Unit 9 Quiz
For interest rates to remain stable during economic expansions, the money supply should: a. grow at the same rate as money demand. b. grow at a slower rate than money demand. c. decrease at a faster rate than the demand for money. d. grow at a faster rate than money demand. e. decrease at a slower rate than the demand for money.
a
According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money: a. must be 6 trillion. b. must be 6. c. must be 1/6. d. cannot be determined unless we know the price level. e. must be 1/6 trillion.
b
To eliminate a recessionary gap, the Fed can: a. decrease the money supply as it will increase the interest rate and investment. b. increase the money supply as it will decrease the interest rate and increase investment. c. decrease the money supply as it will decrease the interest rate and investment. d. decrease the money supply as it will increase the interest rate and decrease investment. e. increase the money supply as it will increase the interest rate and investment.
b
Which of the following essential factors enables commercial banks to create money? a. Required reserves b. Excess reserves c. State and local government securities d. U.S. government securities e. Net worth Hide Feedback
b
Given an upward sloping aggregate supply curve, which of the following changes in the aggregate demand curve is observed when the Fed reduces the money supply? a. The aggregate demand curve shifts rightward, lowering real GDP but raising the price level. b. The aggregate demand curve shifts leftward, lowering real GDP and the price level. c. The aggregate demand curve shifts leftward, raising real GDP and the price level. d. The aggregate demand curve shifts leftward, lowering real GDP but raising the price level. e. The aggregate demand curve shifts rightward, raising real GDP and the price level.
b
Other things constant, if the interest rate rises, people prefer to hold: a. more money because the opportunity cost of holding money has declined. b. less money because the opportunity cost of holding money has increased. c. less money because the opportunity cost of holding money has declined. d. more money because the opportunity cost of holding money has increased. e. the same amount of money because the opportunity cost of holding money is zero.
b
Which of the following identities describe the equation of exchange? a. Real GDP = money in circulation × velocity b. Nominal GDP = money in circulation × velocity c. Real GDP = prices × money in circulation × velocity d. Money in circulation × prices = velocity × income e. Money in circulation × income = velocity × prices
b
Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true? a. Both the bank's assets and its liabilities rise by $500. b. The bank now has $500 in excess reserves. c. The bank now has excess reserves of $100. d. $500 is the value of the bank's required reserves. e. The bank must have lent out an additional $4,000.
c
When a customer deposits $1,000 in a bank, the deposit is: a. a liability to the customer. b. included in M1 if it is currently in a commercial bank's vault. c. a liability for the bank as the bank owes it to the customer. d. an asset of the Federal Reserve. e. an asset to a commercial bank if it is currently in the bank's vault.
c
Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true? a. Excess reserves on the new deposits are $500,000. b. Required reserves on the new deposits are $12,000. c. Required reserves on the new deposits are $60,000. d. Total reserves on the new deposits are $440,000. e. Excess reserves on the new deposits are $12,000.
c
If people choose to hold some of a newly received loan as cash instead of keeping it in a checking account, _____. a. the economy will experience a recession b. the money supply will remain unchanged c. the banking system will collapse d. the money supply will not increase as much as it would had borrowers deposited all of the money e. the money supply will decrease as much as it would had borrowers deposited all the money
d
If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves, the Fed is: a. forcing banks to increase the money supply. b. making it possible for banks to decrease the money supply but not forcing them to do so. c. conducting open market operations but not changing the money supply. d. making it possible for banks to increase the money supply but not forcing them to do so. e. forcing banks to decrease the money supply.
d
The figure given below shows equilibrium in a money market. Which of the following will be observed if the money supply curve shifts from S to S' while the rate of interest remains at "r"? a. There will be an excess demand for money. b. The quantity of money supplied will fall. c. The quantity of money demanded will fall. d. There will be an excess supply of money. e. The Fed will buy U.S. Treasury securities.
d
In an economy in which velocity is constant and the same level of real output is produced year after year, a slow increase in the money supply would result in a: a. constant price level. b. rapidly increasing price level. c. slowly increasing real GDP. d. rapidly increasing real GDP. e. slowly increasing price level.
e
Suppose an individual can earn 3 percent interest on an annual term deposit. His opportunity cost of holding $100,000 in cash instead of investing in the term deposit will be: a. $6,000. b. $330. c. $1,000. d. $3,300. e. $3,000.
e
The table below shows the balance sheet of Leftbank. Leftbank's total reserves: Table 14.3 LEFTBANK Assets Liabilities and Net Worth Deposits with the Fed −$10,000 U.S. Government securities $10,000 a. fell by $9,000. b. rose by $10,000. c. were not affected by this transaction. d. rose by $9,000. e. fell by $10,000.
e
If the Fed sells U.S. government securities to drain reserves from banks, which of the following is most likely to occur? a. The interest rate will fall and the quantity of money demanded will increase. b. The money supply will decrease and the interest rate will fall. c. The money supply will increase and the interest rate will fall. d. The demand for money will increase and the interest rate will rise. e. The interest rate will rise and the quantity of money demanded will fall
e
The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is at point "e" in the short run, which of these policies adopted by the Fed is likely to return it to long-run equilibrium? a. A decrease in government spending b. A decrease in the tax rate c. An increase in the money supply d. An increase in the tax rate e. A decrease in the money supply
e
When the Fed buys U.S. government securities from a bank, that bank's excess reserves and required reserves increase but total reserves decrease. a. True b. False
false
