Money and Banking

1. If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate? a. 2 gallons of Argentinean milk/1 gallon of U.S. milk b. 3 gallons of Argentinean milk/2 gallon of U.S. milk c. 2 gallons of Argentinean milk/3 gallon of U.S. milk d. 1 gallons of Argentinean milk/2 gallon of U.S. milk

A.

The IS curve shifts when any of the following economic variables change except: a.the interest rate. b.government spending. c.taxes. d.the marginal propensity to consume.

A.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. It has $8,000 in reserves and $2,000 in loans.

B.

According to the assumptions of the quantity theory of money and monetary neutrality, if the money supply increases by 5 percent, then a. nominal and real GDP would rise by 5 percent. b. nominal GDP would rise by 5 percent; real GDP would be unchanged. c. nominal GDP would be unchanged; real GDP would rise by 5 percent. d. neither nominal GDP nor real GDP would change.

B.

The money supply will increase if the: a.currency-deposit ratio increases. b.reserve-deposit ratio increases. c.monetary base increases. d.discount rate increases.

C.

When conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply.

C.

A decrease in the nominal money supply, other things being equal, will shift the LM curve: a. upward and to the right. b. downward and to the right. c. downward and to the left. d. upward and to the left.

D.