Econ 102 exam 3 chapter 8

17) The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?

D. Securities decrease by $100 million and reserves increase by $100 million

6) Checks are NOT money because they

D. are merely instructions to transfer money.

30) The quantity of real money demanded is

D. independent of the price level.

33) The opportunity cost of holding money refers to

D. the interest that could have been earned if the money balances had been changed into an interest-bearing asset.

25) Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create?

A. zero, because Bank A has no excess reserves

4) According to the table above, the value of M1 is ________ and the value of M2 is ________.

A.$813 billion; $3303 billion

23) When a bank has excess reserves

A) zero, because Bank A has no excess reserves B) $850 D. Both answers A and B are correct

19) The above table presents the balance sheet of the TBK commercial bank. What is this bank's actual reserve ratio?

A. 20 percent

29) When the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals

A. 5.

2) The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a

A. medium of exchange

34) Use the figure above to answer this question. Suppose the economy is operating at point a. A move to ________ could be explained by ________.

A. point c; an increase in the use of credit cards

32) When the nominal interest rate rises, the opportunity cost of holding money

A. rises and people hold less money.

27) The larger the public's currency drain from the banking system, the

A. smaller is the money multiplier

8) For a commercial bank, the term "reserves" refers to

A. the cash in its vaults and its deposits at the Federal Reserve.

3) Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a

A. unit of account

40) In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if real wealth decreases?

B.

22) The table above shows the balance sheet for Ralph's Bank. If the desired reserve ratio is 15 percent, Ralph's Bank has excess reserves of ________.

B. $50

21) The above table gives the initial balance sheet for Mini Bank. If the bank's desired reserve ratio is 10 percent, how much does this bank have in excess reserves?

B. $60

5) According to the table above, the value of M1 is ________ and the value of M2 is ________.

B. $910 billion; $3,660 billion

12) Which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy?

B. Federal Ope Market Comittee

36) In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of an increase in financial innovation such as the introduction of ATMs?

B. The demand for money curve would shift leftward to MD0.

37) In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of an increase in the use of credit cards?

B. The demand for money curve would shift leftward to MD0.

26) When part of the quantity of money is held in currency, then

B. a currency drain occurs.

10) When the Fed is ________ it is ________.

B. adjusting the amount of money in circulation; conducting monetary policy

15) The sale of $1 billion of securities to a bank or some other business by the Fed is an example of

B. an open market operation.

9) Depository institutions do all the following EXCEPT

B. create required reserve ratios.

13) The monetary base is the sum of

B. currency and reserves of depository institutions.

14) The required reserve ratio

B. is the fraction of a bank's total deposits that is required to be held in reserves.

38) In the figure above, an increase in the monetary base would create a change such as a

B. shift from the supply of money curve MS0 to the supply of money curve MS1.

39) In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if disposable income decreases?

C.

20) The above table gives the initial balance sheet for Mini Bank. Mini Bank's actual reserve ratio equals ________.

C. 25 percent

18) The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?

C. Securities increase by $100 million and reserves of Bank A increase by $100 million.

16) When the Fed lowers the federal funds rate, it can lead to

C. an increase in lending by banks.

35) In the above figure, suppose the economy is at point a. If there is an increase in real GDP, there is a movement to point such as

C. d.

28) An increase in the currency drain

C. decreases the size of the money multiplier.

31) When price levels rise, the quantity of nominal money demanded will ________ and the quantity of real money demanded will ________.

C. increase; stay the same

1) Aside from being a means of payment, the other functions of money are

C. medium of exchange, unit of account, and store of value.

11) Controlling the quantity of money and interest rates to influence aggregate economic activity is called

C. monetary policy

7) Credit cards are

C. not part of money because they represent a loan of money to the user.

24) Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A?

D. $50