Question 1

According to the quantity theory of money,in the long run

Accepted Answer

A) V/M is constant. 
B) Y/M is constant. 
C) Y/P is constant. 
D) M/P is constant. 
E) M/V is constant. 
A) V/M is constant. 
B) Y/M is constant. 
C) Y/P is constant. 
D) M/P is constant. 
E) M/V is constant.

Question 2

Without money to act as a medium of exchange,

Accepted Answer

A) the standard of living in the economy would increase. 
B) barter exchange would allow for a much simpler yet increased standard of living. 
C) the increased transactions costs associated with trading would prohibit some trades from taking place. 
D) independence in production would lead to a proliferation of new products. 
E) all exchanges that take place under a monetary system would still take place. 
A) the standard of living in the economy would increase. 
B) barter exchange would allow for a much simpler yet increased standard of living. 
C) the increased transactions costs associated with trading would prohibit some trades from taking place. 
D) independence in production would lead to a proliferation of new products. 
E) all exchanges that take place under a monetary system would still take place.

Question 3

When the Bank of Canada sells government securities to a bank,how are the Bank of Canada's assets affected?

Accepted Answer

A) The bank's reserves held at the Bank of Canada increase. 
B) The bank's reserves held at the Bank of Canada decrease. 
C) Bank of Canada notes increase. 
D) The amount of the Bank of Canada's government securities increases. 
E) The amount of the Bank of Canada's government securities decreases. 
A) The bank's reserves held at the Bank of Canada increase. 
B) The bank's reserves held at the Bank of Canada decrease. 
C) Bank of Canada notes increase. 
D) The amount of the Bank of Canada's government securities increases. 
E) The amount of the Bank of Canada's government securities decreases.

Question 4

Which of the following will increase the size of the money multiplier?

Accepted Answer

A) a decrease in the desired reserve ratio 
B) an increase in the desired reserve ratio 
C) a decrease in the currency drain ratio 
D) an increase in the currency drain ratio 
E) either A or C above 
A) a decrease in the desired reserve ratio 
B) an increase in the desired reserve ratio 
C) a decrease in the currency drain ratio 
D) an increase in the currency drain ratio 
E) either A or C above

Question 5

The largest component of M1 is

Accepted Answer

A) currency outside banks. 
B) personal chequable deposits. 
C) non-personal chequable deposits. 
D) fixed term deposits. 
E) non-personal non-chequable deposits. 
A) currency outside banks. 
B) personal chequable deposits. 
C) non-personal chequable deposits. 
D) fixed term deposits. 
E) non-personal non-chequable deposits.

Question 6

Which one of the following is considered to be money?

Accepted Answer

A) a cheque 
B) a debit card 
C) a credit card 
D) currency 
E) all of the above 
A) a cheque 
B) a debit card 
C) a credit card 
D) currency 
E) all of the above

Question 7

If households and firms find they are holding more money than desired,they will

Accepted Answer

A) sell bonds, and the interest rate will rise. 
B) sell bonds, and the interest rate will fall. 
C) buy bonds, and the interest rate will rise. 
D) buy bonds, and the interest rate will fall. 
E) buy goods, and the price level will rise. 
A) sell bonds, and the interest rate will rise. 
B) sell bonds, and the interest rate will fall. 
C) buy bonds, and the interest rate will rise. 
D) buy bonds, and the interest rate will fall. 
E) buy goods, and the price level will rise.

Question 8

If the interest rate is above the equilibrium rate,how is equilibrium achieved in the money market?

Accepted Answer

A) People buy goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
B) People sell goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
C) People sell bonds to get rid of their excess money, lowering the price of bonds and lowering the interest rate. 
D) People sell bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate. 
E) People buy bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate. 
A) People buy goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
B) People sell goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
C) People sell bonds to get rid of their excess money, lowering the price of bonds and lowering the interest rate. 
D) People sell bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate. 
E) People buy bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate.

Question 9

Use the information below to answer the following questions.
Fact 24.3.2
The Bank of Hobbiton has chosen the following initial balance sheet:
  
-Refer to Fact 24.3.2.Bilbo Baggins comes to the bank and deposits a $100 bill.After Bilbo's deposit,but before any other actions occur,the total quantity of money in the economy

Accepted Answer

A) has stayed the same, with its components unchanged. 
B) has stayed the same, with currency decreasing and deposits increasing. 
C) has fallen, with currency decreasing and deposits staying the same. 
D) has risen, with currency unchanged and deposits increasing. 
E) has fallen, with currency decreasing and deposits unchanged. 
A) has stayed the same, with its components unchanged. 
B) has stayed the same, with currency decreasing and deposits increasing. 
C) has fallen, with currency decreasing and deposits staying the same. 
D) has risen, with currency unchanged and deposits increasing. 
E) has fallen, with currency decreasing and deposits unchanged.

Question 10

The higher and more unpredictable the changes in a monetary unit,the

Accepted Answer

A) more likely it will be used as a store of value. 
B) less likely it will be used as a store of value. 
C) more confidence people will have in holding it for the future. 
D) less likely contracts will be written to counterbalance the uncertainty of its value in the future. 
E) more likely it will be used as a standard of deferred payment. 
A) more likely it will be used as a store of value. 
B) less likely it will be used as a store of value. 
C) more confidence people will have in holding it for the future. 
D) less likely contracts will be written to counterbalance the uncertainty of its value in the future. 
E) more likely it will be used as a standard of deferred payment.

Question 11

The Canadian currency drain ratio for M1 is approximately ________ percent in 2010.

Accepted Answer

A) 15 
B) 24 
C) 11 
D) 34 
E) 75 
A) 15 
B) 24 
C) 11 
D) 34 
E) 75

Question 12

Choose the correct statement.

Accepted Answer

A) The quantity of money measured in constant dollars is nominal money. 
B) The quantity of money measured in dollars is nominal money. 
C) The quantity of nominal money demanded is inversely related to the price level. 
D) As real GDP increase the quantity of nominal money demanded decreases. 
E) As the interest rate rises, the quantity of real money demanded increases. 
A) The quantity of money measured in constant dollars is nominal money. 
B) The quantity of money measured in dollars is nominal money. 
C) The quantity of nominal money demanded is inversely related to the price level. 
D) As real GDP increase the quantity of nominal money demanded decreases. 
E) As the interest rate rises, the quantity of real money demanded increases.

Question 13

Money is

Accepted Answer

A) equivalent to barter. 
B) currency plus credit cards plus debit cards. 
C) the same as gold. 
D) a means of payment. 
E) currency plus coins. 
A) equivalent to barter. 
B) currency plus credit cards plus debit cards. 
C) the same as gold. 
D) a means of payment. 
E) currency plus coins.

Question 14

When the interest rate falls in the money market,the quantity of money demanded ________ and the quantity of money supplied ________.

Accepted Answer

A) increases;remains unchanged 
B) increases;decreases 
C) remains unchanged;decreases 
D) remains unchanged;remains unchanged 
E) decreases;increases 
A) increases;remains unchanged 
B) increases;decreases 
C) remains unchanged;decreases 
D) remains unchanged;remains unchanged 
E) decreases;increases

Question 15

If people decide to transfer their currency into their bank deposits then,all else constant,their decisions will

Accepted Answer

A) cause the quantity of money to decrease. 
B) cause lower inflation. 
C) cause higher real interest rates. 
D) cause the quantity of money to increase immediately. 
E) increase the actual reserves of banks. 
A) cause the quantity of money to decrease. 
B) cause lower inflation. 
C) cause higher real interest rates. 
D) cause the quantity of money to increase immediately. 
E) increase the actual reserves of banks.

