Econ Unit 3

If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then: Select one: a. both the money multiplier and the supply of money in the economy will increase. b. the money multiplier will decrease and the supply of money in the economy will increase. c. the money multiplier will increase and the supply of money in the economy will decrease. d. both the money multiplier and the supply of money in the economy will decrease.

a. both the money multiplier and the supply of money in the economy will increase.

The process of banks making loans in financial capital markets is intimately tied to the: Select one: a. creation of money. b. home construction industry. c. financial stress levels of banks. d. redistribution of wealth.

a. creation of money.

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected? Select one: a. federal funds rate b. consumer lending rate c. nominal interest rate d. real interest rate

a. federal funds rate

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: Select one: a. following a loose monetary policy. b. following a tight monetary policy. c. following a contractionary monetary policy. d. reversing quantitative easing.

a. following a loose monetary policy.

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is: Select one: a. following an expansionary monetary policy. b. following quantitative easing policy. c. following a tight monetary policy. d. following a contractionary monetary policy.

a. following an expansionary monetary policy.

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from: Select one: a. her M1 funds. b. the debit card company's M1 funds. c. the debit card company's M2 funds. d. her M2 funds.

a. her M1 funds.

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services Select one: a. medium of exchange b. unit of account c. store of value d. unit of exchange

a. medium of exchange

The quantity of money in an economy and the _____________________ are inextricably intertwined. Select one: a. quantity of credit for loans b. value of assets for loans c. extraordinary gains that can be made with money d. financial stress in the banking system

a. quantity of credit for loans

If the economy is at equilibrium as shown in the diagram above, then an expansionary monetary policy will: Select one: a. reduce unemployment, but have little effect on inflation. b. reduce both unemployment and inflation. c. reduce unemployment, but increase inflation. d. have no effect on both unemployment and inflation.

a. reduce unemployment, but have little effect on inflation.

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? Select one: a. reserve requirements b. deposit requirements c. monetary requirements d. discount requirements

a. reserve requirements

The market in which loans are bought and sold is called the: Select one: a. secondary loan market. b. money market. c. loan market. d. primary loan market.

a. secondary loan market.

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it? Select one: a. store of value b. unit of account c. unit of exchange d. medium of exchange

a. store of value

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from: Select one: a. the credit card company's M1 funds. b. his M2 funds. c. the credit card company's M2 funds. d. his M1 funds.

a. the credit card company's M1 funds.

Many high-income nations are approaching a situation in which: Select one: a. the elderly will soon form a much larger share of the population. b. they will intentionally aim for a low standard of living. c. they will intentionally aim for high rates of unemployment and inflation. d. the demands of the elderly will cause an unsustainable trade imbalance.

a. the elderly will soon form a much larger share of the population.

In Sub-Saharan Africa, the population is 910 million, and the average GDP per capita is: Select one: a. $5,399. b. $1,415. c. $2,733. d. $7,308.

b. $1,415.

Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities? Select one: a. $200 million b. $600 million c. $90 million d. $110 million

b. $600 million

If nominal GDP is 2700 and the money supply is 900, what is velocity? Select one: a. 25 b. 3 c. .33 d. 13.5

b. 3

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest. Select one: a. Certificates of deposit b. Bonds c. Money market funds d. Time deposits

b. Bonds

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the: Select one: a. FDIC; responsibility for deposit insurance. b. Central Bank; safety and stability of the banking system. c. FFIEC; day-to-day democratic control of policy. d. FOMC; passing of tax and spending bills.

b. Central Bank; safety and stability of the banking system.

_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check. Select one: a. Time deposits b. Demand deposits c. Savings deposits d. Direct deposits

b. Demand deposits

Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result? Select one: a. Northern's net worth changes by $30 million b. Northern's loan assets increase by $30 million c. the money supply in the economy decreases d. Northern's bond assets increase by $30 million

b. Northern's loan assets increase by $30 million

The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds. Select one: a. reserve funds b. reserve ratio c. bond reserves d. term deposits

b. Reserve Ratio

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds. Select one: a. Certificates of deposit b. Reserves c. Time deposits d. Demand deposits

b. Reserves

Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases. Select one: a. credit card b. smart card c. chip card d. debit card

b. Smart Card

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide. Select one: a. a medium of exchange b. a double coincidence of wants c. the usefulness of money d. interrelated banking

b. a double coincidence of wants

Which of the following events would cause interest rates to increase? Select one: a. an open market operation to buy bonds b. a higher discount rate c. lower reserve requirements d. lower tax rates

b. a higher discount rate

Which of the following is considered to be a relatively weak tool of monetary policy? Select one: a. reducing the money supply b. altering the discount rate c. quantitative easing d. reserve requirements

b. altering the discount rate

What is the name given to the macroeconomic equation MV = PQ? Select one: a. basic quantity equation of output b. basic quantity equation of money c. basic velocity of money equation d. basic velocity of price equation

b. basic quantity equation of money

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely: Select one: a. keep track of whether money is flowing in or out of the bank. b. borrow for the short term from the central bank. c. reduce the quantity of money and loans on the balance sheet. d. buy bonds to increase the size of its reserve assets.

b. borrow for the short term from the central bank.

