Question 1

The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a

Accepted Answer

A)  medium of exchange. 
B)  standard of deferred payment. 
C)  store of value. 
D)  unit of account.

Question 2

$$\begin{array} { | l | l | } 
\hline { \text { Assets } } &{ \text { Liabilities } } \
\hline \text { Reserves } & \text { Deposits } \
\$100& \$ 400 \
\text { Loans } & \text { Net Worth } \
\$ 600 & \$ 300 \
\text { Total } & \text { Total } \
\$ 700 & \$ 700 \
\hline
\end{array}$$
-The above table gives the initial balance sheet for Mini Bank.If the bank's desired reserve ratio is 10 percent,how much does this bank have in excess reserves?

Accepted Answer

A)  $60 
B)  $100 
C)  $40 
D)  $10

Question 3

The opportunity cost of holding money is the

Accepted Answer

A)  nominal interest rate on assets other than money. 
B)  price of goods and services. 
C)  level of wage and rental income. 
D)  ease with which an asset can be converted into a means of payment.

Question 4

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

Accepted Answer

The answer of "If the currency drain increases,the monetary base...

Question 5

Suppose Bank A holds $200 of reserves,has deposits of $1000,and the desired reserve ratio is 15 percent.How many loans can Bank A create at Bank A?

Accepted Answer

A)  zero, because Bank A has no excess reserves 
B)  $200 
C)  $50 
D)  $850

Question 6

In the quantity theory of money,the quantity of money is assumed to

Accepted Answer

A)  not influence the velocity of circulation. 
B)  rise during recessions. 
C)  fall during recessions. 
D)  be constant.

Question 7

A bank reports reserves of $100,000,government securities of $50,000,loans of $750,000,and checkable deposits of $900,000.The desired reserve ratio is 10 percent.What is the amount of excess reserves for this bank?
Show your work.

Accepted Answer

The answer of A bank reports reserves of $100,000,government securities...

Question 8

M1 is a measure of

Accepted Answer

A)  money and includes both currency and checking deposits. 
B)  liquidity and in which the most liquid asset is money. 
C)  money and includes both savings deposits and currency. 
D)  money and includes both savings deposits and money market mutual funds.

Question 9

Which of the following is NOT included in the M1 measure of money?

Accepted Answer

A)  currency held outside banks 
B)  currency held in bank vaults 
C)  checking deposits at commercial banks 
D)  checking deposits at credit unions

Question 10

The Second National Bank of Townville has $400,000 in checking deposits,$125,000 in savings deposits,$500,000 in loans,$20,000 in its reserve account at the Fed,and $5,000 of currency in its vault.What is the amount of these assets and liabilities that is in M1?

Accepted Answer

The answer of The Second National Bank of Townville has...

Question 11

Which of the following is NOT one of the Fed's monetary policy tools?

Accepted Answer

A)  last resort loans 
B)  the required reserve ratio 
C)  the income tax rate 
D)  buying and selling U.S. government securities

Question 12

$$\begin{array} { | l | l } 
\hline  { \text { Assets } } &  { \text { Liabilities } } \
\hline \text { Reserves } & \
\$ 500 & \text { Deposits } \
\text { Loans } & \$ 3,000 \
\underline{\$ 2,500} & \
\text { Total assets } & \text { Total } \
\$ 1,000 & \$ 3,000 \
\hline
\end{array}$$
-The table shows the balance sheet for Ralph's Bank.If the desired reserve ratio is 15 percent,the maximum additional amount that Ralph's Bank can loan is equal to ________.

Accepted Answer

A)  $50 
B)  $500 
C)  $3,000 
D)  $2,500

Question 13

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 answer of The quantity of money is $1 billion,the...

Question 14

In the United States today,money consists of

Accepted Answer

A)  currency only. 
B)  deposits at banks only. 
C)  coins only. 
D)  currency and deposits at banks.

Question 15

If required reserves are $150 and deposits are $1000,what is the required reserve ratio?

Accepted Answer

A)  10 percent 
B)  15 percent 
C)  5 percent 
D)  85 percent

Question 16

-In the above figure,suppose the economy is initially on the demand for money curve MD₁.What is the effect of an increase in real GDP?

Accepted Answer

A)  The demand for money curve would shift rightward to MD₂. 
B)  The demand for money curve would shift leftward to MD₀. 
C)  There would be a movement upward along the demand for money curve MD₁. 
D)  There would be a movement downward along the demand for money curve MD₁.

Question 17

If the Fed sells government securities,

Accepted Answer

A)  commercial bank reserves will decrease. 
B)  the government's debt will be decreased. 
C)  commercial bank reserves will increase. 
D)  there will be no effect on the quantity of money.

Question 18

For a commercial bank,the term "reserves" refers to

Accepted Answer

A)  a banker's concern ("reservation") in making loans to an individual without a job. 
B)  the profit that the bank retains at the end of the year. 
C)  the cash in its vaults and its deposits at the Federal Reserve. 
D)  the net interest that it earns on loans.

Question 19

A depository institution receives deposits from lenders and makes loans to borrowers.

Accepted Answer

A) True 
 B)False

Question 20

When the monetary base increases by $2 billion,the quantity of money increases by $10 billion.Thus,the money multiplier equals

Accepted Answer

A)  0.2 
B)  5 
C)  20.0 
D)  none of the above

Exam 8: Money, The Price Level, and Inflation