ECON 203 FINAL

The discount rate is a. the interest rate the Fed charges banks. b. one divided by the difference between one and the reserve ratio. c. the interest rate banks receive on reserve deposits with the Fed. d. the interest rate that banks charge on overnight loans to other banks.

A. the interest rate the Fed charges the bank

If M = 5,000, P = 5.5, and Y = 9,000, what is velocity? a. 10 b. 2 c. 2.75 d. 0.55

a. 10 V= (p * y) /m

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year. a. Her real and nominal salary have risen. b. Her real and nominal salary have fallen. c. Her real salary has risen and her nominal salary has fallen. d. Her real salary has fallen and her nominal salary has risen.

a. Her real and nominal salary have risen.

Which of the following increases when the Fed makes open-market sales? a. Neither currency nor reserves b. Currency and reserves c. Currency but not reserves d. Reserves but not currency

a. Neither currency nor reserves

When the Fed decreases the discount rate, banks will a. borrow more from the Fed and lend more to the public. The money supply increases. b. borrow more from the Fed and lend less to the public. The money supply decreases. c. borrow less from the Fed and lend more to the public. The money supply increases. d. borrow less from the Fed and lend less to the public. The money supply decreases.

a. borrow more from the Fed and lend more to the public. The money supply increases.

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could a. buy $300,000 worth of bonds. b. buy $225,000 worth of bonds. c. sell $300,000 worth of bonds. d. sell $225,000 worth of bonds.

a. buy $300,000 worth of bonds.

If the Federal Open Market Committee decides to increase the money supply, it a. creates dollars and uses them to purchase government bonds from the public. b. sells government bonds from its portfolio to the public. c. creates dollars and uses them to purchase various types of stocks and bonds from the public. d. sells various types of stocks and bonds from its portfolio to the public.

a. creates dollars and uses them to purchase government bonds from the public.

If the public decides to hold more currency and fewer deposits in banks, bank reserves a. decrease and the money supply eventually decreases. b. decrease but the money supply does not change. c. increase and the money supply eventually increases. d. increase but the money supply does not change.

a. decrease and the money supply eventually decreases.

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $20 million worth of government bonds, bank reserves a. decrease by $20 million and the money supply eventually decreases by $400 million. b. increase by $20 million and the money supply eventually increases by $400 million. c. decrease by $20 million and the money supply eventually decreases by $100 million. d. increase by $20 million and the money supply eventually increases by $100 million.

a. decrease by $20 million and the money supply eventually decreases by $400 million.

When the Consumer Price Index decreases from 140 to 125 a. less money is needed to buy the same amount of goods, so the value of money rises. b. more money is needed to buy the same amount of goods, so the value of money rises. c. less money is needed to buy the same amount of goods, so the value of money falls. d. more money is needed to buy the same amount of goods, so the value of money falls.

a. less money is needed to buy the same amount of goods, so the value of money rises.

The money supply decreases when the Fed a. sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. b. sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. c. buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. d. buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be.

a. sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2 , a. the equilibrium value of money decreases. b. the equilibrium price level decreases. c. the supply of money has decreased. d. the demand for goods and services will decrease.

a. the equilibrium value of money decreases.

The inflation tax refers to a. the revenue a government creates by printing money. b. higher inflation which requires more frequent price changes. c. the idea that, other things the same, an increase in the tax rate raises the inflation rate. d. taxes being indexed for inflation.

a. the revenue a government creates by printing money.

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in a. the value of money. b. real interest rates. c. nominal interest rates. d. the money supply.

a. the value of money.

A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. Its reserves amount to a. $930. b. $70. c. $7. d. $93

b. $70. 1000 * .07

Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS1 ; also suppose the economy's real GDP is 30,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately a. 2.0. b. 12.0. c. 2.9. d. 0.5.

b. 12.0.

If the reserve ratio is 4 percent, then the money multiplier is a. 0.04. b. 25. c. 2.5. d. 4.

b. 25.

