Question 1

Real GDP is $2,000 billion, the GDP deflator is 120 (a price level of 1.2), and the velocity of circulation is 5. Nominal GDP is

Accepted Answer

A) $24 billion. 
B) $600 billion. 
C) $2,000 billion. 
D) $2,400 billion. 
E) $166.67 billion. 
A) $24 billion. 
B) $600 billion. 
C) $2,000 billion. 
D) $2,400 billion. 
E) $166.67 billion.

Question 2

Which one of the following is considered to be money?

Accepted Answer

A) a chequable deposit 
B) a blank cheque 
C) a credit card 
D) a debit card 
E) a Canada Savings Bond 
A) a chequable deposit 
B) a blank cheque 
C) a credit card 
D) a debit card 
E) a Canada Savings Bond

Question 3

Which one of the following is not money?

Accepted Answer

A) a chequable deposit 
B) Canadian currency 
C) a credit card 
D) a non-chequable deposit 
E) a fixed term deposit 
A) a chequable deposit 
B) Canadian currency 
C) a credit card 
D) a non-chequable deposit 
E) a fixed term deposit

Question 4

Everything else remaining the same, an increase in real GDP

Accepted Answer

A) increases the demand for real money. 
B) decreases the demand for real money. 
C) does not change the demand for real money. 
D) increases the demand for real money up to a point, and then demand will automatically fall. 
E) decreases the demand for real money up to a point, and then demand will automatically rise. 
A) increases the demand for real money. 
B) decreases the demand for real money. 
C) does not change the demand for real money. 
D) increases the demand for real money up to a point, and then demand will automatically fall. 
E) decreases the demand for real money up to a point, and then demand will automatically rise.

Question 5

Use the table below to answer the following questions.
Table 24.5.1
  
-Refer to Table 24.5.1. The spreadsheet provides information about the demand for money in Minland. Column A is the nominal interest rate, r. Columns B and C show the quantity of money demanded at two different levels of real GDP: Y₀ is $10 billion and Y₁ is $20 billion.
The quantity of money is $3 billion. Real GDP is $20 billion.
If the interest rate is less than 4 percent a year,

Accepted Answer

A) people sell bonds, the price of a bond falls, and the interest rate rises. 
B) people buy bonds, the price of a bond rises, and the interest rate rises. 
C) people sell bonds, the price of a bond falls, and the interest rate falls. 
D) people buy bonds, the price of a bond rises, and the interest rate falls. 
E) the demand for money increases. 
A) people sell bonds, the price of a bond falls, and the interest rate rises. 
B) people buy bonds, the price of a bond rises, and the interest rate rises. 
C) people sell bonds, the price of a bond falls, and the interest rate falls. 
D) people buy bonds, the price of a bond rises, and the interest rate falls. 
E) the demand for money increases.

Question 6

Whenever desired reserves exceed actual reserves, the bank

Accepted Answer

A) can make new loans. 
B) will call in loans. 
C) will go out of business. 
D) is in a profit-making position. 
E) has excess reserves. 
A) can make new loans. 
B) will call in loans. 
C) will go out of business. 
D) is in a profit-making position. 
E) has excess reserves.

Question 7

Real GDP is $2,560 billion, the quantity of money $800 billion, and the velocity of circulation is 4. The GDP deflator is

Accepted Answer

A) 125. 
B) 6.4. 
C) 1,000. 
D) 3,200. 
E) 3.2. 
A) 125. 
B) 6.4. 
C) 1,000. 
D) 3,200. 
E) 3.2.

Question 8

In a world with no money, costs are expressed in terms of other goods. If one video game costs two hamburgers, and a hamburger costs three pops, how many pops would it take to buy a video game?

Accepted Answer

A) 5 
B) 3 
C) 6 
D) 3/2 
E) 1/6 
A) 5 
B) 3 
C) 6 
D) 3/2 
E) 1/6

Question 9

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 
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

Question 10

If Wolfgang transfers $1,000 out of his non-chequable deposit account and places it in his chequable deposit account,

Accepted Answer

A) M1 and M2 fall. 
B) M1 falls and M2 rises. 
C) M1 falls and M3 rises. 
D) M1 falls and M2 remains the same. 
E) M1 rises and M2 remains the same. 
A) M1 and M2 fall. 
B) M1 falls and M2 rises. 
C) M1 falls and M3 rises. 
D) M1 falls and M2 remains the same. 
E) M1 rises and M2 remains the same.

Question 11

According to the quantity theory of money, an increase in the quantity of money will increase the price level

Accepted Answer

A) but have no effect on real GDP or the velocity of circulation. 
B) and increase real GDP and the velocity of circulation. 
C) and increase real GDP but decrease the velocity of circulation. 
D) and decrease real GDP and increase the velocity of circulation. 
E) but have no effect on real GDP and will decrease the velocity of circulation. 
A) but have no effect on real GDP or the velocity of circulation. 
B) and increase real GDP and the velocity of circulation. 
C) and increase real GDP but decrease the velocity of circulation. 
D) and decrease real GDP and increase the velocity of circulation. 
E) but have no effect on real GDP and will decrease the velocity of circulation.