How are the specific interest rates for the lending and borrowing markets determined? Select one: a. through open market operations b. by the forces of supply and demand c. by altering the discount rate d. U.S. Treasury Department Board policy

b. by the forces of supply and demand

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions? Select one: a. laissez faire b. countercyclical c. loose d. contractionary

b. countercyclical

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? Select one: a. open market rate b. discount rate c. Fed rate d. reserve requirement

b. discount rate

If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied. Select one: a. balance of trade b. double coincidence of wants c. convenience of exchange d. division of labor

b. double coincidence of wants

By about 2050, the ___________ populations in _____________ are expected to boom. Select one: a. youth; high income countries b. elderly; low-income countries c. elderly; high income countries d. youth; low income countries

b. elderly; low-income countries

If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be? Select one: a. leverage cycle b. fighting inflation c. bank supervision d. bank runs

b. fighting inflation

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will: Select one: a. follow loose monetary policy. b. follow tight monetary policy. c. follow expansionary monetary policy. d. follow quantitative easing policy.

b. follow tight monetary policy.

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system? Select one: a. currency exchange b. medium of exchange c. capital exchange d. unit of exchange

b. medium of exchange

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal? Select one: a. $510 million b. $110 million c. $710 million d. $480 million

a. $510 million

If GDP is 3600 and the money supply is 300, what is the velocity? Select one: a. 12 b. 4.57 c. 8 d. 18

a. 12

If GDP is 2400 and the money supply is 600, then what is the velocity? Select one: a. 4 b. 4.57 c. 18.3 d. 12

a. 4

____________ is a completely inadequate mechanism ____________________ in a modern advanced economy. Select one: a. Barter; for trying to coordinate trades b. Money; to use as a unit of account c. Currency; for providing a medium of exchange d. Money; for providing a store of value

a. Barter; for trying to coordinate trades

Which of the following institutions determines the quantity of money in the economy as its most important task? Select one: a. Central Bank b. Federal Reserve Board of Governors c. Federal Open Market Committee d. U.S. Department of the Treasury

a. Central Bank

What name was given to South Korea, Thailand, Malaysia, Indonesia, Singapore, Hong Kong and Taiwan because of their economic success? Select one: a. East Asian tigers b. Asian tigers c. West Asian tigers d. Tigers

a. East Asian tigers

Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency? Select one: a. M1 b. M2 c. savings d. money

a. M1

Which category of the money supply would you be contributing to if you invest in money market funds? Select one: a. M2 b. time deposits c. savings deposits d. M1

a. M2

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from: Select one: a. Sarah's M1 funds. b. the smart card company's M2 funds. c. Sarah's M2 funds. d. the smart card company's M1 funds.

a. Sarah's M1 funds.

If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP? Select one: a. a loose monetary policy b. a tight monetary policy c. fewer loanable funds d. higher interest rates

a. a loose monetary policy

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term. Select one: a. an asset-liability time mismatch b. reserve ratio c. diversification d. a negative net worth

a. an asset-liability time mismatch

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account? Select one: a. an estate b. an iPod c. gym membership d. a new car

a. an estate

If the central bank increases the amount of reserves banks are required to hold to 20%, then: Select one: a. both the money multiplier and supply of money in the economy will decrease. b. both the money multiplier and the supply of money in the economy will increase. c. the money multiplier will increase and the supply of money in the economy will decrease. d. the money multiplier will decrease and the supply of money in the economy will increase.

a. both the money multiplier and supply of money in the economy will decrease.

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession? Select one: a. increased discount rate b. quantitative easing c. open market operations d. increased reserves requirements

b. quantitative easing

A central bank that desires to reduce the quantity of money in the economy can: Select one: a. engage in quantitative easing. b. raise the reserve requirement. c. buy bonds in open market operations. d. lower the discount rate.

b. raise the reserve requirement.

