does not care whether it gives a million as a lump sum or spread over 20 years.

Question 4

Every financial asset has a corresponding:

Accepted Answer

A) financial liability. 
B) real liability. 
C) real asset. 
D) financial asset. 
A) financial liability. 
B) real liability. 
C) real asset. 
D) financial asset.

Question 5

If a deposit of $50 in the banking system can lead to a maximum expansion in bank deposits of $250, using the money multiplier formula, the required reserve ratio must be:

Accepted Answer

A) 20 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent. 
A) 20 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent.

Question 6

When considering policy, measures of access to credit can often be:

Accepted Answer

A) measures of individual assets. 
B) unimportant to the economy. 
C) included in the measures of money. 
D) as important as the measure of money. 
A) measures of individual assets. 
B) unimportant to the economy. 
C) included in the measures of money. 
D) as important as the measure of money.

Question 7

If I will receive a payment of $121 two years from now and the annual interest rate is 10 percent, the present value of the payment is:

Accepted Answer

A) $90. 
B) $100. 
C) $110. 
D) $146.41. 
A) $90. 
B) $100. 
C) $110. 
D) $146.41.

Question 8

Suppose total deposits in the First Bank of Commerce are $100,000 and required reserves are $10,000. Based on this information, the required reserve ratio is:

Accepted Answer

A) 0.10. 
B) 0.9. 
C) 1.0. 
D) 10.0. 
A) 0.10. 
B) 0.9. 
C) 1.0. 
D) 10.0.

Question 9

An asset is best able to serve as a medium of exchange if it is:

Accepted Answer

A) liquid. 
B) nonliquid. 
C) a store of value. 
D) not a store of value. 
A) liquid. 
B) nonliquid. 
C) a store of value. 
D) not a store of value.

Question 10

Money is a unit of account because:

Accepted Answer

A) it is liquid. 
B) it is a store of value. 
C) goods and assets are priced in terms of it. 
D) barter would be impossible without it. 
A) it is liquid. 
B) it is a store of value. 
C) goods and assets are priced in terms of it. 
D) barter would be impossible without it.

Question 11

The U.S. central bank is a financial institution that:

Accepted Answer

A) has the sole right to accept deposits and make loans. 
B) has the sole right to issue currency. 
C) sets borrowing and lending in a country. 
D) determines what assets will back a currency. 
A) has the sole right to accept deposits and make loans. 
B) has the sole right to issue currency. 
C) sets borrowing and lending in a country. 
D) determines what assets will back a currency.

Question 12

The interest rate is the price paid for the use of a:

Accepted Answer

A) real liability. 
B) real asset. 
C) financial liability. 
D) financial asset. 
A) real liability. 
B) real asset. 
C) financial liability. 
D) financial asset.

Question 13

Why is the financial sector important in macroeconomic debates? Why are macroeconomists concerned with the total amount of flows coming out of and returning to spending?

Accepted Answer

The financial sector is important in mac

Question 14

Checking account balances are:

Accepted Answer

A) not money. 
B) not included in M1. 
C) included in M2 but not M1. 
D) included in M1 and serve as a medium of exchange. 
A) not money. 
B) not included in M1. 
C) included in M2 but not M1. 
D) included in M1 and serve as a medium of exchange.

Exam 28: The Financial Sector and the Economy

Why is it not the case that changes in reserves are certain to cause changes in the money supply?

The amount of money ultimately created per dollar deposited is the:

Every financial asset has a corresponding:

If a deposit of $50 in the banking system can lead to a maximum expansion in bank deposits of $250, using the money multiplier formula, the required reserve ratio must be:

When considering policy, measures of access to credit can often be:

If I will receive a payment of $121 two years from now and the annual interest rate is 10 percent, the present value of the payment is:

Suppose total deposits in the First Bank of Commerce are $100,000 and required reserves are $10,000. Based on this information, the required reserve ratio is:

An asset is best able to serve as a medium of exchange if it is:

Money is a unit of account because:

The U.S. central bank is a financial institution that:

The interest rate is the price paid for the use of a:

Why is the financial sector important in macroeconomic debates? Why are macroeconomists concerned with the total amount of flows coming out of and returning to spending?

Checking account balances are:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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