Question 1

Which of the following is NOT money?

Accepted Answer

A)  currency 
B)  checking deposits 
C)  checks in the checkbook 
D)  All of the above are money. 
A)  currency 
B)  checking deposits 
C)  checks in the checkbook 
D)  All of the above are money.

Question 2

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

Accepted Answer

A)  Federal Reserve notes 
B)  government securities 
C)  loans to depository institutions 
D)  None of the above are correct because they are all assets of the Federal Reserve 
A)  Federal Reserve notes 
B)  government securities 
C)  loans to depository institutions 
D)  None of the above are correct because they are all assets of the Federal Reserve

Question 3

Which of the following is true regarding the quantity theory of money?
I. The theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of real GDP.
II. The theory predicts that countries with high growth rates of money will have high inflation rates.
III. The theory predicts that increases in the growth rate of velocity lowers the inflation rate.

Accepted Answer

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

Question 4

If the money multiplier is 3.5,a $10 billion increase in the monetary base

Accepted Answer

A)  increases the quantity of money by $35 billion. 
B)  increases the quantity of money by $10 billion. 
C)  increases the quantity of money by $3.5 billion. 
D)  increases the quantity of money but not by an amount given above. 
A)  increases the quantity of money by $35 billion. 
B)  increases the quantity of money by $10 billion. 
C)  increases the quantity of money by $3.5 billion. 
D)  increases the quantity of money but not by an amount given above.

Question 5

The quantity theory of money is the idea that in the long run

Accepted Answer

A)  the quantity of money is determined by banks. 
B)  the quantity of money serves as a good indicator of how well money functions as a store of value. 
C)  the quantity of money determines real GDP. 
D)  an increase in the growth rate of the quantity of money leads to an equal increase in the inflation rate. 
A)  the quantity of money is determined by banks. 
B)  the quantity of money serves as a good indicator of how well money functions as a store of value. 
C)  the quantity of money determines real GDP. 
D)  an increase in the growth rate of the quantity of money leads to an equal increase in the inflation rate.

Question 6

Suppose a bank has a desired reserve requirement ratio of 12 percent.If someone deposits $1,000 in the bank,

Accepted Answer

A)  immediately after the deposit, excess reserves increase by $880. 
B)  the bank can make loans of $1,000. 
C)  the bank's desired reserves rise by $1,000. 
D)  Both answers B and C are correct. 
A)  immediately after the deposit, excess reserves increase by $880. 
B)  the bank can make loans of $1,000. 
C)  the bank's desired reserves rise by $1,000. 
D)  Both answers B and C are correct.

Question 7

The equation of exchange states that the quantity of money

Accepted Answer

A)  multiplied by the velocity of circulation equals nominal GDP. 
B)  divided by price level equals real GDP. 
C)  multiplied by nominal GDP equals the price level. 
D)  divided by nominal GDP equals real GDP. 
A)  multiplied by the velocity of circulation equals nominal GDP. 
B)  divided by price level equals real GDP. 
C)  multiplied by nominal GDP equals the price level. 
D)  divided by nominal GDP equals real GDP.

Question 8

Suppose that a bank begins with $500 million in deposits and $100 million in reserves and is just meeting its desired reserve ratio.Now suppose a decrease in the required reserve ratio lowers the desired reserve ratio to 10 percent.After the fall in the desired reserve ratio but before the bank makes any changes,the bank's excess reserves are

Accepted Answer

A)  0. 
B)  $400 million. 
C)  $450 million. 
D)  $50 million. 
A)  0. 
B)  $400 million. 
C)  $450 million. 
D)  $50 million.

Question 9

Which of the following best describes the chain of events in the money creation process?

Accepted Answer

A)  The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves. 
B)  Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. 
C)  Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. 
D)  Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money. 
A)  The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves. 
B)  Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. 
C)  Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. 
D)  Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money.

Question 10

What is the opportunity cost of holding money?

Accepted Answer

The opportunity cost

Question 11

"A bank can only use its excess reserves to make loans,while required reserves can only be used to buy U.S.government securities." Explain whether the previous statement is correct or incorrect.

Accepted Answer

The statement is incorrect on two dimens

Question 12

M2 is

Accepted Answer

A)  smaller than M1. 
B)  larger than M1. 
C)  equal to M1, given full employment. 
D)  equal to M1, but only when all three functions of money apply. 
A)  smaller than M1. 
B)  larger than M1. 
C)  equal to M1, given full employment. 
D)  equal to M1, but only when all three functions of money apply.

Question 13

In the short run,how is the interest rate determined?
If the interest rate is less than the equilibrium interest rate,what occurs?

Accepted Answer

The interest rate is determined in the m

Question 14

The term "currency drain" refers to an increase in currency held outside banks.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Suppose that I find out from an L.L.Bean catalogue that a sweater costs $30.00.In this case,money is serving as a

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  double coincidence of want. 
A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  double coincidence of want.

Question 17

Which of the following is the most liquid?

Accepted Answer

A)  the U.S. dollars that your professor used this morning to buy breakfast 
B)  your credit card 
C)  gold 
D)  the pencil or pen in your hand right now 
A)  the U.S. dollars that your professor used this morning to buy breakfast 
B)  your credit card 
C)  gold 
D)  the pencil or pen in your hand right now

Question 18

-In the above figure,if the interest rate is 8 percent,

Accepted Answer

A)  people sell bonds so as to convert them into money. 
B)  people buy bonds and the interest rate falls. 
C)  the Fed increases the quantity of money. 
D)  people buy stocks, because stocks are more liquid than currency. 
A)  people sell bonds so as to convert them into money. 
B)  people buy bonds and the interest rate falls. 
C)  the Fed increases the quantity of money. 
D)  people buy stocks, because stocks are more liquid than currency.

Question 19

The chairman of the Federal Reserve's Board of Governors

Accepted Answer

A)  controls the agenda of the Federal Open Market Committee meetings. 
B)  is the main point of contact between the Fed and the President of the U.S. 
C)  receives frequent background briefings on monetary policy issues from a large staff of economists and technical experts. 
D)  All of the above answers are correct. 
A)  controls the agenda of the Federal Open Market Committee meetings. 
B)  is the main point of contact between the Fed and the President of the U.S. 
C)  receives frequent background briefings on monetary policy issues from a large staff of economists and technical experts. 
D)  All of the above answers are correct.

Question 20

Which of the following is an asset of the Fed?

Accepted Answer

A)  loans to depository institutions 
B)  Federal Reserve notes 
C)  banks' deposits 
D)  Both answers B and C are correct. 
A)  loans to depository institutions 
B)  Federal Reserve notes 
C)  banks' deposits 
D)  Both answers B and C are correct.

Which of the following is NOT money?

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

If the money multiplier is 3.5,a $10 billion increase in the monetary base

The quantity theory of money is the idea that in the long run

Suppose a bank has a desired reserve requirement ratio of 12 percent.If someone deposits $1,000 in the bank,

The equation of exchange states that the quantity of money

Which of the following best describes the chain of events in the money creation process?

What is the opportunity cost of holding money?

"A bank can only use its excess reserves to make loans,while required reserves can only be used to buy U.S.government securities." Explain whether the previous statement is correct or incorrect.

M2 is

In the short run,how is the interest rate determined? If the interest rate is less than the equilibrium interest rate,what occurs?

The term "currency drain" refers to an increase in currency held outside banks.

The Federal Reserve System

Suppose that I find out from an L.L.Bean catalogue that a sweater costs $30.00.In this case,money is serving as a

Which of the following is the most liquid?

-In the above figure,if the interest rate is 8 percent,

The chairman of the Federal Reserve's Board of Governors

Which of the following is an asset of the Fed?

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

Which of the following is NOT money?

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

If the money multiplier is 3.5,a $10 billion increase in the monetary base

The quantity theory of money is the idea that in the long run

Suppose a bank has a desired reserve requirement ratio of 12 percent.If someone deposits $1,000 in the bank,

The equation of exchange states that the quantity of money

Which of the following best describes the chain of events in the money creation process?

What is the opportunity cost of holding money?

"A bank can only use its excess reserves to make loans,while required reserves can only be used to buy U.S.government securities." Explain whether the previous statement is correct or incorrect.

M2 is

In the short run,how is the interest rate determined? If the interest rate is less than the equilibrium interest rate,what occurs?

The term "currency drain" refers to an increase in currency held outside banks.

The Federal Reserve System

Suppose that I find out from an L.L.Bean catalogue that a sweater costs $30.00.In this case,money is serving as a

Which of the following is the most liquid?

-In the above figure,if the interest rate is 8 percent,

The chairman of the Federal Reserve's Board of Governors

Which of the following is an asset of the Fed?

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