Question 1

-In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as

Accepted Answer

A)  b. 
B)  c. 
C)  d. 
D)  e. 
A)  b. 
B)  c. 
C)  d. 
D)  e.

Question 2

The Federal Open Market Committee (FOMC)

Accepted Answer

A)  determines the government's tax policy. 
B)  determines the Fed's monetary policy. 
C)  oversees all transactions on the stock market. 
D)  lends to the least credit-worthy customers who otherwise can't get loans. 
A)  determines the government's tax policy. 
B)  determines the Fed's monetary policy. 
C)  oversees all transactions on the stock market. 
D)  lends to the least credit-worthy customers who otherwise can't get loans.

Question 3

"If the currency drain increases, the monetary base decreases." Explain whether the previous statement is correct or incorrect.

Accepted Answer

The statement is False. If the

Question 4

When real GDP increases, people demand

Accepted Answer

A)  the same quantity of real money. 
B)  less real money. 
C)  more real money. 
D)  more money in nominal terms but less in real terms. 
A)  the same quantity of real money. 
B)  less real money. 
C)  more real money. 
D)  more money in nominal terms but less in real terms.

Question 5

________ in the currency drain ________ the money multiplier.

Accepted Answer

A)  A decrease; does not change 
B)  An increase; increases 
C)  A decrease; decreases 
D)  An increase; decreases 
A)  A decrease; does not change 
B)  An increase; increases 
C)  A decrease; decreases 
D)  An increase; decreases

Question 6

In the money market, if the interest rate exceeds the equilibrium interest, there is a surplus of money. How is the surplus eliminated?

Accepted Answer

A)  People buy bonds to rid themselves of the surplus money, bidding up their price and pushing interest rates down. 
B)  Banks will lend out the surplus, lowering interest rates. 
C)  The Federal Reserve will destroy currency, reducing the quantity of money. 
D)  The high interest rate increases the demand for money, eliminating the surplus. 
A)  People buy bonds to rid themselves of the surplus money, bidding up their price and pushing interest rates down. 
B)  Banks will lend out the surplus, lowering interest rates. 
C)  The Federal Reserve will destroy currency, reducing the quantity of money. 
D)  The high interest rate increases the demand for money, eliminating the surplus.

Question 7

What effect does an increase in the interest rate have on the opportunity cost of holding money and on the demand for money curve?

Accepted Answer

An increase in the interest ra

Question 8

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 9

The table below shows data for Japan.
 
Assuming the rate of velocity change is constant, real GDP

Accepted Answer

A)  grew by 0.3 percent in 2008. 
B)  grew by -1.2 percent in 2009. 
C)  grew by 1.1 percent in 2008. 
D)  grew by 0.9 percent in 2009. 
A)  grew by 0.3 percent in 2008. 
B)  grew by -1.2 percent in 2009. 
C)  grew by 1.1 percent in 2008. 
D)  grew by 0.9 percent in 2009.

Question 10

The quantity of money is $1 billion, the price level is 1.10, and real GDP is $10 billion. What is the velocity of circulation?

Accepted Answer

The veloci

Question 11

On the Fed's balance sheet, assets include

Accepted Answer

A)  reserves of depository institutions and mortgage-backed securities. 
B)  U.S. government securities and mortgage-backed securities. 
C)  currency and reserves of depository institutions. 
D)  currency and mortgage-backed securities. 
A)  reserves of depository institutions and mortgage-backed securities. 
B)  U.S. government securities and mortgage-backed securities. 
C)  currency and reserves of depository institutions. 
D)  currency and mortgage-backed securities.

Question 12

In the economy of Brightland, the commercial banks have deposits of $600 billion. Their reserves are $60 billion. All reserves are in deposits with the Central Bank and the commercial banks hold no excess reserves. There is $120 billion in Central Bank notes outside the banks, and there are no coins.
a)What is the economy's monetary base?
b)What is the quantity of money in the economy?
c)Calculate the money multiplier.
d)Suppose the Central Bank of Brightland undertakes an open market purchase of securities of so that the monetary base increases by $5 billion. By how much will the quantity of money change?

Accepted Answer

a)The monetary base is the sum of Centra

Question 13

During periods of inflation, which function of money is most severely affected?