Refer to Table 29-5. This bank's leverage ratio is a. 2. b. 50. c. 13.3. d. 7.5.

b. 50.

if the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply? a. It increases by $100,000. b. It increases by $150,000. c. It decreases by $100,000. d. It decreases by $200,000.

b. It increases by $150,000.

. On a given morning, Franco sold 40 pairs of shoes for a total of $800 at his shoe store. a. The $800 is a real variable. The quantity of shoes is a nominal variable. b. The $800 is a nominal variable. The quantity of shoes is a real variable. c. Both the $800 and the quantity of shoes are nominal variables. d. Both the $800 and the quantity of shoes are real variables.

b. The $800 is a nominal variable. The quantity of shoes is a real variable.

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000? a. The Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank. b. The Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000. c. The Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank. d. The Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000.

b. The Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000.

The inflation tax falls most heavily on those who hold a. a lot of currency and accounts for a large share of U.S. government revenue. b. a lot of currency but accounts for a small share of U.S. government revenue. c. little currency and accounts for a large share of U.S. government revenue. d. little currency but accounts for a small share of U.S. government revenue

b. a lot of currency but accounts for a small share of U.S. government revenue.

The leverage ratio is calculated as a. assets minus liabilities. b. assets divided by bank capital. c. the reciprocal of the required reserve ratio. d. the required reserve ratio multiplied by bank capital.

b. assets divided by bank capital.

Other things the same, if reserve requirements are decreased, the reserve ratio a. increases, the money multiplier increases, and the money supply increases. b. decreases, the money multiplier increases, and the money supply increases. c. increases, the money multiplier decreases, and the money supply decreases. d. decreases, the money multiplier decreases, and the money supply increases.

b. decreases, the money multiplier increases, and the money supply increases.

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the money demand curve slopes a. upward, because at higher prices people want to hold more money. b. downward, because at higher prices people want to hold more money. c. downward, because at higher price people want to hold less money. d. upward, because at higher prices people want to hold less money.

b. downward, because at higher prices people want to hold more money.

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the money supply to a. fall. To reduce the impact of this the Fed could sell Treasury bonds. b. fall. To reduce the impact of this the Fed could buy Treasury bonds. c. rise. To reduce the impact of this the Fed could sell Treasury bonds. d. rise. To reduce the impact of this the Fed could buy Treasury bonds

b. fall. To reduce the impact of this the Fed could buy Treasury bonds.

Money demand refers to a. the total quantity of financial assets that people want to hold. b. how much wealth people want to hold in liquid form. c. how much income people want to earn per year. d. how much currency the Federal Reserve decides to print.

b. how much wealth people want to hold in liquid form.

Bank capital is a. the machinery, structures, and equipment of the bank. b. the resources that owners have put into the bank. c. the reserves of the bank. d. the bank's total assets.

b. the resources that owners have put into the bank.

If the price level increased from 130 to 150, then what was the inflation rate? a. 1.2 percent b. 0.9 percent c. 15.4 percent d. 20.0 percent

c. 15.4 percent (150 - 130) / 130 x 100

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can, given the reserve requirement. It follows that the reserve requirement is a. 2.5 percent. b. 33.3 percent. c. 25 percent. d. 75 percent.

c. 25 percent

Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1 ; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to a. 3,125.0. b. 12,500.0. c. 8,000.0. d. 20,000.0.

c. 8,000.0.

Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2? a. An increase in the value of money b. A decrease in the price level c. An open-market purchase of bonds by the Federal Reserve d. The Federal Reserve sells bonds

c. An open-market purchase of bonds by the Federal Reserve

Which of the following is not included in M1? a. Currency b. Demand deposits c. Savings deposits d. Traveler's checks

c. Savings deposits

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is explained by the a. velocity concept. b. Fisher effect. c. classical dichotomy. d. Mankiw effect.

c. classical dichotomy.

