Question 1

What is the FOMC?
Who are the members of the FOMC?
What policy does the FOMC decide?

Accepted Answer

The FOMC is the Federal Open Market Comm

Question 2

What is a "currency drain?
" How and why does it affect the money multiplier?

Accepted Answer

An increase in currency held outside the

Question 3

$\begin{array}{|l|l|}
\hline {\text { Assets }} &{\text { Liabilities }} \
\hline \text { Reserves } & \
\$ 400 & \text { Deposits } \
\text { Loans } & \$ 1,200 \
\$ 800 & \
\text { Total } & \text { Total } \
\$ 1,200 & \$ 1,200\
\hline 
\end{array}$ 
-In the balance sheet above,the entries are in millions of dollars for the FBN Bank.After FBN Bank loans the maximum amount it can,the loans have been spent,and the proceeds have been deposited in other banks,FBN Bank has excess reserves of

Accepted Answer

A)  $300 million. 
B)  $200 million. 
C)  $100 million. 
D)  $0. 
A)  $300 million. 
B)  $200 million. 
C)  $100 million. 
D)  $0.

Question 4

Which of the following is NOT considered a function of money?

Accepted Answer

A)  It facilitates exchange. 
B)  It acts as a means of payment. 
C)  It can be held and exchanged for future goods and services. 
D)  It allows banks to lend out funds. 
A)  It facilitates exchange. 
B)  It acts as a means of payment. 
C)  It can be held and exchanged for future goods and services. 
D)  It allows banks to lend out funds.

Question 5

The desired reserve ratio helps determine the amount of money banks can create.

Accepted Answer

A) True 
 B)False

Question 6

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 7

A new financial innovation results in people switching their funds from checking deposits to savings accounts.The quantity of M1 ________ and the quantity of M2 ________.

Accepted Answer

A)  decreases; decreases 
B)  increases; decreases 
C)  decreases; does not change 
D)  decreases; increases 
A)  decreases; decreases 
B)  increases; decreases 
C)  decreases; does not change 
D)  decreases; increases

Question 8

Assuming velocity is constant,a 10 percent increase in the quantity of money leads to a 10 percent increase in nominal GDP in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 9

Define money and list its functions.

Accepted Answer

Money is any commodity or toke

Question 10

An open market sale of securities by the Fed

Accepted Answer

A)  decreases banks' reserves and increases banks' securities. 
B)  increases banks' reserves and decreases banks' securities. 
C)  increases banks' total assets. 
D)  involves a bank selling government securities to the Fed. 
A)  decreases banks' reserves and increases banks' securities. 
B)  increases banks' reserves and decreases banks' securities. 
C)  increases banks' total assets. 
D)  involves a bank selling government securities to the Fed.

Question 11

In the economy of Briskland,the commercial banks have deposits of $500 billion.Their reserves are $50 billion,80 percent of which is in deposits with the Central Bank.There is $20 billion in Central Bank notes outside the banks,and there are no coins.
a) What is the monetary base?
b) If all the deposits are money,what is the total quantity of money?
c) What is the banks' reserve ratio?
d) What is the currency drain as a percentage of the quantity of deposits?

Accepted Answer

a) The monetary base is the sum of Centr

Question 12

The money multiplier determines how much

Accepted Answer

A)  real GDP will be expanded given an increase in autonomous investment. 
B)  the monetary base will be expanded given a change in the quantity of money. 
C)  the quantity of money will be expanded given a change in the monetary base. 
D)  money demand will expand given a change in the quantity of money. 
A)  real GDP will be expanded given an increase in autonomous investment. 
B)  the monetary base will be expanded given a change in the quantity of money. 
C)  the quantity of money will be expanded given a change in the monetary base. 
D)  money demand will expand given a change in the quantity of money.

Question 13

Depository institution create liquidity when they

Accepted Answer

A)  buy assets that are liquid. 
B)  borrow short and lend long. 
C)  have liabilities that are illiquid. 
D)  borrow long and lend short. 
A)  buy assets that are liquid. 
B)  borrow short and lend long. 
C)  have liabilities that are illiquid. 
D)  borrow long and lend short.

Question 14

If an economy has no money,then all transactions must be conducted through the use of ________.

