EC 302 Ch 12 Review Questions

The most distinguishing economic feature of money is its 19) A) store of value role. B) standard of deferred payment role. C) medium of exchange role. D) unit of account role.

C

The money supply is 26) A) irrelevant. B) indeterminate. C) endogenous. D) determined by policy.

D

True or False: Quantitative easing is the purchase of long maturity assets by the central bank.

True

The supply curve for credit card services is an increasing function of 27) A) the price of credit card services. B) the real interest rate. C) bank profitability. D) the quantity of money.

A

We want money mostly because 15) A) we can buy goods with it. B) we trust it. C) it makes us happy. D) we lengthen the life of our mattress.

A

Which of the following is not a means of payment? 12) A) Treasury bills B) currency C) credit cards D) debit cards

A

In practice, money growth targeting was 29) A) better than interest rate targeting. B) a failure. C) a policy introduced in the U.S. in the 1970s, which continues to the present. D) a good idea.

B

M1 includes all but which of the following? 14) A) travelers checks B) savings deposits C) transactions accounts D) currency in the hands of the public

B

The two most common types of money in circulation in the United States today consist of 11) A) private bank notes and commodity-backed paper currency. B) fiat money and transaction deposits at banks. C) commodity-backed paper currency and fiat money. D) transaction deposits at banks and commodity money.

B

Government printing of money to finance government spending is called 13) A) an open-market purchase. B) sterilization. C) seigniorage. D) irresponsible.

C

If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables, we say that 16) A) money is superneutral. B) the Fisher relationship holds. C) money is neutral. D) money is the most preferred store of value.

C

In the intertemporal model with money, the optimal amount of money is 22) A) equal to total output. B) zero. C) irrelevant as long as it is not zero. D) equal to consumption and investment.

C

The opportunity cost of holding money is 20) A) the inflation rate. B) zero. C) the nominal interest rate. D) the real interest rate.

C

The real return on bonds is 25) A) i. B) R. C) r. D) 0.

C

An increase in the nominal interest rate increases the quantity of credit card services because 28) A) of intertemporal substitution. B) the substitution effect is greater than the income effect. C) bank profits go up. D) the opportunity cost of making transactions with money has risen.

D

Credit cards are not a form of money because 21) A) money needs to be tangible (not virtual). B) credit card balances are in fact counted as money. C) credit cards just relate to an account. D) credit cards just extend a loan.

D

The money supply is vertical because 17) A) prices are indeterminate. B) prices have no real impact. C) prices are counter-cyclical. D) the money supply is set by policy.

D

The real return on money is 24) A) 0. B) -R. C) -r. D) -i.

D

The zero lower bound is 30) A) the constraint that consumption cannot fall below zero. B) the lower bound on money supply growth. C) conventional monetary policy. D) the constraint that the nominal interest rate cannot fall below zero.

D

The zero lower bound on the nominal interest rate arises because 18) A) bank profits must be zero. B) the economy would crash. C) the government would not allow it. D) if the nominal interest rate were less than zero, an arbitrage opportunity would exist.

D

With money supply shocks in the intertemporal model with money, the price level is 23) A) countercyclical. B) procyclical. C) somewhat cyclical. D) acyclical.

D

True or False: In a liquidity trap, the central bank can use unconventional policy in the form of positive nominal interest rates.

False

True or False: One function of money is that it is a medium of transmission.

False

True or False: The Fisher relation reflects the relationship among output, the real interest rate, and inflation.

False

True or False: The function of money that makes it different from other asset is its role as a store of value.

False

True or False: A function of money is that it is a medium of exchange

True

True or False: If real income increases and the real interest rate falls, the price must fall.

True

True or False: If the supply of credit card services increases, then the price level rises.

True

True or False: In the monetary intertemporal model, the demand for money is derived by taking account of substitution between alternative means of payment.

True

True or False: Monetary neutrality is the principle that an increase in the money supply has no effects on any real variables, and only causes prices to increase in units of money

True