MIller Ch.29 & 30 MC Questions

The price level rises from 120 to 150. What was the inflation rate?

25%

The supply of money is determined by

Federal Reserve System

If the reserve ratio is 5 percent, $1,000 of additional reserves can create a) $25,000 of new money b) $20,000 of new money c) $19,000 of new money d) $15,000 of new money

b) $20,000 of new money

Assets: Loans-$900 Reserves-$100 Liabilities: Deposits-$1000 If the Bank of Tampa has loaned out all the money it wants given its deposits, then its reserve ratio is: a) 1% b) 5% c) 10% d) 20%

c) 10%

The Federal Deposit Insurance Corporation

protects depositors in the event of bank failures

Economic variables whose values are measured in goods are called

real variables

The supply of money increases when

the Fed makes open-market purchases.

Which of the following is correct?

If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.

During wars the public tends to hold relatively more currency and relatively fewer deposits. This decision makes reserves

and the money supply decrease

When the Fed conducts open-market sales a) it sells Treasury securities, which increases the money supply b) it sells Treasury securities, which decreases the money supply c) it borrows from member banks, which increases the money supply d) it lends money to member banks, which decreases the money supply

b) it sells Treasury securities, which decreases the money supply

When the Fed decreases the discount rate, banks will

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

The Fed's primary tool to change the money supply is a) changing the discount rate b) changing the reserve requirement c) conducting open market operations d) redeeming Federal Reserve notes

c) conducting open market operations

When prices are falling, economists ay that there is

deflation

As the price level decreases, the value of money

increases, so people want to hold less of it.

The Fed can directly protect a bank during a bank run by

lending reserves to the bank

When the money market is drawn with the value of money on the vertical axis, the price level increases if

money demand shifts left or money supply shifts right

Economic variables whose values are measured in monetary units are called

nominal variables

Inflation can be measured by the

percentage change in the consumer price index

Changes in the quantity of money affect: Interest rates, prices, production

All of the above

Which of the following is a store of value: currency, U.S government bonds, fine art

All of the above

Demand deposits are a type a) checking account b) time deposit c) money market mutual fund d) savings deposit

a) checking account

Credit cards a) defer payments b) are a store of value c) have led to wider use of currency d) are part of the money supply

a) defer payments

Over one time horizon or another, Fed policy decisions influence: a) inflation and employment b) inflation but not employment c) employment but not inflation d) neither inflation nor employment

a) inflation and employment

If the Fed wanted to increase the money supply, it would make open market a) purchases and lower the discount rate b) sales and lower the discount rate c) purchases and raise the discount rate d) sales and raise the discount rate

a) purchases and lower the discount rate

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate? a) store of value b) medium of exchange c) unit of account d) None of the above is correct

a) store of value

Liquidity refers to: a) the ease with which an asset is converted to the medium of exchange b) a measurement of the intrinsic value of commodity money c) the suitability of an asset to serve as a store of value d) how many time a dollar circulates in a given year

a) the ease with which an asset is converted to the medium of exchange

Assets: Loans-$900 Reserves-$100 Liabilities: Deposits-$1000 Assume that all other banks hold only the required 5 percent of deposits as reserves and that people hold only deposits and no currency. If the Bank of Tampa decides to hold exactly 5% reserves, by how much would the economy's money supply increase? a) $500 b) $1,000 c) $1,500 d) $2,000

b) $1,000

Assets: Loans-$900 Reserves-$100 Liabilities: Deposits-$1000 If the Fed requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does the Bank of Tampa now hold? a) $25 b) $50 c) $55 d) $75

b) $50

Assets: Loans-$900 Reserves-$100 Liabilities: Deposits-$1000 Assume that the Bank of Tampa is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves and that people hold only deposits and no currency. What is the money multiplier? a) 5 b) 10 c) 15 d) 20

b) 10

Suppose a bank has $200,000 in deposits and $190,000 in loans. It has loaned out all it can. It has a reserve ratio of: a) 2.5 percent b) 5 percent c) 9.5 percent d) 10 percent

b) 5 percent

Which of the following executes open-market operations? a) Board of Governors b) New York Federal Reserve Bank c) The FOMC d)None of the above is correct

b) New York Federal Reserve Bank

The "yardstick" people use to post prices and record debts is called: a) a medium of exchange b) a unit of account c) a store of value d) liquidity

b) a unit of account

In a fractional reserve banking system, an increase in reserve requirements a) increases both the money multiplier and the money supply b) decreases both the money multiplier and the money supply c) increases the money multiplier, but decreases the money supply d)decreases the money multiplier, but increases the money supply

b) decreases both the money multiplier and the money supply

Current U.S. currency is a) fiat money with intrinsic value b) fiat money with no intrinsic value c) commodity money with intrinsic value d) commodity money with no intrinsic value

b) fiat money with no intrinsic value

If banks desire to hold no excess reserves, the reserve ratio is 10%, and a bank that was previously just meeting its reserve requirement receives a new deposit of $400, then initially the bank has a: a) $400 increase in excess reserves and no increase in required reserves b) $400 increase in required reserves and no increase in excess reserves c) $360 increase in excess reserves and $40 increase in required reserves d) $40 increase in excess reserves and $360 increase in required reserves

c) $360 increase in excess reserves and $40 increase in required reserves

Which of the following best illustrates the medium of exchange function of money? a) You keep some money hidden in your shoe b) You keep track of the value of your assets in terms of currency c) You pay for your double latte using currency d) None of the above is correct

c) You pay for your double latte using currency

To increase the money supply, the Fed could a) sell government bonds b) increase the discount rate c) decrease the reserve requirement d) none of the above is correct

c) decrease the reserve requirement

As the reserve ratio increases, the money multiplier a) increases b) does not change c) decreases d) could do any of the above

c) decreases

The existence of money leads to: a) greater specialization in production, but not a higher standard of living b) a higher standard of living, but not greater specialization c) greater specialization and a higher standard of living d) neither greater specialization or aa higher standard of living

c) greater specialization and a higher standard of living

The Federal Reserve does all except which of the following a) control the supply of money b) control the value of money c) make loans to individuals d) regulate the banking system

c) make loans to individuals

Commodity money is a) backed by gold b) the principal type of money in use today c) money with intrinsic value d) receipts created in international trade that are used as a medium of exchange

c) money with intrinsic value

The agency responsible for regulating the money supply in the United States is: a) the Comptroller of the Currency b) the U.S. Treasury c) the Federal Reserve d) the U.S. Bank

c) the Federal Reserve

When a bank loans out $1,000, the money supply a. does not change. b. decreases. c. increases. d. may do any of the above.

c. increases

Which of the following is a function of money? a) a unit of account b) a store of value c) medium of exchange d) All of the above is correct

d) All of the above is correct

Which of the following is correct? a) The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. b) The Federal Reserve has 14 regional banks. The Board of Governors has 7 member who serve 14-year terms. c) The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. d) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

d) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

On a bank's T-account: a) both deposits and reserves are assets b) both deposits and reserves are liabilities c) deposits are assets, reserves are liabilities d) reserves are assets, deposits are liabilities

d) reserves are assets, deposits are liabilities

If the reserve ratio is 20 percent, and banks do not hold excess reserves, and people hold only deposits and not currency, then when the Fed sells $40 million of bonds to the public, bank reserves

decrease by $40 million and the money supply eventually decreases $200 million

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises

A decrease in the money supply creates an excess

demand for money that is eliminated by falling prices

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

demanded increases