When the price level rises, the number of dollars needed to buy a representative basket of goods a. increases, so the value of money rises. b. decreases, so the value of money rises. c. increases, and so the value of money falls. d. decreases, so the value of money falls.

c. increases, and so the value of money falls.

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by a. buying bonds. This buying would reduce the money supply. b. buying bonds. This buying would increase the money supply. c. selling bonds. This selling would reduce the money supply. d. selling bonds. This selling would increase the money supply.

c. selling bonds. This selling would reduce the money supply.

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 5, then the quantity of money a. demanded is greater than the quantity supplied; the price level will rise. b. demanded is greater than the quantity supplied; the price level will fall. c. supplied is greater than the quantity demanded; the price level will rise. d. supplied is greater than the quantity demanded; the price level will fall

c. supplied is greater than the quantity demanded; the price level will rise.

The supply of money increases when a. the price level falls. b. the interest rate increases. c. the Fed makes open-market purchases. d. money demand increases.

c. the Fed makes open-market purchases.

The principle of monetary neutrality implies that an increase in the money supply will increase a. real GDP and the price level. b. real GDP, but not the price level. c. the price level, but not real GDP. d. neither the price level nor real GDP.

c. the price level, but not real GDP.

If velocity = 8, the quantity of money = 2,300, and the price level = 2.25, then the real value of output is approximately a. $1,022. b. $5,175. c. $2,298. d. $8,178.

d. $8,178. 8 = (2.25 * y) / 2,300

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate? a. 9 percent b. 0.30 percent c. -3 percent d. 3 percent

d. 3 percent RIR = NIR - IR

Which of the following both increase the money supply? a. An increase in the discount rate and an increase in the interest rate on reserves b. An increase in the discount rate and a decrease in the interest rate on reserves c. A decrease in the discount rate and an increase in the interest rate on reserves d. A decrease in the discount rate and a decrease in the interest rate on reserves

d. A decrease in the discount rate and a decrease in the interest rate on reserves

Which of the following is not an example of monetary policy? a. The Federal Open Market Committee decides to sell bonds. b. The Federal Open Market Committee decides to buy bonds. c. The Federal Reserve reduces the reserve requirement. d. The Federal Reserve facilitates bank transactions by clearing checks

d. The Federal Reserve facilitates bank transactions by clearing checks

According to the classical dichotomy, which of the following increases when the money supply increases? a. The real interest rate b. The real GDP c. The real wage d. The nominal wage

d. The nominal wage

The federal funds rate is the a. percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. b. percentage of deposits that banks must hold as reserves. c. interest rate at which the Federal Reserve makes short-term loans to banks d. interest rate at which banks lend reserves to each other overnight

d. interest rate at which banks lend reserves to each other overnight

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold a. fewer reserves, so the reserve ratio will fall. b. fewer reserves, so the reserve ratio will rise. c. more reserves, so the reserve ratio will fall. d. more reserves, so the reserve ratio will rise

d. more reserves, so the reserve ratio will rise

When conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply

d. sells government bonds, and in so doing decreases the money supply

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 5, then there is an excess a. demand for money that is represented by the distance between points D and B. b. demand for money that is represented by the distance between points D and A. c. supply of money that is represented by the distance between points D and B. d. supply of money that is represented by the distance between points D and A

d. supply of money that is represented by the distance between points D and A

A problem that the Fed faces when it attempts to control the money supply is that a. the 100-percent-reserve banking system in the United States makes it difficult for the Fed to carry out its monetary policy. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. d. the Fed does not control the amount of money that households choose to hold as deposits in banks.

d. the Fed does not control the amount of money that households choose to hold as deposits in banks.

The velocity of money is a. the rate at which the Fed puts money into the economy. b. the same thing as the long-term growth rate of the money supply. c. the money supply divided by nominal GDP. d. the average number of times per year a dollar is spent

d. the average number of times per year a dollar is spent