April 18th/2018

Which of the following will result in a larger money multiplier ? A. a decrease in the cash holdings by the public b. an increase in the banks target reserves c. An increase in excess reserves at banks d. A decrease in creditworthy applicants for loans e. An increase in interest rates

A

If x is an autonomous $90 and the MPE is 0.2, what is the value of XN at an income of 500 ? a. + 10 B. - 10 c. +90 d +590

B .

What would cause the total demand for money to shift to the left? a. An increase in nominal GDP b. An increase in the rate of interest c. A decrease in the rate of interest d. An increase in the price level e. A decrease in nominal GDP

E

Debasing the coinage has which of the following effects ? a. It causes the price level to drop? b. It increases the purchasing power of each coin c. It represents a loss in the person issuing the coins d. It causes inflation e. None of the above

D

Which of the following is true regarding the purchasing power of the dollar? a. It varies directly with the cost- of - living index b. It has been increasing in recent years because of higher standards of living c. It varies inversely with the level of aggregate demand d. It varies inversely with the price level e. It varies directly with the price level

D

Which of the following is true regarding the quantity of asset demand for money ? a. It varies directly with the level of nominal GDP b. It varies directly with the rate of interest c. It varies inversely with the level of nominal GDP d. It varies inversely with the rate of interest e. It is not related to either the rate of interest of the level of nominal GDP

D

What happens to the value of net exports as national income increases ? a. It increases because the level of imports increases b. It decreases because the level of imports decreases c. IT increases because the level of imports decreases d. It decreases because the level of imports increases e. It is not affected by the level of national income

D.

What happens if aggregate expenditures exceeds the level of production ? a. National income exceeds the level of production and inventories will accumulate b. The level of production exceeds national income and inventories will accumulate c. National income exceeds the level of production and inventories will be reduced d. The level of production exceeds national income and inventories will be reduced e. National income is less than total spending and inventories will be reduced

E.

Explain how an increase in the price level affects the aggregate quantity demanded: a. It causes an increase in the demand for money, resulting in an increase in the interest rate and a decrease in investment spending b. It causes a decrease in the demand for money resulting in an increase in the interest rate and a decrease in investment spending c. It causes a decrease in the demand for money resulting in a decrease in the interest rate and a decrease in investment spending d. It causes a decrease in the demand for money resulting in an increase in the interest rate and an increase in investment spending

a

On a diagram with the interest rate on the vertical axis and the quantity for money demanded on the horizontal axis, how can the total demand for money be obtained ? a. By adding the transactions and the asset demand for money horizontally b. By subtracting the transactions demand from the asset demand for money vertically c. By subtracting the asset demand from the transaction demand for money horizontally d. By adding the transactions and the asset demand for money vertically e. The asset and transaction demands are unrelated and therefore cannot be added or subtracted

a

Which of the following is true regarding the opportunity cost of holding money? a. It varies directly with the rate of interest b. It varies inversely with the rate of interest c. It varies inversely with nominal GDP d. It varies directly with the stock of wealth e. It is zero because money is not an economic resource

a

According to the multiplier formula, a decrease in the MPC : a. Reduces real GDPe b. Reduced aggregate expenditures c. Increase autonomous expenditures d. Increases the multiplier

a.

If John and Todd both have chequing accounts in the same commercial bank and john writes a cheque for $5000 payable to Todd, what will happen to the bank accounts ? a. They will not be affected b. Assets and liabilities will both decrease by $5000 c. Liabilities will decease by $1000 and the banks equity will increase by $5000 d. Reserves and demand deposits will both decrease by $5000 e. Demand deposits will increase by $5000 and loans to customers will decrease by $5000

a.

If guy and Laraine both have chequing accounts at the same bank and Guy writes a cheque for $1000 payable to Laraine, what will happen to the banks accounts ? a. They will not be affected b. Assets and liabilities will both decrease by $1000 c. Liabilities will decline and the banks equity will increase by $1000 d. Reserves and demand deposits will both decrease by $1000 E. Demand deposits will increase and loans to customers will decrease by $1000

a.