Accepted Answer

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

Question 14

Barter is

Accepted Answer

A)  another type of money. 
B)  printing too much money. 
C)  the exchange of goods and services directly for other goods and services. 
D)  the exchange of goods and services for any type of money. 
A)  another type of money. 
B)  printing too much money. 
C)  the exchange of goods and services directly for other goods and services. 
D)  the exchange of goods and services for any type of money.

Question 15

The interest rate that the Fed charges when it makes a last resort loan is the ________ rate.

Accepted Answer

A)  discount 
B)  short-term 
C)  reserve 
D)  federal funds 
A)  discount 
B)  short-term 
C)  reserve 
D)  federal funds

Question 16

Excess reserves are

Accepted Answer

A)  desired reserves minus actual reserves. 
B)  required reserves minus actual reserves. 
C)  liquidity funds minus actual reserves. 
D)  actual reserves minus desired reserves. 
A)  desired reserves minus actual reserves. 
B)  required reserves minus actual reserves. 
C)  liquidity funds minus actual reserves. 
D)  actual reserves minus desired reserves.

Question 17

In an open market purchase, the Fed ________ government securities, which ________ bank reserves.

Accepted Answer

A)  buys, increases 
B)  buys, decreases 
C)  sells, increases 
D)  sells, decreases 
A)  buys, increases 
B)  buys, decreases 
C)  sells, increases 
D)  sells, decreases

Question 18

-In the balance sheet for the FBN bank above, the entries are in millions of dollars. If the desired reserve ratio is 10 percent, FBN Bank can loan an additional

Accepted Answer

A)  $280 million. 
B)  $200 million. 
C)  $100 million. 
D)  $360 million. 
A)  $280 million. 
B)  $200 million. 
C)  $100 million. 
D)  $360 million.

Question 19

There is a movement along the demand for money curve if

Accepted Answer

A)  the nominal interest rate rises. 
B)  there is an economic expansion so that real GDP increases. 
C)  banking customers use ATM machines more. 
D)  the price level increases. 
A)  the nominal interest rate rises. 
B)  there is an economic expansion so that real GDP increases. 
C)  banking customers use ATM machines more. 
D)  the price level increases.

Question 20

According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in

Accepted Answer

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

-In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as

The Federal Open Market Committee (FOMC)

"If the currency drain increases, the monetary base decreases." Explain whether the previous statement is correct or incorrect.

When real GDP increases, people demand

in the currency drain the money multiplier.

In the money market, if the interest rate exceeds the equilibrium interest, there is a surplus of money. How is the surplus eliminated?

What effect does an increase in the interest rate have on the opportunity cost of holding money and on the demand for money curve?

An open market sale of securities by the Fed

The table below shows data for Japan. Assuming the rate of velocity change is constant, real GDP

The quantity of money is $1 billion, the price level is 1.10, and real GDP is $10 billion. What is the velocity of circulation?

On the Fed's balance sheet, assets include

During periods of inflation, which function of money is most severely affected?

Barter is

The interest rate that the Fed charges when it makes a last resort loan is the ________ rate.

Excess reserves are

In an open market purchase, the Fed government securities, which bank reserves.

-In the balance sheet for the FBN bank above, the entries are in millions of dollars. If the desired reserve ratio is 10 percent, FBN Bank can loan an additional

There is a movement along the demand for money curve if

According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in

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

-In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as

The Federal Open Market Committee (FOMC)

"If the currency drain increases, the monetary base decreases." Explain whether the previous statement is correct or incorrect.

When real GDP increases, people demand

________ in the currency drain ________ the money multiplier.

In the money market, if the interest rate exceeds the equilibrium interest, there is a surplus of money. How is the surplus eliminated?

What effect does an increase in the interest rate have on the opportunity cost of holding money and on the demand for money curve?

An open market sale of securities by the Fed

The table below shows data for Japan. Assuming the rate of velocity change is constant, real GDP

The quantity of money is $1 billion, the price level is 1.10, and real GDP is $10 billion. What is the velocity of circulation?

On the Fed's balance sheet, assets include

During periods of inflation, which function of money is most severely affected?

Barter is

The interest rate that the Fed charges when it makes a last resort loan is the ________ rate.

Excess reserves are

In an open market purchase, the Fed ________ government securities, which ________ bank reserves.

-In the balance sheet for the FBN bank above, the entries are in millions of dollars. If the desired reserve ratio is 10 percent, FBN Bank can loan an additional

There is a movement along the demand for money curve if

According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in

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

in the currency drain the money multiplier.

In an open market purchase, the Fed government securities, which bank reserves.