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3. Which of the following is NOT part of M1? A. Savings deposits B. Checkable deposits C. Coins D. Travelers checks E. Currency

A

20. An open market purchase of bonds by the Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways?? Money Supply Interest Rate Unemployment Rate A. Increase decrease decrease B. Increase decrease increase C. Decrease decrease decrease D. Decrease increase increase E. Decrease increase decrease

A

23. If the supply for loanable funds increases, what will happen to real interest rates and investment? Real Interest Rates / Investment A. Decrease / Increase B. Decrease / Decrease C. No change / no change D. Increase / Decrease E. Increase / Increase

A

8. When an economy is at full employment, an expansionary monetary policy will lead to A. Lower interest rates and more investment B. Lower interest rates and less investment C. Higher interest rates and lower prices D. Higher interest rates and higher prices E. Higher interest rates and lower price levels

A

11. The Federal Reserve can increase the money supply by A. Buying financial capital from foreign governments B. Buying bonds on the open market C. Selling government bonds on the open market D. Selling foreign currency in the exchange market E. Selling gold on the open market

B

13. When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for what purposes? A. Transactions B. Speculation C. Unforeseen expenditures D. Illiquidity E. None of the above

B

15. Assume the required reserve ratio is .2. If a bank initially has no Excess Reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is A. $20,000 B. $80,000 C. $100,000 D. $200,000 E. $500,000

B

17. If required reserves is 10% and that bank receives a new demand deposit of $300. Which of the following will most likely occur in the bank's balance sheet? Liabilities Required Reserves A. Increase by $300 increase by $270 B. Increase by $300 increase by $30 C. Increase by $30 no change D. Decrease by $300 decrease by $30 E. Decrease by $30 decrease by $270

B

21. The federal funds rate is the interest rate that A. The Fed charges the federal government on its loans B. Banks charge one another for short-term loans C. Banks charge their best customers D. Equalizes the yield on corporate bonds and municipal bonds E. Is equal to the nominal rate of inflation minus the real rate of inflation

B

25. Suppose business are fearful that there will be a recession on the near future. Which of the following best describes the impact of this belief on demand for loanable funds and interest rate? Demand for Loanable Funds / Interest Rate A. Decrease / no change B. Decrease / decrease C. Increase / no change D. Increase / decrease E. Increase / Increase

B

26. Assume that a perfectly competitive financial market for loanable funds is in equilibrium. Which of the following is most likely to occur to the quantity demanded and the quantity supplied of loanable funds if the government puts a cap (ceiling) on the interest rate? Quantity Demanded Quantity Supplied A. Increase Increase B. Increase Decrease C. No change No change D. Decrease Increase E. Decrease Decrease

B

4. Which of the following will most likely occur in an economy if more money is demanded than is supplied? A. The amount of investment spending will increase. B. Interest rates will increase C. The supply of money will decrease D. Deflation E. The aggregate demand will increase

B

1. "The price for a ticket to the Super Bowl is $500." This statement best illustrates money used as a A. Liability B. Liquid asset C. Unit of account D. Medium of exchange E. Store of value

C

14. If on receiving a checking deposit of $500 a bank's excess reserves increased by $400, the require reserve must be: A. 10% B. 15% C. 20% D. 25% E. 80%

C

19. Open market operations refer to which of the following activities? A. The buying and selling of gold in the New York stock Market B. The loans paid by the Fed to member commercial banks C. The buying and selling of government securities by the Federal Reserve D. The government's purchases and sales of municipal bonds for K-12 education E. The government's contribution to social security

C

2. If you use money as a store of value, you would be A. Buying a new watch B. Searching the internet for a deal on a new car C. Putting money into a savings account D. Lending money to friend E. Paying for gas on your credit card

C

24. When government spending cause an increase in real interest rates, gross private domestic investment A. Will increase at the same rate as the increase in government expenditures B. Will increase the amount of capital stock and cause economic growth in the economy C. Will experience crowding-out D. Will not change E. Will decrease at the same rate as the increase in government expenditures

C

18. The Federal Reserve can change the US money supply by changing A. Putting more gold in circulation B. The prime rate C. Velocity of money D. Discount rate E. Price level

D

22. If the Fed institutes a policy to reduce inflation, which of the following is most likely to increase? A. Tax rates B. Investment C. Government deficits D. Interest rates E. Real GDP

D

5. Which if the following is true for the money market graph? A. The demand for money is vertical because of autonomous spending B. The supply of money is downward sloping C. There is no relationship between the nominal interest rate and the quantity of money demanded in the long-run D. There is an inverse relationship between the nominal interest rate and the quantity of money demanded E. An increase in the nominal interest rate will shift the money supply to the right

D

9. If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected? Interest Rates / Real GDP A. Decrease / Decrease B. Increase / Increase C. Decrease / Increase D. Increase / Decrease E. Decrease / No change

D

10. To eliminate an inflationary gap, the Federal Reserve might A. Increase personal income taxes B. Increase in the money supply C. Decrease the federal funds rate D. Buy bonds on the open market E. Sell bonds on the open market

E

12. If the Federal Reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short-run? A. The short-run Phillips Curve will shift to the right B. The short-run Phillips Curve will shift to the left C. The long-run Phillips Curve will shift to the right D. There will be a movement to the right along a short-run Phillips Curve E. There will be a movement to the left along a short-run Phillips Curve

E

16. Which of the following is an asset for the ACDC Bank? I. Demand deposits II. Certificates of Deposits issued to ACDC's customers III. Vault cash IV. Money that ACDC has deposited with the Federal Reserve A. I only B. II and III only C. III and IV only D. II and III only E. II, III, and IV only

E

6. Fractional reserve banking means that banks are required to A. Charge the same interest rate on all their loans B. Expand the money supply when requested by the central bank C. Insure their deposits against losses and bank runs D. Pay a fraction of their interest income in taxes E. Keep part of their demand deposits as reserves

E

7. Banks may not be able to create the maximum amount of money from a new deposit as a result of A. Government banking regulation B. Increased demand for investment C. Decrease in required reserve ratio D. The banks can only make a set number of loans E. Individuals holding a larger portion of their assets as cash

E