Question 12

Use the information below to answer the following questions.
Fact 24.4.2
The Bank of Hobbiton has chosen the following initial balance sheet:
  
-Refer to Fact 24.4.2. Based on the Bank of Hobbiton's initial balance sheet, what is its desired reserve ratio?

Accepted Answer

A) 10 percent 
B) 100 percent 
C) 20 percent 
D) 5 percent 
E) not calculable with the available information 
A) 10 percent 
B) 100 percent 
C) 20 percent 
D) 5 percent 
E) not calculable with the available information

Question 13

The money multiplier will decrease if the currency drain ratio

Accepted Answer

A) increases or the desired reserve ratio increases. 
B) decreases or the desired reserve ratio decreases. 
C) decreases or the desired reserve ratio increases. 
D) increases or the desired reserve ratio decreases. 
E) decreases and the monetary base increases. 
A) increases or the desired reserve ratio increases. 
B) decreases or the desired reserve ratio decreases. 
C) decreases or the desired reserve ratio increases. 
D) increases or the desired reserve ratio decreases. 
E) decreases and the monetary base increases.

Question 14

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) fresh fruit and vegetables 
A) a credit card 
B) a cheque 
C) a debit card 
D) a fixed term deposit 
E) fresh fruit and vegetables

Question 15

Which of the following is an economic function of a chartered bank?

Accepted Answer

A) issuing bank notes 
B) pooling risk 
C) supervising financial markets 
D) conducting monetary policy 
E) supervising the payments system 
A) issuing bank notes 
B) pooling risk 
C) supervising financial markets 
D) conducting monetary policy 
E) supervising the payments system

Question 16

Use the figure below to answer the following questions.
   
Figure 24.5.1
-Refer to Figure 24.5.1. Everything else remaining the same, which graph best shows a decrease in real GDP?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (a)and (c) 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (a)and (c)

Question 17

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

Accepted Answer

A) lower the opportunity cost of using it as a medium of exchange. 
B) lower the opportunity cost of using it as a store of value. 
C) higher the opportunity cost of using it as a store of value. 
D) less likely barter exchange will replace it. 
E) lower the opportunity cost of using it as a standard of deferred payment. 
A) lower the opportunity cost of using it as a medium of exchange. 
B) lower the opportunity cost of using it as a store of value. 
C) higher the opportunity cost of using it as a store of value. 
D) less likely barter exchange will replace it. 
E) lower the opportunity cost of using it as a standard of deferred payment.

Question 18

The reserves of a bank include

Accepted Answer

A) the cash in its vault plus the value of its chequable deposits. 
B) the cash in its vault plus any deposits held on account at the Bank of Canada. 
C) the cash in its vault plus any gold held for the bank at the Bank of Canada. 
D) all of its common stock holdings, the cash in its vault, and all deposits held on account with the Bank of Canada. 
E) the cash in its vault plus any deposits held on account with the Bank of Canada plus the value of any government bonds that it holds. 
A) the cash in its vault plus the value of its chequable deposits. 
B) the cash in its vault plus any deposits held on account at the Bank of Canada. 
C) the cash in its vault plus any gold held for the bank at the Bank of Canada. 
D) all of its common stock holdings, the cash in its vault, and all deposits held on account with the Bank of Canada. 
E) the cash in its vault plus any deposits held on account with the Bank of Canada plus the value of any government bonds that it holds.

Question 19

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 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

Real GDP is $2,000 billion, the GDP deflator is 120 (a price level of 1.2), and the velocity of circulation is 5. Nominal GDP is

Which one of the following is considered to be money?

Which one of the following is not money?

Everything else remaining the same, an increase in real GDP

Whenever desired reserves exceed actual reserves, the bank

Real GDP is $2,560 billion, the quantity of money $800 billion, and the velocity of circulation is 4. The GDP deflator is

In a world with no money, costs are expressed in terms of other goods. If one video game costs two hamburgers, and a hamburger costs three pops, how many pops would it take to buy a video game?

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

If Wolfgang transfers $1,000 out of his non-chequable deposit account and places it in his chequable deposit account,

According to the quantity theory of money, an increase in the quantity of money will increase the price level

Use the information below to answer the following questions. Fact 24.4.2 The Bank of Hobbiton has chosen the following initial balance sheet: -Refer to Fact 24.4.2. Based on the Bank of Hobbiton's initial balance sheet, what is its desired reserve ratio?

The money multiplier will decrease if the currency drain ratio

Which of the following is a store of value?

Which of the following is an economic function of a chartered bank?

Use the figure below to answer the following questions. Figure 24.5.1 -Refer to Figure 24.5.1. Everything else remaining the same, which graph best shows a decrease in real GDP?

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

The reserves of a bank include

The largest component of M1 is

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

Governments 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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

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