If the quantity of money demanded exceeds the money supply, what will the interest rate do ? a. Rise, causing people to hold less money b. Fall, causing people to hold less money c. Rise, causing people to hold more money d. Fall, causing people to hold more money e. Remain unchanged, but the demand for money would decrease

a.

In which direction will the transaction demand for money curve shift ? a. Right when nominal GDP increases b. Left when nominal GDP increases c. Right when nominal GDP decreases d. Right when interest rate increases e. Left when interest rate decreases

a.

Suppose that Bank Apollo has a target reserve ratio of %%, $10 000 in demand deposits and $1000 in reserves. Assume that the bank makes a loan equal to its excess reserves and the borrower spends this amount at business that does not use bank Apollo. What is the net effect on bank apollo ? a. It will neither be under - nor over reserved b. IT will be over reserved by $500 c. It will be under reserved by $500 d. It will be under reserved by $25 e. Its reserve status will be unaffected

a.

What does it mean when a commercial banks has "excess reserves" a. It is in a position to make loans b. Its reserves exceed its loans c. It is making above normal profits on its loans to customers d. Its actual reserves are less than its target reserves e. Its loans to customers exceeds its target reserves

a.

When can we be certain that the quantity of money demanded will decrease ? a. When nominal G0DP decreases and the interest rate increases b. When nominal GDP increases and the interest rate increases c. When nominal GDP decreases and the interest rate decreases d. When nominal GDP increases and the interest rate decreases

a.

Assume that the demand for money equals the supply of money at $80 billion and that the nominal GDP is $400 billion. According the monetarist view, by how much will an increase in the money supply of $5 billion increase the nominal GDP ? a. By $30 billion b. By $25 billion c. By $20 billion d. By $10 billion E By zero

b

If M is $50, P is $2 and Q is $250, what is the result ? a. V must be 4 b. V must be 10 c. V cannot be determined d. V must be 2.5 E. Aggregate expenditures will be $12, 5000

b

What does the term transactions demand for money refer to? a. The demand for money by the bank of Canada in order to settle international transactions b. The demand for money by the public in order to effect transactions c. The desire by the public to receive income in the form of money d. The demand for money by the public in order to make financial investments

b

What is meant by the velocity of money ? a. The number of times per year that each unit of currency is used before it is recalled by the Canadian mint b. The number of times per year that the average unit of currency is spent buying final goods and services c. The money supply divided by the level of GDP d. The rate at which M1 changes in M2 or M3

b

Which of the following is inversely related to the interest rate ? a. The velocity of money b, The quantity of asset money demanded c. The level of prices d. The quantity of transactions money demanded e. The level of savings

b

Which of the following statements is correct? a. An increase in prices will shift the transactions demand curve for money to the right but leave the total money demand curve unchanged b. A decrease in prices will shift both the transactions demand and the total money demand curves to the left c. A fall in real GDP will shift both the transactions demand and total money demand curve to the right d. A decline in real GDP will shift the transactions demand curve to the left but leave the total money demand curve unchanged

b

What are the reserves of a commercial bank ? a. The amount of money market funds it holds b, Deposits at the Bank of Canada and vault cash c. Vault cash plus securities d. The banks equity e. Vault cash plus securities plus deposits at the bank of Canada

b,

All of the following statements except one are correct. Which is the exception ? a. A banks total reserve is equal to its excess reserves plus its target reserves b. A banks assets plus its net worth equals its liabilities c. When a bank makes a loan, it creates demand deposits d. A single bank can safely lend out only an amount up to the value of its excess reserves e. If a banks transaction decreases the value of one of its assets, then either some other asset must increase in value or one of its liabilities must decrease in value

b.

How if money functioning in the case of stock market price quotations ? a. As a store of wealth b. As a unit of account c. As a medium of exchange d. All of the above e. None of these

b.

