Economics 2105 Final

If the reserve ratio is 10% and the initial deposit is $500, then the money multiplier is 10 and a total of $10,000 in checking deposits can be created. T/F

FALSE

Which of the following best illustrates the unit of account function of money? a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars. b. You pay for your theater tickets with dollars. c. You hold currency even though you don't intend to spend it right away. d. None of the above is correct.

A. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars.

If an economy used gold as money, it's money would be.. a. commodity money, but not fiat money. b. fiat money, but not commodity money. c. both fiat and commodity money. d. functioning as a store of value and as a unit of account, but not as a medium of exchange.

A. commodity money, but not fiat money.

Over one time horizon or another, Fed policy decisions influence a. inflation and employment. b. inflation but not employment. c. employment but not inflation. d. neither inflation nor employment.

A. inflation and unemployment.

If the reserve requirement is 10 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $100, the money supply a. it must increase its required reserves by $10. b. its total reserves initially increase by $10. c. it will be able to make new loans up to a maximum of $10. d. None of the above is correct.

A. it must increase its required reserves by $10.

If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be a. $500 higher and M2 would be $1,000 higher b. $500 higher and M2 would be $1,500 higher c. M2 and M1 would be $1,500 higher d. None of the above are correct.

B. $500 higher and M2 would be $1,500 higher

Which of the following is a liability of a bank and an asset of its customers? a. deposits of its customers and loans to it customers b. deposits of its customers but not loans to its customers c. loans of its customers but not the deposits of its customers d. neither the deposits of its customers nor the loans to its customers

B. deposits of its customers but not loans to its customers

The Federal Open Market Committee meets approximately a. every three weeks b. every six weeks c. every 3 months d. every 6 months.

B. every six weeks

An open-market purchase a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

B. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then a. nominal and real GDP would fall by 7 percent. b. nominal GDP would fall by 7 percent; real GDP would be unchanged. c. nominal GDP would be unchanged; real GDP would fall by 7 percent. d. neither nominal GDP nor real GDP would change.

B. nominal GDP would fall by 7 percent; real GDP would be unchanged.

Reserve requirements are regulations concerning a. the amount banks are allowed to borrow from the Fed. b. the amount of reserves banks must hold against deposits. c. reserves banks must hold based on the number and type of loans they make. d. the interest rate at which banks can borrow from the Fed.

B. the amount of reserves banks must hold against deposits.

The discount rate is a. the rate at which public banks lend to other public banks. b. the rate at which the Fed lends to banks. c. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. d. the percentage of deposits banks hold as excess reserves.

B. the rate at which the Fed lends to banks.

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings? a.New York is the traditional financial center of the U.S. economy. b.All Fed purchases and sales of bonds go through the New York Fed's trading desk. c. New York has higher population than other cities in the U.S. d. All of the above are reasons.

C. New York has higher population than other cities in the U.S.

Which of the following does the Federal Reserve not do? a. conduct monetary policy b. act as a lender of last resort c. convert Federal Reserve Notes into gold d. serve as a bank regulator

C. convert Federal Reserve Notes into gold

Which of the following is not included in M1? a. currency b. demand deposits c. savings deposits d. traveler's checks

C. savings deposits

When a bank loans out $1,000, the money supply a. does not change. b. will decreases. c. will increase less than $1,000. d. can increase more than $1,000.

D. can increase more than $1,000.

Which of the following is included in both M1 and M2? a. savings deposits b. demand deposits c. small time deposits d. money market mutual funds

D. money market mutual funds

The Fed can increase the money supply by conducting open-market a. sales or by raising the discount rate. b. sales or by lowering the discount rate. c. purchases or by raising the discount rate. d. purchases or by lowering the discount rate.

D. purchases or by lowering the discount rate

Economists use the term "money" to refer to a. all wealth. b. all assets, including real assets and financial assets. c. all financial assets, but not real assets. d. those types of wealth that are regularly accepted by sellers in exchange for goods and services.

D. those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Current US nominal GDP is about 16.7 trillion dollars. T/F

FALSE

Current US unemployment rate is about 3%. T/F

FALSE

Currently, bank runs are a major problem for the U.S. banking system and the Fed. T/F

FALSE

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply. T/F

FALSE

If real GDP or the price level increases the money supply curve shifts right and the interest rate falls. T/F

FALSE

If the Fed buys bonds in the open market (Open Market Purchase), the money demand increases and the interest rate would rise. T/F

FALSE

According to classical macroeconomic theory, changes in the money supply change nominal but not real variables. T/F

TRUE

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise. T/F

TRUE

Money allows people to specialize in what they do best, thereby raising everyone's standard of living. T/F

TRUE

The Federal Reserve primarily uses open-market operations to change the money supply. Medium of exchange is one of the primary functions of money. T/F

TRUE

The current interest rate on excess reserves is 0.5%. T/F

TRUE

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the maximum possible increase in the money supply would be $90,000. T/F

TRUE

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly. T/F

TRUE