Question 1

The interest rate that the Fed charges when it makes a last resort loan is the ________ rate.

Accepted Answer

A)  discount 
B)  short-term 
C)  reserve 
D)  federal funds 
A)  discount 
B)  short-term 
C)  reserve 
D)  federal funds

Question 2

A bank cannot create money unless its

Accepted Answer

A)  required reserves are greater than actual reserves. 
B)  excess reserves are zero. 
C)  desired reserves are less than actual reserves. 
D)  excess reserves equal deposits multiplied by the reserve ratio. 
A)  required reserves are greater than actual reserves. 
B)  excess reserves are zero. 
C)  desired reserves are less than actual reserves. 
D)  excess reserves equal deposits multiplied by the reserve ratio.

Question 3

If the Fed buys $100 in securities from a commercial bank, the

Accepted Answer

A)  Fed's assets will decrease by $100. 
B)  quantity of money will decrease by $100. 
C)  quantity of the bank's reserves will increase by $100. 
D)  amount of the bank's reserves will not change. 
A)  Fed's assets will decrease by $100. 
B)  quantity of money will decrease by $100. 
C)  quantity of the bank's reserves will increase by $100. 
D)  amount of the bank's reserves will not change.

Question 4

The equation of exchange

Accepted Answer

A)  is MV = PY. 
B)  becomes the quantity theory if the velocity of circulation and the price level are constant. 
C)  cannot be used in an economy with inflation. 
D)  All of the above answers are correct. 
A)  is MV = PY. 
B)  becomes the quantity theory if the velocity of circulation and the price level are constant. 
C)  cannot be used in an economy with inflation. 
D)  All of the above answers are correct.

Question 5

Which of the following functions are performed by depository institutions?
I. They make long-term loans using short-term deposits, thereby creating liquidity.
II. They efficiently gather funds from a large base of depositors.
III. They concentrate risk.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I and II 
A)  I only 
B)  II only 
C)  III only 
D)  I and II

Question 6

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

Accepted Answer

A)  foreign policy. 
B)  monetary policy. 
C)  fiscal policy. 
D)  bank antitrust policy. 
A)  foreign policy. 
B)  monetary policy. 
C)  fiscal policy. 
D)  bank antitrust policy.

Question 7

Fisheria is a country in which the quantity theory of money operates. The country has a constant population, capital stock, and technology. In 2010, real GDP was $300 million, the quantity of money was $60, and the velocity of circulation of money was 10. In 2015, the price level rose by 20 percent.
a) What was the price level in 2014? (The price level is measured by the GDP deflator, which is 100 in the base year. So the price level from the equation of exchange needs to be multiplied by 100 to convert it to the GDP deflator.)
b) What was real GDP in 2015?
c) What was the velocity of circulation in 2015?
d) What was the quantity of money in 2015?

Accepted Answer

a) The equation of exchange states that

Question 8

Currency outside of banks increases from $100 million to $200 million. This change is considered

Accepted Answer

A)  a currency drain. 
B)  a decrease in the monetary base. 
C)  expansionary monetary policy. 
D)  contractionary monetary policy. 
A)  a currency drain. 
B)  a decrease in the monetary base. 
C)  expansionary monetary policy. 
D)  contractionary monetary policy.

Question 9

The demand for money is ________ related to the nominal interest rate.

Accepted Answer

A)  positively 
B)  negatively 
C)  not 
D)  None of the above answers is correct because the relationship between the demand for money and the nominal interest rate changes with the inflation rate. 
A)  positively 
B)  negatively 
C)  not 
D)  None of the above answers is correct because the relationship between the demand for money and the nominal interest rate changes with the inflation rate.

Question 10

The Board of Governors is the

Accepted Answer

A)  Presidents of the 12 regional banks of the Federal Reserve. 
B)  7-member group that oversees the Federal Reserve. 
C)  12-member monetary policy committee of the Federal Reserve. 
D)  50-member organization of state banking regulators of the Federal Reserve. 
A)  Presidents of the 12 regional banks of the Federal Reserve. 
B)  7-member group that oversees the Federal Reserve. 
C)  12-member monetary policy committee of the Federal Reserve. 
D)  50-member organization of state banking regulators of the Federal Reserve.

Question 11

Money

Accepted Answer

A)  is always composed of coins and paper. 
B)  loses its value as it becomes older. 
C)  requires a double coincidence of wants. 
D)  is any commodity that is generally acceptable as a means of payment. 
A)  is always composed of coins and paper. 
B)  loses its value as it becomes older. 
C)  requires a double coincidence of wants. 
D)  is any commodity that is generally acceptable as a means of payment.