Question 16

Money market equilibrium occurs

Accepted Answer

A) when interest rates are constant. 
B) when the level of real GDP is constant. 
C) when the quantity of real money supplied equals the quantity of real money demanded. 
D) only under a fixed exchange rate. 
E) when bond prices are constant. 
A) when interest rates are constant. 
B) when the level of real GDP is constant. 
C) when the quantity of real money supplied equals the quantity of real money demanded. 
D) only under a fixed exchange rate. 
E) when bond prices are constant.

Question 17

You are given the following information about the economy of Nocoin:
The banks have deposits of $300 billion.Their reserves are $15 billion,two thirds of which is in deposits with the central bank.Households and firms hold $30 billion in bank notes.There are no coins!
The banks have no excess reserves.
The Bank of Nocoin,the central bank,increases bank reserves by $0.5 billion.
The quantity of money ________.
The change in the quantity of money is not equal to the change in the monetary base because ________.
The money multiplier is ________.

Accepted Answer

A) increases;when bank reserves increase, banks loan out their excess reserves and a multiplier process ensues;7.33 
B) decreases;money includes currency but the monetary base does not include currency;7.0 
C) decreases;an increase in monetary base brings about a decrease in the quantity of money;7.33 
D) increases;the components of the monetary base are not the components of the quantity of money;7.0 
E) increases;the monetary base includes bank deposits;7.0 
A) increases;when bank reserves increase, banks loan out their excess reserves and a multiplier process ensues;7.33 
B) decreases;money includes currency but the monetary base does not include currency;7.0 
C) decreases;an increase in monetary base brings about a decrease in the quantity of money;7.33 
D) increases;the components of the monetary base are not the components of the quantity of money;7.0 
E) increases;the monetary base includes bank deposits;7.0

Question 18

The amount of real money people want to hold will increase if either the amount they are spending increases or the

Accepted Answer

A) price level increases. 
B) price level decreases. 
C) interest rate increases. 
D) interest rate decreases. 
E) price of bond falls. 
A) price level increases. 
B) price level decreases. 
C) interest rate increases. 
D) interest rate decreases. 
E) price of bond falls.

Question 19

Which of the following is a store of value?

Accepted Answer

A) a credit card 
B) a cheque 
C) a debit card 
D) a fixed term deposit 
E) all of the above 
A) a credit card 
B) a cheque 
C) a debit card 
D) a fixed term deposit 
E) all of the above

Question 20

Suppose that the banking system has excess reserves of $10 million,the desired reserve ratio is 10 percent and the currency drain ratio is 40 percent.By how much will the quantity of money increase?

Accepted Answer

A) $12.5 million 
B) $28 million 
C) $50 million 
D) $40 million 
E) $22 million 
A) $12.5 million 
B) $28 million 
C) $50 million 
D) $40 million 
E) $22 million

Exam 24: Money, the Price Level, and Inflation

According to the quantity theory of money,in the long run

Without money to act as a medium of exchange,

When the Bank of Canada sells government securities to a bank,how are the Bank of Canada's assets affected?

Which of the following will increase the size of the money multiplier?

The largest component of M1 is

Which one of the following is considered to be money?

If households and firms find they are holding more money than desired,they will

If the interest rate is above the equilibrium rate,how is equilibrium achieved in the money market?

The higher and more unpredictable the changes in a monetary unit,the

The Canadian currency drain ratio for M1 is approximately ________ percent in 2010.

Choose the correct statement.

Money is

When the interest rate falls in the money market,the quantity of money demanded ________ and the quantity of money supplied ________.

If people decide to transfer their currency into their bank deposits then,all else constant,their decisions will

Money market equilibrium occurs

The amount of real money people want to hold will increase if either the amount they are spending increases or the

Which of the following is a store of value?

Suppose that the banking system has excess reserves of $10 million,the desired reserve ratio is 10 percent and the currency drain ratio is 40 percent.By how much will the quantity of money increase?

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

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

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

When the interest rate falls in the money market,the quantity of money demanded and the quantity of money supplied .