The quantitative easing policies adopted by the Federal Reserve are usually thought of as: Select one: a. a relatively weak tool. b. temporary emergency measures. c. traditional monetary policies. d. short term loans to fill out reserves.

b. temporary emergency measures.

When the central bank lowers the reserve requirement on deposits: Select one: a. the money supply and interest rates increase. b. the money supply increases and interest rates decrease. c. the money supply and interest rates decrease. d. the money supply decreases and interest rates increase.

b. the money supply increases and interest rates decrease.

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy. Select one: a. medium of exchange b. unit of account c. store of value d. unit of exchange

b. unit of account

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result? Select one: a. quantity of credit rises above where it otherwise be b. unpredictable rises and falls in nominal GDP c. innovations relating to banking and finance d. monetary policy will become inevitably imprecise

b. unpredictable rises and falls in nominal GDP

Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal? Select one: a. $450 million b. $380 million c. $500 million d. $750 million

c. $500 million

Which category of the money supply would you be contributing to if you invest in money market funds? Select one: a. time deposits b. M1 c. M2 d. savings deposits

c. M2

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: Select one: a. a quantitative easing policy. b. a expansionary monetary policy. c. a contractionary monetary policy. d. a loose monetary policy.

c. a contractionary monetary policy.

Banks typically come under financial stress because of: Select one: a. diversification of loan assets. b. risks associated with extraordinary economic gains. c. a widespread decline in the value of their assets. d. the money multiplier effect.

c. a widespread decline in the value of their assets.

Many _____________ countries have a legacy of government economic controls. Select one: a. technologically disconnected b. Sub-Saharan c. converging d. high-income

c. converging

Which of the following would be classified in the M1 category of the money supply? Select one: a. certificates of deposit b. money market deposit c. demand deposits d. savings deposits

c. demand deposits

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow. Select one: a. failed to diversify risk b. typically generate extraordinary gains c. depend on borrowed money d. make loans to financial capital markets

c. depend on borrowed money

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run. Select one: a. reverse quantitative easing policy b. contractionary monetary policy c. expansionary monetary policy d. tight monetary policy

c. expansionary monetary policy

In modern economies, _____________________ receive money from savers and provide funds to borrowers. Select one: a. governments b. credit unions c. financial intermediaries d. banks

c. financial intermediaries

Factors like health, education, human rights, crime, personal safety, and cleanliness of environment all: Select one: a. have a slight impact on the standard of living of a country. b. fail to capture diversities that make up the global economy. c. have a large impact on the standard of living of a country. d. fail to capture the standard of living in a precise manner.

c. have a large impact on the standard of living of a country.

Unemployment rates in the nations of Europe have typically been ____________ than in the United States. Select one: a. the same b. better c. higher d. lower

c. higher

_________________________ are included in the aggregate amount of MI money currently in circulation. Select one: a. Savings deposits b. Foreign currency deposits c. Short-term bonds d. Traveler's checks

d. Traveler's checks

In what way is each and every one of the economies of the more than 200 countries of the world similar? Select one: a. each focuses on a Keynesian perspective b. all use the same macroeconomic policies c. each focuses on a neoclassical perspective d. all have their own distinctive characteristics

d. all have their own distinctive characteristics

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________. Select one: a. rising interest rates; provide loans to a variety of customers b. an increased reserve requirement; provide loans to a variety of customers c. rising interest rates; diversify its loans d. an asset-liability time mismatch; diversify its loans

d. an asset-liability time mismatch; diversify its loans

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond? Select one: a. by noting a decrease in net worth b. it can make more loans with increased loan assets c. its balance sheet will be unchanged d. by increasing its reserves

d. by increasing its reserves

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only: Select one: a. create a deflationary loss in price level. b. create an increase in GDP. c. create an increase in unemployment. d. create an inflationary increase in price level.

d. create an inflationary increase in price level.

Which of the following would be classified in the M1 category of the money supply? Select one: a. savings deposits b. certificates of deposit c. money market deposit d. demand deposits

d. demand deposits

With respect to measuring the money supply, which of the following terms describes a checking account? Select one: a. currency deposits b. cash certificates c. demand certificates d. demand deposits

d. demand deposits

If the economy is at equilibrium as shown in the diagram above, then a contractionary monetary policy will Select one: a. increase output and increase inflation. b. increase unemployment and decrease inflation. c. have no effect on output, but increase inflation. d. increase unemployment, but have little effect on inflation.

d. increase unemployment, but have little effect on inflation.

When banks hold excess reserves because they don't see good lending opportunities: Select one: a. it negatively affects contractionary monetary policy. b. expansionary monetary policy is unaffected. c. contractionary monetary policy is unaffected. d. it negatively affects expansionary monetary policy.

d. it negatively affects expansionary monetary policy.

