Question 1

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 2

Use the information below to answer the following questions.
Fact 24.4.1
The Bank of Speedy Creek has chosen the following initial balance sheet:
  
-Refer to Fact 24.4.1. Based on the Bank of Speedy Creek's initial balance sheet, what is its desired reserve ratio?

Accepted Answer

A) 4 percent 
B) 8 percent 
C) 12.5 percent 
D) 25 percent 
E) 40 percent 
A) 4 percent 
B) 8 percent 
C) 12.5 percent 
D) 25 percent 
E) 40 percent

Question 3

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 4

When the nominal interest rate rises, the opportunity cost of holding money

Accepted Answer

A) rises and people hold more money. 
B) falls and people hold more money. 
C) falls and people hold less money. 
D) rises and people hold less money. 
E) does not change. 
A) rises and people hold more money. 
B) falls and people hold more money. 
C) falls and people hold less money. 
D) rises and people hold less money. 
E) does not change.

Question 5

A financial firm that takes deposits from households and firms is

Accepted Answer

A) a usurer. 
B) a depository institution. 
C) a credit company. 
D) a pawn shop. 
E) a central bank. 
A) a usurer. 
B) a depository institution. 
C) a credit company. 
D) a pawn shop. 
E) a central bank.

Question 6

Which one of the following would not be considered a depository institution?

Accepted Answer

A) The Bank of Canada. 
B) a credit union 
C) a caisse populaire 
D) a trust and mortgage loan company 
E) The Bank of Montreal 
A) The Bank of Canada. 
B) a credit union 
C) a caisse populaire 
D) a trust and mortgage loan company 
E) The Bank of Montreal

Question 7

Barter can only take place if there is

Accepted Answer

A) money. 
B) a double coincidence of wants. 
C) a double coincidence of money. 
D) no inflation. 
E) low transaction costs. 
A) money. 
B) a double coincidence of wants. 
C) a double coincidence of money. 
D) no inflation. 
E) low transaction costs.

Question 8

Which of the following does not affect the size of the monetary base?

Accepted Answer

A) the amount of notes issued by the Bank of Canada 
B) the amount of loans issued by chartered banks 
C) the amount of coins issued by the Canadian Mint 
D) the amount of chartered bank deposits at the Bank of Canada 
E) none of the above 
A) the amount of notes issued by the Bank of Canada 
B) the amount of loans issued by chartered banks 
C) the amount of coins issued by the Canadian Mint 
D) the amount of chartered bank deposits at the Bank of Canada 
E) none of the above

Question 9

The opportunity cost of holding money increases when the

Accepted Answer

A) purchasing power of money increases. 
B) nominal interest rate rises. 
C) price of goods and services decrease. 
D) income of consumers increases. 
E) income of consumers decreases. 
A) purchasing power of money increases. 
B) nominal interest rate rises. 
C) price of goods and services decrease. 
D) income of consumers increases. 
E) income of consumers decreases.

Question 10

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) a Van Gogh painting 
A) a cheque 
B) a debit card 
C) a credit card 
D) currency 
E) a Van Gogh painting

Question 11

Use the figure below to answer the following questions.
   
Figure 24.5.2
-Refer to Figure 24.5.2. Which one of the following best describes the response to a rise in the market price of bonds?

Accepted Answer

A) A movement from A to B 
B) A movement from A to C 
C) A movement from A to F 
D) A movement from A to E 
E) A movement from C to A 
A) A movement from A to B 
B) A movement from A to C 
C) A movement from A to F 
D) A movement from A to E 
E) A movement from C to A

Question 12

Use the figure below to answer the following questions.
   
Figure 24.5.2
-Refer to Figure 24.5.2. Which one of the following best describes the response to an increase in real GDP?

Accepted Answer

A) Movement from A to F 
B) Movement from A to C 
C) Movement from E to A 
D) Movement from B to A 
E) Movement from A to E 
A) Movement from A to F 
B) Movement from A to C 
C) Movement from E to A 
D) Movement from B to A 
E) Movement from A to E

Question 13

Use the information below to answer the following questions.
Fact 24.4.1
The Bank of Speedy Creek has chosen the following initial balance sheet:
  
-Refer to Fact 24.4.1. Huck Finn comes along and deposits $10. After Huck's deposit, but before any other actions occur, the total amount 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 14

In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent. What is the monetary base?