Accepted Answer

A)  credit cards 
B)  barter 
C)  debit cards 
D)  tobacco or wampum 
A)  credit cards 
B)  barter 
C)  debit cards 
D)  tobacco or wampum

Question 15

The table below shows data for Brazil. $$\begin{array} { | l | c | c | } 
\hline & \mathbf { 2 0 0 6 } & \mathbf { 2 0 0 7 } \
\hline \text { Real GDP growth rate } & 3.8 & 5.4 \
\hline \text { Inflation rate } & 4.2 & 3.7 \
\hline
\end{array}$$
Assuming the rate of velocity change is constant,

Accepted Answer

A)  the growth rate of money increased between 2006 and 2007. 
B)  the money growth rate was -0.4 percent in 2006. 
C)  the growth rate of nominal GDP was 1.7 percent in 2006. 
D)  the demand for money curve shifted leftward in 2006. 
A)  the growth rate of money increased between 2006 and 2007. 
B)  the money growth rate was -0.4 percent in 2006. 
C)  the growth rate of nominal GDP was 1.7 percent in 2006. 
D)  the demand for money curve shifted leftward in 2006.

Question 16

Money market mutual funds

Accepted Answer

A)  are provided by the Federal Reserve as liquidity for private banks. 
B)  have no restrictions on shareholder withdrawals. 
C)  do not provide any checking services to their owners. 
D)  allow shareholders to write check on their funds. 
A)  are provided by the Federal Reserve as liquidity for private banks. 
B)  have no restrictions on shareholder withdrawals. 
C)  do not provide any checking services to their owners. 
D)  allow shareholders to write check on their funds.

Question 17

Which of the following is NOT a function of money?

Accepted Answer

A)  medium of exchange 
B)  barter 
C)  unit of account 
D)  store of value 
A)  medium of exchange 
B)  barter 
C)  unit of account 
D)  store of value

Question 18

The opportunity cost of holding money is the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 19

According to the quantity theory of money,a 15 percent increase in the quantity of money creates a 15 percent rise in

Accepted Answer

A)  the price level. 
B)  the velocity of circulation. 
C)  real GDP. 
D)  the unemployment rate. 
A)  the price level. 
B)  the velocity of circulation. 
C)  real GDP. 
D)  the unemployment rate.

Question 20

A bank creates money by

Accepted Answer

A)  lending its excess reserves 
B)  purchasing currency from the Federal Reserve 
C)  buying bonds from the Federal Reserve 
D)  printing more checks 
A)  lending its excess reserves 
B)  purchasing currency from the Federal Reserve 
C)  buying bonds from the Federal Reserve 
D)  printing more checks

What is the FOMC? Who are the members of the FOMC? What policy does the FOMC decide?

What is a "currency drain? " How and why does it affect the money multiplier?

Which of the following is NOT considered a function of money?

The desired reserve ratio helps determine the amount of money banks can create.

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

A new financial innovation results in people switching their funds from checking deposits to savings accounts.The quantity of M1 and the quantity of M2 .

Assuming velocity is constant,a 10 percent increase in the quantity of money leads to a 10 percent increase in nominal GDP in both the short run and the long run.

Define money and list its functions.

An open market sale of securities by the Fed

The money multiplier determines how much

Depository institution create liquidity when they

If an economy has no money,then all transactions must be conducted through the use of ________.

The table below shows data for Brazil. Real GDP growth rate 3.8 5.4 Inflation rate 4.2 3.7 Assuming the rate of velocity change is constant,

Money market mutual funds

Which of the following is NOT a function of money?

The opportunity cost of holding money is the nominal interest rate.

According to the quantity theory of money,a 15 percent increase in the quantity of money creates a 15 percent rise in

A bank creates money by

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

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

Exam 8: Money, The Price Level, and Inflation

What is the FOMC? Who are the members of the FOMC? What policy does the FOMC decide?

What is a "currency drain? " How and why does it affect the money multiplier?

Which of the following is NOT considered a function of money?

The desired reserve ratio helps determine the amount of money banks can create.

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

A new financial innovation results in people switching their funds from checking deposits to savings accounts.The quantity of M1 ________ and the quantity of M2 ________.

Assuming velocity is constant,a 10 percent increase in the quantity of money leads to a 10 percent increase in nominal GDP in both the short run and the long run.

Define money and list its functions.

An open market sale of securities by the Fed

The money multiplier determines how much

Depository institution create liquidity when they

If an economy has no money,then all transactions must be conducted through the use of ________.

The table below shows data for Brazil. Real GDP growth rate 3.8 5.4 Inflation rate 4.2 3.7 Assuming the rate of velocity change is constant,

Money market mutual funds

Which of the following is NOT a function of money?

The opportunity cost of holding money is the nominal interest rate.

According to the quantity theory of money,a 15 percent increase in the quantity of money creates a 15 percent rise in

A bank creates money by

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

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

A new financial innovation results in people switching their funds from checking deposits to savings accounts.The quantity of M1 and the quantity of M2 .