Question 1

Define money and list its functions.

Accepted Answer

Money is any commodity or toke

Question 2

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 3

-In the above figure, suppose the economy is initially on the demand for money curve MD?. What is the effect of a fall in the nominal interest rate?

Accepted Answer

A)  The demand for money curve would shift rightward to MD?. 
B)  The demand for money curve would shift leftward to MD?. 
C)  There would be a movement upward along the demand for money curve MD?. 
D)  There would be a movement downward along the demand for money curve MD?. 
A)  The demand for money curve would shift rightward to MD?. 
B)  The demand for money curve would shift leftward to MD?. 
C)  There would be a movement upward along the demand for money curve MD?. 
D)  There would be a movement downward along the demand for money curve MD?.

Question 4

Money as a medium of exchange
I.facilitates the exchange of goods.
II.reduces or eliminates the need for barter.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 5

Give an example of how money functions as a unit of account.

Accepted Answer

Money functions as a unit of a

Question 6

How does a currency drain affect the money multiplier?

Accepted Answer

If the currency drain is zero so that al

Question 7

Checks and credit cards are NOT considered money because they

Accepted Answer

A)  are issued by banks, not the Federal Reserve. 
B)  are not the means of payment. 
C)  typically require an identification requirement, such as your driver's license. 
D)  are not backed by all commercial banks. 
A)  are issued by banks, not the Federal Reserve. 
B)  are not the means of payment. 
C)  typically require an identification requirement, such as your driver's license. 
D)  are not backed by all commercial banks.

Question 8

-Liquidity is the

Accepted Answer

A)  speed with which the price of an asset changes as its intrinsic value changes. 
B)  inverse of the velocity of money. 
C)  same as the velocity of money. 
D)  ease with which an asset can be converted into money. 
A)  speed with which the price of an asset changes as its intrinsic value changes. 
B)  inverse of the velocity of money. 
C)  same as the velocity of money. 
D)  ease with which an asset can be converted into money.

Question 9

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

Accepted Answer

A) True 
 B)False

Question 10

According to the quantity theory of money, money growth and inflation are

Accepted Answer

A)  positively correlated. 
B)  negatively correlated. 
C)  independent, that is, not correlated. 
D)  positively correlated if the inflation rate is positive and negatively correlated if the inflation rate is negative. 
A)  positively correlated. 
B)  negatively correlated. 
C)  independent, that is, not correlated. 
D)  positively correlated if the inflation rate is positive and negatively correlated if the inflation rate is negative.

Question 11

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 12

Which of the following is an example of using money as a store of value?

Accepted Answer

A)  paying for a new dress with a credit card 
B)  paying cash for a new automobile 
C)  paying rent with a check on a demand deposit 
D)  keeping $200 on hand for an emergency 
A)  paying for a new dress with a credit card 
B)  paying cash for a new automobile 
C)  paying rent with a check on a demand deposit 
D)  keeping $200 on hand for an emergency

Question 13

Most of the day-to-day power in monetary policy decisions lies with

Accepted Answer

A)  the President of the United States. 
B)  the Senate Banking Committee. 
C)  the chairman of the Board of Governors. 
D)  large commercial banks. 
A)  the President of the United States. 
B)  the Senate Banking Committee. 
C)  the chairman of the Board of Governors. 
D)  large commercial banks.

Question 14

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 15

Regional Federal Reserve Banks

Accepted Answer

A)  are located in each of the 50 states. 
B)  are run by the governors of the states in which they are located. 
C)  provide general banking services to the public. 
D)  None of the above answers is correct. 
A)  are located in each of the 50 states. 
B)  are run by the governors of the states in which they are located. 
C)  provide general banking services to the public. 
D)  None of the above answers is correct.

Question 16

The opportunity cost of holding money is

Accepted Answer

A)  the price level. 
B)  real GDP. 
C)  the inverse of the price level multiplied by the nominal interest rate. 
D)  the nominal interest rate. 
A)  the price level. 
B)  real GDP. 
C)  the inverse of the price level multiplied by the nominal interest rate. 
D)  the nominal interest rate.

Question 17

The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.

Accepted Answer

A)  10 
B)  50 
C)  12 
D)  7 
A)  10 
B)  50 
C)  12 
D)  7

Question 18

The table below shows the data (in millions)for Wells Fargo Bank in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent.
 
The data show that Wells Fargo

Accepted Answer

A)  the reserve ratio did not change. 
B)  had fewer excess reserves in 2007. 
C)  the reserve ratio increased as loans increased. 
D)  had fewer excess reserves in 2008. 
A)  the reserve ratio did not change. 
B)  had fewer excess reserves in 2007. 
C)  the reserve ratio increased as loans increased. 
D)  had fewer excess reserves in 2008.

Question 19

Which of the following decreases the demand for money?

Accepted Answer

A)  an increase in the price level 
B)  an increase in the quantity of money 
C)  a decrease in real GDP 
D)  a decrease in the cost of printing money 
A)  an increase in the price level 
B)  an increase in the quantity of money 
C)  a decrease in real GDP 
D)  a decrease in the cost of printing money

Question 20

-The table above shows the balance sheet for Ralph's Bank. If the desired reserve ratio is 15 percent, Ralph's Bank has excess reserves of ________.

Accepted Answer

A)  $50 
B)  $500 
C)  $450 
D)  $2,500 
A)  $50 
B)  $500 
C)  $450 
D)  $2,500

Define money and list its functions.

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 .

-In the above figure, suppose the economy is initially on the demand for money curve MD?. What is the effect of a fall in the nominal interest rate?

Money as a medium of exchange I.facilitates the exchange of goods. II.reduces or eliminates the need for barter.

Give an example of how money functions as a unit of account.

How does a currency drain affect the money multiplier?

Checks and credit cards are NOT considered money because they

-Liquidity is the

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

According to the quantity theory of money, money growth and inflation are

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

Which of the following is an example of using money as a store of value?

Most of the day-to-day power in monetary policy decisions lies with

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

Regional Federal Reserve Banks

The opportunity cost of holding money is

The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.

The table below shows the data (in millions)for Wells Fargo Bank in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent. The data show that Wells Fargo

Which of the following decreases the demand for money?

-The table above shows the balance sheet for Ralph's Bank. If the desired reserve ratio is 15 percent, Ralph's Bank has excess reserves of ________.

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

Define money and list its functions.

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 ________.

-In the above figure, suppose the economy is initially on the demand for money curve MD?. What is the effect of a fall in the nominal interest rate?

Money as a medium of exchange I.facilitates the exchange of goods. II.reduces or eliminates the need for barter.

Give an example of how money functions as a unit of account.

How does a currency drain affect the money multiplier?

Checks and credit cards are NOT considered money because they

-Liquidity is the

When Patty uses money to buy her lunch, she is showing the use of money as a "store of value."

According to the quantity theory of money, money growth and inflation are

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

Which of the following is an example of using money as a store of value?

Most of the day-to-day power in monetary policy decisions lies with

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

Regional Federal Reserve Banks

The opportunity cost of holding money is

The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.

The table below shows the data (in millions)for Wells Fargo Bank in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent. The data show that Wells Fargo

Which of the following decreases the demand for money?

-The table above shows the balance sheet for Ralph's Bank. If the desired reserve ratio is 15 percent, Ralph's Bank has excess reserves of ________.

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

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 .