How is the major portion of the Canadian money supply created ? a. By the actions of the Canadian mint b. By the actions of the commercial banks and the banks of Canada c. Through the receipt of gold buillion via international trade d. By the actions of the department of finance e. Through loans from the international monetary fund

b.

How is the money multiplier calculated ? a. By dividing the target reserves ratio by 1 b. By dividing the change in deposits by the change in reserves c. By multiplying the target reserve ratio by M1 d. By multiplying the target reserve ratio by 1.

b.

What is the relationship between the price of government bonds and the rate of return received by bond holders ? a. They are directly related b. They are inversely related c. They are unrelated d. They are independent of Bank of Canada open- market operations e. They are both dependant on the level of investment

b.

According to monetarists, what would be the effect of a sudden doubling of the supply of money? a. It would decrease real GDP b. It would decrease nominal and real GDP c. It would increase nominal GDP d. It would increase nominal GDP and lower prices

c

According to the Keynesian transmission process what will be the effect of an decrease in the money supply? a. An increase in the interest rate, an increase in investment spending and an increase in GDP b. An increase in interest rate, an increase in investment spending and a decrease in GDP c. An increase in the interest rate, a decrease in investment spending and a decrease in GDP d. A decrease in the interest rate, a increase in investment spending and an increase in GDP e. A decrease in the interest rate, a decrease in investment spending and a decrease in GDP

c

According to the Keynesian transmission process, which of the following will increase due to an decrease in the money supply ? a. Interest rates b. price level c. investment d. aggregate demand e. None of the above

c

According to the equation of exchange, if V is constant,a and the economy is at full employment, what would a 5% increase in the money supply do ? a. It will cause P to increase by less than 5% b. It will cause P to increase by more than 5% c. It will cause P to increase by 5% d. It will cause P to decrease by 5% e. It will not affect P

c

If real GDP is $600 billion, the price level is 1.2 and the velocity of money is 5, then what is the money supply ? a. $100 billion b. $3, 600 billion c. $144 billion d. $2,500 e. It cannot be determined from this information

c

In the Keynesian transmission process what follows after an increase in the money supply has caused a fall in the interest rate ? a. GDP falls b. Investment spending falls c. Investment spending rises d. None of the above

c

Suppose that an economy is experiences an annual growth of real GDP of 5% and the velocity of money is constant. In order to maintain price level stability what needs to occur ? a. Taxes must be increased by 5% and/or government spending reduced by 5% b. A budget deficit of 5% would be required c. The money supply must be increased by 5% per year d. The money supply must be increased by more than 5% per year e. The money supply should be decreased by 5% per year

c

The asset demand for money is most closely related to which function of money ? a. The unit of account b The medium of exchange c. The store of wealth d. The unit of value e. The value of use

c

The asset demand for money is most closely related to which function of money ? a. The unit of account b. The medium of exchange c. The store of wealth d. The unit of value e. The value in use

c

What will an increase in the money supply tend to do? a. Increase interest rates and lower the equilibrium GDP b. Increase interest rates and increase the equilibrium GDP c. Lower interest rates and increase the equilibrium GDP d. Lower interest rates and lower the equilibrium GDP e. None of the above

c

Only one of the following is part of the money supply. Which is it? a. Gold b. Currency in a banks vaults c. Demand deposits d. Available credit on peoples credit cards

c.

Suppose that Adam Ricardo deposits $1000 of cash into the Penguins Bank. The same day, David smith negotiates a loan for $4000. By how much has the money supply changed ? a. It has increased by $3000 B. It has decreased by $3000 c. It has increased by $4000 d. It had increased by $5000

c.

The Vancouver bank has demand deposits of $300 000 and the target reserve ratio is 6%. If the banks target reserves are equal to its excess reserves then what must its actual reserves be ? a. 0 b. $18 000 c. $36 000 d. $108 000 e. That cannot be determined from this information

c.

What is meant by the term "fractional reserve banking" ? a. A system whereby banks keep only a fraction of their assets in the form of cash b. A system whereby banks keep only a fraction of their cash with the central banks c. A system whereby banks keep only a fraction of their total deposits in the form of cash d. A system whereby banks must maintain a minimum amount of loans in the form of cash reserves

c.

