Question 1

The U.S. historical evidence

Accepted Answer

A)   generally supports the quantity theory of money in the long run.
B)   does not support the quantity theory of money.
C)   demonstrates that there is no correlation between the money growth rate and inflation.
D)   shows that a higher inflation rate causes an increase in the money growth rate.E) B) and D)
F) A) and B)

Question 2

If the price level doubles, the

Accepted Answer

A)   nominal demand for money doubles.
B)   nominal demand for money drops by half.
C)   real demand for money drops by half.
D)   real demand for money doubles.E) A) and C)
F) A) and D)

Question 3

If you use $500 of currency to make a deposit in a saving deposit

Accepted Answer

A)   M1 decreases, but M2 is unchanged.
B)   M1 decreases and M2 increases.
C)   M1 is unchanged, but M2 increases.
D)   M1 and M2 both increase.E) B) and C)
F) None of the above

Question 4

A commercial bank puts the funds it receives from various sources into

Accepted Answer

A)   securities, cash assets and loans.
B)   loans, notes and coins in the bank's vault and deposits.
C)   reserves, deposits and loans.
D)   securities, cash assets and deposits.E) B) and D)
F) A) and B)

Question 5

Federal Reserve policy tools include all of the following EXCEPT

Accepted Answer

A)   desired reserve ratios.
B)   required reserve ratios.
C)   the discount rate.
D)   open market operations.E) C) and D)
F) B) and C)

Question 6

Which of the following is a primary function of money?

Accepted Answer

A)   to serve as a unit of account
B)   to serve as an encouragement to work
C)   to reduce the burden of excessive imports
D)   to raise funds for the governmentE) B) and D)
F) All of the above

Question 7

If nominal GDP equals $10 trillion and the velocity of circulation is 5, then

Accepted Answer

A)   real GDP is $2 trillion.
B)   the quantity of money is $50 trillion.
C)   the quantity of money is $2 trillion.
D)   the real value of the quantity of money is $10 trillion.E) B) and D)
F) A) and D)

Question 8

Sarah buys shares from a financial institution that uses her funds together with other funds to purchase U.S. treasury bills. Sarah has deposited her money into a ________.

Accepted Answer

A)   savings bank
B)   credit union
C)   money market mutual fund
D)   savings and loan associationE) A) and B)
F) None of the above

Question 9

Why is the nominal interest rate the opportunity cost of holding money?

Accepted Answer

The nominal interest rate is the opportu...

Question 10

Which of the following functions are performed by depository institutions?
I.They make long-term loans using short-term deposits, thereby creating liquidity.
II.They efficiently gather funds from a large base of depositors.
III.They concentrate risk.

Accepted Answer

A)   I only
B)   II only
C)   III only
D)   I and IIE) A) and C)
F) C) and D)

Question 11

When bank deposits increase from $1 million to $2 million, banks' required reserves increase from $100,000 to $200,000. The required reserve ratio is ________.

Accepted Answer

A)   10.0
B)   0.10
C)   1.00
D)   0.25E) C) and D)
F) A) and D)

Question 12

The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?

Accepted Answer

A)   Securities increase by $100 million and Federal Reserve notes (currency)  decrease by $100 million.
B)   Securities increase by $100 million and reserves of Bank A increase by $100 million.
C)   Securities increase by $100 million and reserves of Bank A decrease by $100 million.
D)   Securities decrease by $100 million and reserves of Bank A increase by $100 million.E) A) and B)
F) B) and C)

Question 13

Liquidity ________.

Accepted Answer

A)   is the property of money being instantly convertible into assets
B)   increases when a consumer has more credit cards
C)   is how quickly an asset loses its worth
D)   is the property of assets being instantly convertible into moneyE) C) and D)
F) A) and D)

Question 14

-In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

Accepted Answer

A)   quantity of money and the interest rate will rise.
B)   quantity of money and the interest rate will fall.
C)   demand for money and the interest rate will fall.
D)   demand for money and the interest rate will rise.E) A) and C)
F) A) and D)

Question 15

In September 2007, Regions Bank held $3 million in reserves against M1 deposits and made $83 million in loans. Between September 2007 and September 2008, deposits decreased from $114 million to $95 million. If Regions Bank wants to maintain its desired reserve ratio in 2008, it will

Accepted Answer

A)   increase its reserves.
B)   definitely make more loans.
C)   cannot make more loans.
D)   decrease its reserves.E) A) and D)
F) All of the above

Question 16

Which of the following is a service of depository institutions?

Accepted Answer

A)   decreasing the liquidity drain of funds in the banking system
B)   monitoring the Federal Reserve
C)   pooling risk
D)   loaning funds to other depository institutions at the discount rateE) B) and D)
F) B) and C)

Question 17

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

Accepted Answer

A)   currency
B)   government securities
C)   mortgage-backed securities
D)   None of the above are correct because they are all assets of the Federal Reserve.E) A) and D)
F) None of the above

Question 18

The definition of M2 includes

Accepted Answer

A)   M1.
B)   savings deposits.
C)   time deposits.
D)   all of the above.E) All of the above
F) A) and B)

Question 19

Credit cards are

Accepted Answer

A)   a part of money because they are used in so many transactions.
B)   a part of money when the transaction approach is used but not when the liquidity approach is used.
C)   not part of money because they represent a loan of money to the user.
D)   not part of money because the government has no control over the amount of credit outstanding.E) None of the above
F) A) and B)

Question 20

The tools at the disposal of the Fed for changing the quantity of money do NOT include

Accepted Answer

A)   open market operations.
B)   changing the required reserve ratio.
C)   changing discount rates.
D)   increasing the number of commercial banks.E) A) and D)
F) A) and C)

Exam 8: Money, the Price Level, and Inflation

The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?

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The definition of M2 includes

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Which of the following is a service of depository institutions?

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When bank deposits increase from $1 million to $2 million, banks' required reserves increase from $100,000 to $200,000. The required reserve ratio is ________.

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

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If the price level doubles, the

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The U.S. historical evidence

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Why is the nominal interest rate the opportunity cost of holding money?

Correct AnswerverifiedThe nominal interest rate is the opportu...View AnswerShow Answer

If nominal GDP equals $10 trillion and the velocity of circulation is 5, then

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A commercial bank puts the funds it receives from various sources into

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Which of the following is a primary function of money?

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If you use $500 of currency to make a deposit in a saving deposit

Correct AnswerverifiedShow Answer

Credit cards are

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Which of the following functions are performed by depository institutions? I.They make long-term loans using short-term deposits, thereby creating liquidity. II.They efficiently gather funds from a large base of depositors. III.They concentrate risk.

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-In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

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Liquidity ________.

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Federal Reserve policy tools include all of the following EXCEPT

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The tools at the disposal of the Fed for changing the quantity of money do NOT include

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In September 2007, Regions Bank held $3 million in reserves against M1 deposits and made $83 million in loans. Between September 2007 and September 2008, deposits decreased from $114 million to $95 million. If Regions Bank wants to maintain its desired reserve ratio in 2008, it will

Correct AnswerverifiedShow Answer

Sarah buys shares from a financial institution that uses her funds together with other funds to purchase U.S. treasury bills. Sarah has deposited her money into a ________.

Correct AnswerverifiedShow Answer

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