ISU ECON 102 Test 2 Chapter 8
According to the table above, the value of M1 is ________ and the value of M2 is ________. (first val 235)
A) $813 billion; $3303 billion
The above table presents the balance sheet of the TBK commercial bank. What is this bank's actual reserve ratio?
A) 20 percent
When the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals
A) 5.
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
Controlling the quantity of money and interest rates to influence aggregate economic activity is called
C) monetary policy.
Credit cards are
C) not part of money because they represent a loan of money to the user.
According to the quantity theory of money, in the long run, changes in the price level are the result of changes in the
C) quantity of money.
When a bank has excess reserves A) it can make loans. B) it can create money. C) it has too many loans. D) Both answers A and B are correct.
D) Both answers A and B are correct.
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.
Checks are NOT money because they
D) are merely instructions to transfer money.
In the short run, when the Fed decreases the quantity of money
D) bond prices fall and the interest rate rises.
In the short run, when the Fed increases the quantity of money
D) bond prices rise and the interest rate falls.
The quantity of real money demanded is
D) independent of the price level.
In the figure above, if the interest rate is 8 percent, people demand $0.1 trillion
D) less money than the quantity supplied and bond prices will rise.
The table above gives the quantity of money and money demand schedules. Suppose that the interest rate is equal to 3 percent. The effect of this interest rate in the money market is that
D) people sell bonds and the interest rate rises.
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.
Use the figure above to answer this question. Suppose the economy is operating at point a. A move to ________ could be
A) point c; an increase in the use of credit cards
When the nominal interest rate rises, the opportunity cost of holding money
A) rises and people hold less money.
The larger the public's currency drain from the banking system, the
A) smaller is the money multiplier.
For a commercial bank, the term "reserves" refers to
A) the cash in its vaults and its deposits at the Federal Reserve.
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
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
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
According to the table above, the value of M1 is ________ and the value of M2 is ________. (first val 300)
B) $910 billion; $3,660 billion
Which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy?
B) Federal Open Market Committee
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.
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.
When part of the quantity of money is held in currency, then
B) a currency drain occurs.
When the Fed is ________ it is ________.
B) adjusting the amount of money in circulation; conducting monetary policy
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.
Depository institutions do all the following EXCEPT A) pool risks. B) create required reserve ratios. C) create liquidity. D) minimize the cost of obtaining funds.
B) create required reserve ratios.
The monetary base is the sum of
B) currency and reserves of depository institutions.
If an economy has a velocity of circulation of 3, then
B) in a year the average dollar is exchanged 3 times to purchase goods and services in GDP.
The required reserve ratio
B) is the fraction of a bank's total deposits that is required to be held in reserves.
The table above gives the quantity of money and money demand schedules. Suppose that the interest rate is equal to 6 percent. The effect of this interest rate in the money market is that
B) people buy bonds and the interest rate falls.
Aside from being a means of payment, the other functions of money are
C) medium of exchange, unit of account, and store of value.
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.
The above table gives the initial balance sheet for Mini Bank. Mini Bank's actual reserve ratio equals ________.
C) 25 percent
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.
When the Fed lowers the federal funds rate, it can lead to
C) an increase in lending by banks.
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.
An increase in the currency drain
C) decreases the size of the money multiplier.
In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess
C) demand for money and bond prices will fall.
When price levels rise, the quantity of nominal money demanded will ________ and the quantity of real money demanded will ________.
C) increase; stay the same
In the figure above, a decrease in the monetary base would create a change such as a
C) shift from the supply of money curve MS1 to the supply of money curve MS0.
According to the quantity theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in ________.
C) the price level
If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?
D) $12 trillion
The quantity of money in an economy is $9 million, and the velocity of circulation is 3. Nominal GDP in this economy is
D) $27 million
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
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.