Question 1

The opportunity cost of holding money is

Accepted Answer

A)  the price level. 
B)  real GDP. 
C)  the inverse of the price level multiplied by the nominal interest rate. 
D)  the nominal interest rate. 
A)  the price level. 
B)  real GDP. 
C)  the inverse of the price level multiplied by the nominal interest rate. 
D)  the nominal interest rate. D

Question 2

-In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as

Accepted Answer

A)  b. 
B)  c. 
C)  d. 
D)  e. 
A)  b. 
B)  c. 
C)  d. 
D)  e. D

Question 3

Catherine compares the prices of candy bars in order to get the "best buy." This comparison represents using money as a

Accepted Answer

A)  medium of exchange. 
B)  store of value. 
C)  unit of account. 
D)  bargaining tool. 
A)  medium of exchange. 
B)  store of value. 
C)  unit of account. 
D)  bargaining tool. C

Question 4

The demand for money curve shifts rightward if

Accepted Answer

A)  the price level increases. 
B)  real GDP increases. 
C)  the nominal interest rate increases. 
D)  the real interest rate decreases. 
A)  the price level increases. 
B)  real GDP increases. 
C)  the nominal interest rate increases. 
D)  the real interest rate decreases.

Question 5

Which of the following tools is NOT a policy tool of the Fed?

Accepted Answer

A)  last resort loans 
B)  the tax rate on interest income 
C)  the required reserve ratio 
D)  open market operations 
A)  last resort loans 
B)  the tax rate on interest income 
C)  the required reserve ratio 
D)  open market operations

Question 6

The monetary policy-making body of the Federal Reserve is the

Accepted Answer

A)  Federal Open Market Committee. 
B)  New York Federal Reserve Bank. 
C)  regional Federal Reserve Banks. 
D)  Board of Governors. 
A)  Federal Open Market Committee. 
B)  New York Federal Reserve Bank. 
C)  regional Federal Reserve Banks. 
D)  Board of Governors.

Question 7

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 8

When the monetary base increases by $4 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals

Accepted Answer

A)  0.4. 
B)  2.5. 
C)  40.0. 
D)  none of the above. 
A)  0.4. 
B)  2.5. 
C)  40.0. 
D)  none of the above.

Question 9

What are the economic functions of depository institutions?

Accepted Answer

Depository institutions provide four eco

Question 10

For a commercial bank, the term "reserves" refers to

Accepted Answer

A)  a banker's concern ("reservation") in making loans to an individual without a job. 
B)  the profit that the bank retains at the end of the year. 
C)  the cash in its vaults and its deposits at the Federal Reserve. 
D)  the net interest that it earns on loans. 
A)  a banker's concern ("reservation") in making loans to an individual without a job. 
B)  the profit that the bank retains at the end of the year. 
C)  the cash in its vaults and its deposits at the Federal Reserve. 
D)  the net interest that it earns on loans.

Question 11

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

Accepted Answer

A)  reserves remain unchanged because the increase of reserves at the bank are offset by an increase in reserves at the Fed. 
B)  reserves have decreased by the amount of the check because the Fed pays for the check by decreasing the bank's deposits at the Fed. 
C)  reserves have increased by the amount of the check because the Fed pays for the check by increasing the amount of the bank's deposits with 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 remain unchanged because the increase of reserves at the bank are offset by an increase in reserves at the Fed. 
B)  reserves have decreased by the amount of the check because the Fed pays for the check by decreasing the bank's deposits at the Fed. 
C)  reserves have increased by the amount of the check because the Fed pays for the check by increasing the amount of the bank's deposits with 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 12

How do banks create liquidity?

Accepted Answer

Banks create liquidity because they acce

Question 13

The table below shows the data (in millions) for Wells Fargo Bank in September 2017 and September 2018. Suppose that the desired reserve ratio is 3 percent.   The data show that

Accepted Answer

A)  the currency drain ratio increased. 
B)  the Federal Reserve must have increased the required reserve ratio. 
C)  Wells Fargo had unplanned reserves and could create money in 2017. 
D)  Wells Fargo was only able to make more loans in 2018 because it gained more deposits. 
A)  the currency drain ratio increased. 
B)  the Federal Reserve must have increased the required reserve ratio. 
C)  Wells Fargo had unplanned reserves and could create money in 2017. 
D)  Wells Fargo was only able to make more loans in 2018 because it gained more deposits.

Question 14

The real quantity of money is

Accepted Answer

A)  inversely related to GDP. 
B)  measured in current dollars. 
C)  inversely related to the price level. 
D)  measured in constant dollars. 
A)  inversely related to GDP. 
B)  measured in current dollars. 
C)  inversely related to the price level. 
D)  measured in constant dollars.

Question 15

List the Fed's main policy tools and briefly explain each one.

Accepted Answer

The Fed's main policy tools are: require

Question 16

According to the quantity theory of money

Accepted Answer

A)  V and M are constant. 
B)  V and Y are not affected by the quantity of money. 
C)  V and P are not affected by the quantity of money. 
D)  V and M are not affected by changes in the price level. 
A)  V and M are constant. 
B)  V and Y are not affected by the quantity of money. 
C)  V and P are not affected by the quantity of money. 
D)  V and M are not affected by changes in the price level.

Question 17

The Federal Reserve System

Accepted Answer

A)  regulates the nation's financial institutions. 
B)  conducts the nation's monetary policy. 
C)  Both answers A and B are correct. 
D)  Neither answer A nor B is correct. 
A)  regulates the nation's financial institutions. 
B)  conducts the nation's monetary policy. 
C)  Both answers A and B are correct. 
D)  Neither answer A nor B is correct.

Question 18

The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of these assets and liabilities that is in M1?

Accepted Answer

The only deposit that is in M1

Question 19

The majority of money is created when

Accepted Answer

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

Question 20

"The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?

Accepted Answer

The statement is incorrect. Th

The opportunity cost of holding money is

-In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as

Catherine compares the prices of candy bars in order to get the "best buy." This comparison represents using money as a

The demand for money curve shifts rightward if

Which of the following tools is NOT a policy tool of the Fed?

The monetary policy-making body of the Federal Reserve is the

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

When the monetary base increases by $4 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals

What are the economic functions of depository institutions?

For a commercial bank, the term "reserves" refers to

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

How do banks create liquidity?

The table below shows the data (in millions) for Wells Fargo Bank in September 2017 and September 2018. Suppose that the desired reserve ratio is 3 percent. The data show that

The real quantity of money is

List the Fed's main policy tools and briefly explain each one.

According to the quantity theory of money

The Federal Reserve System

The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of these assets and liabilities that is in M1?

The majority of money is created when

"The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?

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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 8: Money, the Price Level, and Inflation

The opportunity cost of holding money is

-In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as

Catherine compares the prices of candy bars in order to get the "best buy." This comparison represents using money as a

The demand for money curve shifts rightward if

Which of the following tools is NOT a policy tool of the Fed?

The monetary policy-making body of the Federal Reserve is the

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

When the monetary base increases by $4 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals

What are the economic functions of depository institutions?

For a commercial bank, the term "reserves" refers to

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

How do banks create liquidity?

The table below shows the data (in millions) for Wells Fargo Bank in September 2017 and September 2018. Suppose that the desired reserve ratio is 3 percent. The data show that

The real quantity of money is

List the Fed's main policy tools and briefly explain each one.

According to the quantity theory of money

The Federal Reserve System

The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of these assets and liabilities that is in M1?

The majority of money is created when

"The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?

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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters