Question 1

Suppose the Fed buys government securities from a commercial bank. Why is there a multiplier effect on the quantity of money?

Accepted Answer

When the Fed buys government securities

Question 2

Which of the following equations represents the equation of exchange?

Accepted Answer

A)  PM = VY 
B)  MY = PV 
C)  MV = PY 
D)  M = VP/Y 
A)  PM = VY 
B)  MY = PV 
C)  MV = PY 
D)  M = VP/Y

Question 3

Banks create money whenever they

Accepted Answer

A)  accept a deposit. 
B)  lend excess reserves to a borrower. 
C)  receive monthly payments on their loans. 
D)  receive interest on existing loans. 
A)  accept a deposit. 
B)  lend excess reserves to a borrower. 
C)  receive monthly payments on their loans. 
D)  receive interest on existing loans.

Question 4

Reserve requirements are the

Accepted Answer

A)  minimum percentages of deposits that banks must hold as reserves. 
B)  minimum amount of an owner's financial resources that must be placed in a depository institution. 
C)  rules covering the types of deposits that banks may offer. 
D)  rules covering the types of assets that banks may purchase. 
A)  minimum percentages of deposits that banks must hold as reserves. 
B)  minimum amount of an owner's financial resources that must be placed in a depository institution. 
C)  rules covering the types of deposits that banks may offer. 
D)  rules covering the types of assets that banks may purchase.

Question 5

The monetary base is the sum of

Accepted Answer

A)  currency and reserves of depository institutions. 
B)  currency, travelers' checks, and checking deposits. 
C)  currency only. 
D)  M1 and M2. 
A)  currency and reserves of depository institutions. 
B)  currency, travelers' checks, and checking deposits. 
C)  currency only. 
D)  M1 and M2.

Question 6

A credit union is

Accepted Answer

A)  a combination of credit card corporations. 
B)  a depository institution owned by a social or economic group. 
C)  a thrift institution that issues credit cards. 
D)  a commercial bank owned by its depositors. 
A)  a combination of credit card corporations. 
B)  a depository institution owned by a social or economic group. 
C)  a thrift institution that issues credit cards. 
D)  a commercial bank owned by its depositors.

Question 7

According to the quantity theory of money

Accepted Answer

A)  V and M are constant. 
B)  V and Y are not affected by the quantity of money. 
C)  V and P are not affected by the quantity of money. 
D)  V and M are not affected by changes in the price level. 
A)  V and M are constant. 
B)  V and Y are not affected by the quantity of money. 
C)  V and P are not affected by the quantity of money. 
D)  V and M are not affected by changes in the price level.

Question 8

The quantity theory of money argues that, in the long run, the percentage change in money will create an equal percentage change in

Accepted Answer

A)  velocity. 
B)  real GDP. 
C)  potential GDP. 
D)  the price level. 
A)  velocity. 
B)  real GDP. 
C)  potential GDP. 
D)  the price level.

Question 9

The initial impact of the Fed's open market sale of government securities to banks is

Accepted Answer

A)  an increase in the quantity of money by some multiple of the dollar volume of the sale. 
B)  an increase in bank deposits at the Fed. 
C)  a decrease in the quantity of money by some multiple of the dollar volume of the sale. 
D)  a decrease of the banking system's reserve deposits at the Fed. 
A)  an increase in the quantity of money by some multiple of the dollar volume of the sale. 
B)  an increase in bank deposits at the Fed. 
C)  a decrease in the quantity of money by some multiple of the dollar volume of the sale. 
D)  a decrease of the banking system's reserve deposits at the Fed.

Question 10

Explain how a currency drain affects the size of the money multiplier. In your explanation, suppose that a bank gains $1 million in new deposits and reserves. Further suppose that the desired reserve ratio is 10 percent and the currency drain is 50 percent.

Accepted Answer

A currency drain decreases the size of t

Question 11

Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a

Accepted Answer

A)  medium of exchange. 
B)  unit of account 
C)  store of value. 
D)  All of the above answers are correct. 
A)  medium of exchange. 
B)  unit of account 
C)  store of value. 
D)  All of the above answers are correct.

Question 12

Which of the following applies to an object serving as a store of value?
I.If an object can be held and exchanged later for a good or service, it serves as a store of value.
II.The less stable an object's value, the better it serves as a store of value.
III.A work of art can serve as a store of value.

Accepted Answer

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

Question 13

The desired reserve ratio is 10 percent. Fly By Night Bank has deposits of $250,000 and reserves of $25,000. What is the amount of its excess reserves?

Accepted Answer

The bank has no excess reserve

Question 14

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 15

Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will

Accepted Answer

A)  increase by $3 million. 
B)  increase by $333,333. 
C)  decrease by $3 million. 
D)  decrease by $333,333. 
A)  increase by $3 million. 
B)  increase by $333,333. 
C)  decrease by $3 million. 
D)  decrease by $333,333.

Question 16

The most direct way in which money replaces barter is through its use as a

Accepted Answer

A)  medium of exchange. 
B)  recording device. 
C)  store of value. 
D)  unit of account. 
A)  medium of exchange. 
B)  recording device. 
C)  store of value. 
D)  unit of account.

Question 17

If the currency drain increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

Accepted Answer

If the currency drain increases, the siz

Question 18

A medium of exchange is

Accepted Answer

A)  an object that sellers will accept as payment. 
B)  a measure by which prices are expressed. 
C)  an asset that is used to settle future debts. 
D)  the thing traded when barter takes place. 
A)  an object that sellers will accept as payment. 
B)  a measure by which prices are expressed. 
C)  an asset that is used to settle future debts. 
D)  the thing traded when barter takes place.

Question 19

The equation of exchange

Accepted Answer

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

Question 20

An increase in currency held outside the banks is ________.

Accepted Answer

A)  a currency drain 
B)  income 
C)  a currency surplus 
D)  wealth 
A)  a currency drain 
B)  income 
C)  a currency surplus 
D)  wealth

Suppose the Fed buys government securities from a commercial bank. Why is there a multiplier effect on the quantity of money?

Which of the following equations represents the equation of exchange?

Banks create money whenever they

Reserve requirements are the

The monetary base is the sum of

A credit union is

According to the quantity theory of money

The quantity theory of money argues that, in the long run, the percentage change in money will create an equal percentage change in

The initial impact of the Fed's open market sale of government securities to banks is

Explain how a currency drain affects the size of the money multiplier. In your explanation, suppose that a bank gains $1 million in new deposits and reserves. Further suppose that the desired reserve ratio is 10 percent and the currency drain is 50 percent.

Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a

The desired reserve ratio is 10 percent. Fly By Night Bank has deposits of $250,000 and reserves of $25,000. What is the amount of its excess reserves?

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

Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will

The most direct way in which money replaces barter is through its use as a

If the currency drain increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

A medium of exchange is

The equation of exchange

An increase in currency held outside the banks is ________.

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

Suppose the Fed buys government securities from a commercial bank. Why is there a multiplier effect on the quantity of money?

Which of the following equations represents the equation of exchange?

Banks create money whenever they

Reserve requirements are the

The monetary base is the sum of

A credit union is

According to the quantity theory of money

The quantity theory of money argues that, in the long run, the percentage change in money will create an equal percentage change in

The initial impact of the Fed's open market sale of government securities to banks is

Explain how a currency drain affects the size of the money multiplier. In your explanation, suppose that a bank gains $1 million in new deposits and reserves. Further suppose that the desired reserve ratio is 10 percent and the currency drain is 50 percent.

Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a

The desired reserve ratio is 10 percent. Fly By Night Bank has deposits of $250,000 and reserves of $25,000. What is the amount of its excess reserves?

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

Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will

The most direct way in which money replaces barter is through its use as a

If the currency drain increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

A medium of exchange is

The equation of exchange

An increase in currency held outside the banks is ________.

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