Which of the following is omitted in a barter transaction? Select one: a. medium of exchange b. trade c. store of value d. money

d. money

Which of the following is a traditional tool used by the Fed during recessions? Select one: a. higher interest rates b. quantitative easing c. coins and paper currency d. open market operations

d. open market operations

In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future. Select one: a. buying a new car b. refinancing your home mortgage c. obtaining a credit card d. owning gold

d. owning gold

The market where loans are made to borrowers is called the: Select one: a. secondary loan market. b. money market. c. loan market. d. primary loan market.

d. primary loan market.

Why do banks use a T-account? Select one: a. if a bank has become bankrupt, net worth will be shown as a zero on the balance sheet b. the T-account ensures the final entry made under the assets column is bank reserves c. the T-account separates the liabilities on the left from assets on the right d. the T-account separates assets on the left from liabilities on the right

d. the T-account separates assets on the left from liabilities on the right

When the central bank decides it will sell bonds using open market operations: Select one: a. the money supply is unaffected. b. the money supply increases. c. interest rates decrease. d. the money supply decreases.

d. the money supply decreases.

According to the basic quantity equation of money, if price and output fall while velocity increases, then: Select one: a. the quantity of money will rise. b. the quantity of money will rise slowly. c. the quantity of money will rise before it falls. d. the quantity of money will fall.

d. the quantity of money will fall.

The money multiplier is equal to the _______________ in the economy divided by the original _________________. Select one: a. reserve ratio; original quantity of reserves b. original quantity of reserves; reserve ratio c. quantity of money; total money d. total money; quantity of money

d. total money; quantity of money

Which of the following institutions oversees the safety and stability of the U.S. banking system? Select one: a. Federal Open Market Committee b. Federal Financial Institutions Examination Council c. Office of the Comptroller of the Currency d. The Federal Reserve

d. The Federal Reserve

Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result? Select one: a. increase of Pacific's bond assets by $1million b. decrease of $1 million in Pacific's net worth c. increase of $1 million in Pacific's loan assets d. the money supply in the economy decreases

c. increase of $1 million in Pacific's loan assets

In an economy with _______________, money loses some buying power each year, but it remains money. Select one: a. deflation b. currency c. inflation d. a market orientation

c. inflation

When the central bank decides to increase the discount rate, the: Select one: a. interest rates decrease. b. interest rates are unaffected. c. interest rates increase. d. money supply increases.

c. interest rates increase.

What do Africa, southern Mexico, and tropical areas of Central America and Brazil all share in common? Select one: a. command economies b. high per capita GDPs c. technological exclusion d. rapid growth rates

c. technological exclusion

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? Select one: a. increase in Southern's loan assets of $25 million b. decrease in Southern's bond assets by $25 million c. the money supply in the economy decreases d. Southern's net worth increases by $25 million

c. the money supply in the economy decreases

The diagram above refers to a private closed economy. In this instance, the equilibrium GDP is: Select one: a. $60 billion at all levels of GDP. b. $60 billion. c. between $60 and $180 billion. d. $180 billion.

d. $180 billion.

Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank's liabilities? Select one: a. $20 million b. $5 million c. $330 million d. $200 million

d. $200 million

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy? Select one: a. 5 b. 1 c. 20 d. 10

d. 10

If nominal GDP is 1800 and the money supply is 450, then what is velocity? Select one: a. 4.5 b. 22 c. 25 d. 4

d. 4

_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________. Select one: a. Bonds; term deposits b. Money market funds; time deposits c. Demand deposits; certificates of deposit d. Certificates of deposit; time deposits

d. Certificates of deposit; time deposits

In _____________________________, firms and workers often build upon or copy technologies and industries developed by the technology leaders. Select one: a. South Africa's developing economy b. Eastern Europe's disconnected economy c. the Middle East's low-income economies d. China and India's converging economies

d. China and India's converging economies

____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect? Select one: a. Reserve requirements b. Quantitative easing c. Altering the discount rate d. Long and variable time lags

d. Long and variable time lags

In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment? Select one: a. unit of exchange. b. unit of account. c. store of value. d. medium of exchange.

d. Medium of Exchange

________________ serves society in three functions: medium of exchange, unit of account, and store of value. Select one: a. Currency b. A double coincidence of wants c. Barter d. Money

d. Money

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds. Select one: a. Time deposits b. Certificates of deposit c. Savings deposits d. Money market funds

d. Money Market Funds