Why is notice deposits not included in the M1 definition of money ? a. Because the real value of notice deposits is zero b. Because the value of notice deposits is much less stable than that of demand deposits and currency c. Because they do not have direct of immediate access to goods and services d. Because they are not recognized in law as legal tender e. Because in terms of volume they are much less than demand deposits

c.

According to monetarists, how does a change in the money supply affect the economy? a. By changing the velocity of the money which in turn changes the nominal GDP b. By changing the rate of interest which in turn changes nominal GDP c. By changing investment which in turn changes nominal GDP d. By changing aggregate expenditures which in turn changes nominal GDP e. By changing the money multiplier which in turn changes nominal GDP

d

If the amount of money in circulation is $140 billion and the nominal GDP of the economy is $840 billion, then which of the following is true ? a. The circulation period of money must be 6 months b. The velocity of money is 2 c. The average price per final good sold is $6 d. The velocity of money is 6 e. The money multiplier must be 2

d

If the money supply exceeds the quantity of money demanded, what will interest rates do ? a. Rise, causing people to hold less money b. Fall causing people to hold less money c. Rise, causing people to hold more money d. Fall, causing people to hold more money e. Remain unchanged, but the demand for money would increase

d

In a full employment economy a rise in M could cause inflation, under what circumstances will this not happen ? a. If real GDP falls by the same proportion b. If real GDP increases by the same proportion c. If tax reductions accompany the increase in the money supply d. If the velocity of money falls e. IF the demand for money increases by the same amount

d

What can cause the demand for money curve to shift left? a. If the interest rates increase b. If the interest rates decrease c. If nominal GDP increases D. If nominal GDP decreases E. If the price level increases

d

All of the following statements, except one, are correct. Which is the exception ? a. Target reserves equal actual reserves minus excess reserves b. Excess reserves plus target reserves equal actual reserves c. Actual reserves minus target reserves equal excess reserves d. Actual reserves equal target reserves minus excess reserves e. Actual reserves minus excess reserves equal target reserves

d.

What are a banks target reserves equal to ? a. Its demand deposits divided by the target reserve ratio b. The amount of outstanding loans multiplied by the target reserve ratio c. The amount of its demand deposits d. Its demand deposits multiplied by the target reserve ratio e. The sum of its demand deposits and notice deposits

d.

What is one of the basic reasons for focusing on the M1 definition of money ? a. Only the components of M1 are regarded as liquid b. Statistics Canada is able to gather data for the components of M1, but cannot do so for M2 and M3 c. Only the components of M1 can be used as a store of wealth d. Its components all have direct and immediate control over goods and services e. Only the components of M1 are regarded as secure and are able to retain their value

d.

What is true of unplanned investment ? a. IT is equal to the difference between national income and the level of production b. It is the amount of intended investment by firms c. It is the amount of investment that results from an unexpected decrease in interest rates d. It is equal to the difference between the level of production and aggregate expenditures

d.

Which of the following does the M2 definition of money include ? a. Only currency in circulation and savings accounts b. Only coins, paper money and demand deposits c. Only currency in circulation and savings accounts d. Currency in circulation, demand deposits, personal term deposits, and personal and non- personal savings (notice) deposits. e. Currency in circulation, demand deposits and personal and non personal notice and term deposits

e.

Which of the following does the M2 definition of money include? a. Only currency in circulation and savings accounts b. Only coins, paper money and demand deposits c. Only currency in circulation and savings accounts d. Currency in circulation, demand deposits, personal term deposits, and personal and non- personal savings (notice) accounts e. Currency in circulation, demand deposits and personal and non- personal notice and term deposits

e.

Which of the following is true, according to monetarists? a. Changes in the money supply have no effect on real variables b. The velocity of money increases as real GDP increases c. The total demand for money equals the asset demand for money d. Individuals hold idle balances for rational reasons e. IF the economy is at full employment, increasing the money supply will increase the price level.

e.