Accepted Answer

A) $46.24 billion 
B) $49.50 billion 
C) $12.00 billion 
D) $395.12 billion 
E) $39.50 billion 
A) $46.24 billion 
B) $49.50 billion 
C) $12.00 billion 
D) $395.12 billion 
E) $39.50 billion

Question 15

The equation of exchange is

Accepted Answer

A) MV = P. 
B) MV = PY. 
C) MP = VY. 
D) PV = M. 
E) Y = M. 
A) MV = P. 
B) MV = PY. 
C) MP = VY. 
D) PV = M. 
E) Y = M.

Question 16

Quantitative easing

Accepted Answer

A) is an open market sale of securities by the U.S. Federal Reserve. 
B) is an open market purchase of securities by the U.S. Federal Reserve. 
C) decreases bank reserves. 
D) raises the nominal interest rate. 
E) is an open market purchase of securities by Congress. 
A) is an open market sale of securities by the U.S. Federal Reserve. 
B) is an open market purchase of securities by the U.S. Federal Reserve. 
C) decreases bank reserves. 
D) raises the nominal interest rate. 
E) is an open market purchase of securities by Congress.

Question 17

Which of the following best fits the definition of money?

Accepted Answer

A) gold 
B) any commodity or token that is generally acceptable as a means of payment 
C) an obligation between the parties to a transaction 
D) any unit of account 
E) any medium of exchange 
A) gold 
B) any commodity or token that is generally acceptable as a means of payment 
C) an obligation between the parties to a transaction 
D) any unit of account 
E) any medium of exchange

Question 18

In Canada

Accepted Answer

A) the M1 multiplier is less than the M2 multiplier. 
B) the money multiplier increases when the desired reserve ratio increases. 
C) the money multiplier increases when the currency drain ratio increases. 
D) the M1 multiplier decreases over time. 
E) the M2 multiplier decreases over time. 
A) the M1 multiplier is less than the M2 multiplier. 
B) the money multiplier increases when the desired reserve ratio increases. 
C) the money multiplier increases when the currency drain ratio increases. 
D) the M1 multiplier decreases over time. 
E) the M2 multiplier decreases over time.

Question 19

Which of the following statements about depository institutions is false?

Accepted Answer

A) They create liquidity by borrowing long and lending short. 
B) They keep reserves to meet cash withdrawals. 
C) A credit union is an example of a depository institution. 
D) They pool, and therefore reduce, risk. 
E) They borrow at lower interest rates and lend at higher rates. 
A) They create liquidity by borrowing long and lending short. 
B) They keep reserves to meet cash withdrawals. 
C) A credit union is an example of a depository institution. 
D) They pool, and therefore reduce, risk. 
E) They borrow at lower interest rates and lend at higher rates.

Question 20

Real GDP is $2,560 billion, the GDP deflator is 125 (a price level of 1.25), and the velocity of circulation is 5. The quantity of money is

Accepted Answer

A) $2,048 billion. 
B) $625 billion. 
C) $20.48 billion. 
D) $400 billion. 
E) $640 billion. 
A) $2,048 billion. 
B) $625 billion. 
C) $20.48 billion. 
D) $400 billion. 
E) $640 billion.

Exam 24: Money, the Price Level, and Inflation

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

Use the information below to answer the following questions. Fact 24.4.1 The Bank of Speedy Creek has chosen the following initial balance sheet: -Refer to Fact 24.4.1. Based on the Bank of Speedy Creek's initial balance sheet, what is its desired reserve ratio?

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

When the nominal interest rate rises, the opportunity cost of holding money

A financial firm that takes deposits from households and firms is

Which one of the following would not be considered a depository institution?

Barter can only take place if there is

Which of the following does not affect the size of the monetary base?

The opportunity cost of holding money increases when the

Which one of the following is considered to be money?

Use the figure below to answer the following questions. Figure 24.5.2 -Refer to Figure 24.5.2. Which one of the following best describes the response to a rise in the market price of bonds?

Use the figure below to answer the following questions. Figure 24.5.2 -Refer to Figure 24.5.2. Which one of the following best describes the response to an increase in real GDP?

In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent. What is the monetary base?

The equation of exchange is

Quantitative easing

Which of the following best fits the definition of money?

In Canada

Which of the following statements about depository institutions is false?

Real GDP is $2,560 billion, the GDP deflator is 125 (a price level of 1.25), and the velocity of circulation is 5. The quantity of money is

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

Filters