Question 12

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

Question 13

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

Accepted Answer

A) True 
 B)False

Question 14

According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in

Accepted Answer

A)  real national income. 
B)  real GDP. 
C)  the price level. 
D)  the velocity of circulation. 
A)  real national income. 
B)  real GDP. 
C)  the price level. 
D)  the velocity of circulation.

Question 15

The demand for money curve shifts rightward if

Accepted Answer

A)  the nominal interest rate falls. 
B)  financial innovation creates new substitutes for cash. 
C)  real GDP increases. 
D)  the price level falls. 
A)  the nominal interest rate falls. 
B)  financial innovation creates new substitutes for cash. 
C)  real GDP increases. 
D)  the price level falls.

Question 16

Unplanned reserves are

Accepted Answer

A)  desired reserves minus actual reserves. 
B)  required reserves minus actual reserves. 
C)  liquidity funds minus actual reserves. 
D)  actual reserves minus desired reserves. 
A)  desired reserves minus actual reserves. 
B)  required reserves minus actual reserves. 
C)  liquidity funds minus actual reserves. 
D)  actual reserves minus desired reserves.

Question 17

Which of the following is NOT an asset of the Federal Reserve System?

Accepted Answer

A)  mortgage-backed securities 
B)  reserves of depository institutions 
C)  U.S. government securities 
D)  None of the above are correct because they are all assets of the Federal Reserve. 
A)  mortgage-backed securities 
B)  reserves of depository institutions 
C)  U.S. government securities 
D)  None of the above are correct because they are all assets of the Federal Reserve.

Question 18

-Based on the data in the table above, what is the value of M2?

Accepted Answer

A)  $2,950 billion 
B)  $4,187 billion 
C)  $7,978 billion 
D)  $8,587 billion 
A)  $2,950 billion 
B)  $4,187 billion 
C)  $7,978 billion 
D)  $8,587 billion

Question 19

The monetary base is the sum of

Accepted Answer

A)  U.S. Treasury notes and other government securities. 
B)  currency and reserves of depository institutions. 
C)  foreign and domestic deposits at the Fed. 
D)  currency and checkable deposits at depository institutions. 
A)  U.S. Treasury notes and other government securities. 
B)  currency and reserves of depository institutions. 
C)  foreign and domestic deposits at the Fed. 
D)  currency and checkable deposits at depository institutions.

Question 20

"Banks make a profit by paying depositors a high rate to attract funds and making loans at a low rate to encourage borrowing." Is the previous statement correct or not?

Accepted Answer

The statement is incorrect. Ba

The interest rate that the Fed charges when it makes a last resort loan is the ________ rate.

A bank cannot create money unless its

If the Fed buys $100 in securities from a commercial bank, the

The equation of exchange

Which of the following functions are performed by depository institutions? I. They make long-term loans using short-term deposits, thereby creating liquidity. II. They efficiently gather funds from a large base of depositors. III. They concentrate risk.

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

Currency outside of banks increases from $100 million to $200 million. This change is considered

The demand for money is ________ related to the nominal interest rate.

The Board of Governors is the

Money

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

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in

The demand for money curve shifts rightward if

Unplanned reserves are

Which of the following is NOT an asset of the Federal Reserve System?

-Based on the data in the table above, what is the value of M2?

The monetary base is the sum of

"Banks make a profit by paying depositors a high rate to attract funds and making loans at a low rate to encourage borrowing." Is the previous statement correct or not?

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 interest rate that the Fed charges when it makes a last resort loan is the ________ rate.

A bank cannot create money unless its

If the Fed buys $100 in securities from a commercial bank, the

The equation of exchange

Which of the following functions are performed by depository institutions? I. They make long-term loans using short-term deposits, thereby creating liquidity. II. They efficiently gather funds from a large base of depositors. III. They concentrate risk.

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

Currency outside of banks increases from $100 million to $200 million. This change is considered

The demand for money is ________ related to the nominal interest rate.

The Board of Governors is the

Money

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

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in

The demand for money curve shifts rightward if

Unplanned reserves are

Which of the following is NOT an asset of the Federal Reserve System?

-Based on the data in the table above, what is the value of M2?

The monetary base is the sum of

"Banks make a profit by paying depositors a high rate to attract funds and making loans at a low rate to encourage borrowing." Is the previous statement correct or not?

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

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