Question 1

When the Fed buys U.S. government securities from a bank, the Fed

Accepted Answer

A)   loans the money needed to buy the securities to the bank.
B)   increases the bank's reserves at the Fed.
C)   obtains the money for the purchase from the U.S. Treasury.
D)   decreases the monetary base and raises the federal funds rate.E) A) and D)
F) None of the above

Question 2

The quantity of money that people choose to hold is

Accepted Answer

A)   positively related to the nominal interest rate.
B)   positively related to real GDP.
C)   negatively related to the price level.
D)   positively related to the availability of ATM machines.E) B) and C)
F) A) and C)

Question 3

The quantity theory of money states that in the long run

Accepted Answer

A)   the price level will not consistently rise, it will fluctuate.
B)   an increase in the quantity of money results in an equal percentage increase in the price level.
C)   a rise in the price level rises causes the quantity of money to increase.
D)   an increase in the quantity of money increases real GDP by a smaller percentage.E) None of the above
F) A) and B)

Question 4

"Credit cards are considered money because they serve to purchase goods and services." Is the previous statement true or false?

Accepted Answer

The statement is False. Credit cards are...

Question 5

In 2006, real GDP in Belgium grew at a 3 percent rate and inflation was 1.8 percent while the population did not change. As a result, there was ________ demand for money curve in Belgium.

Accepted Answer

A)   a rightward shift of the
B)   a leftward shift of the
C)   a movement up along the
D)   no change in theE) A) and B)
F) A) and C)

Question 6

An individual wanting the most liquid asset possible will hold

Accepted Answer

A)   currency.
B)   a savings account.
C)   gold.
D)   U.S. government bonds.E) C) and D)
F) None of the above

Question 7

Members of the Federal Reserve System's Board of Governors

Accepted Answer

A)   are elected for life.
B)   hold 14-year staggered terms.
C)   are a special subcommittee of the Senate.
D)   are elected at large by district banks.E) None of the above
F) A) and B)

Question 8

"Banks hold 100 percent of their customers' deposits as reserves." Is the previous statement correct or not?

Accepted Answer

The statement is incorrect. If...

Question 9

Other things constant, the quantity theory of money concludes that any increase in the quantity of money

Accepted Answer

A)   decreases the demand for money.
B)   decreases in the aggregate price level.
C)   decreases the aggregate level of nominal income.
D)   proportionally increases the price level.E) C) and D)
F) A) and B)

Question 10

If an economy has a velocity of circulation of 3, then

Accepted Answer

A)   the quantity of money is 3 times real GDP.
B)   in a year the average dollar is exchanged 3 times to purchase goods and services in GDP.
C)   nominal GDP is 1/3 the size of the quantity of money.
D)   the quantity of money is $3 for every dollar of GDP.E) A) and B)
F) None of the above

Question 11

-The figure above illustrates the effect of

Accepted Answer

A)   an increase in real GDP.
B)   a decrease in real GDP.
C)   an increase in the monetary base.
D)   a decrease in the monetary base.E) A) and C)
F) B) and C)

Question 12

-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to ________ could be explained by ________.

Accepted Answer

A)   point c; an increase in the use of credit cards
B)   point b; an increase in real GDP
C)   point b; an increase in the nominal interest rate
D)   point e; an increase in U.S. exportsE) None of the above
F) C) and D)

Question 13

The main policy-making organization of the Federal Reserve System is the ________.

Accepted Answer

A)   U.S. Mint
B)   U.S. Treasury
C)   Joint Congressional Committee on Monetary Policy
D)   Federal Open Market CommitteeE) None of the above
F) All of the above

Question 14

Federal Reserve policy tools include all of the following EXCEPT

Accepted Answer

A)   excess reserve ratios.
B)   required reserve ratios.
C)   last resort loans.
D)   open market operations.E) B) and C)
F) A) and C)

Question 15

An open market operation occurs when ________ buys or sells securities ________.

Accepted Answer

A)   the Federal Reserve System; from or to the federal government
B)   the Federal Reserve System; in the open market
C)   a commercial bank; from or to the federal government
D)   a commercial bank; from or to the publicE) A) and B)
F) A) and C)

Question 16

Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is currently holding $200,000 in reserves, the excess reserves are equal to

Accepted Answer

A)   zero.
B)   $180,000.
C)   $120,000.
D)   $20,000.E) B) and D)
F) A) and B)

Question 17

Which of the following does NOT describe a function of money?

Accepted Answer

A)   unit of account
B)   hedge against inflation
C)   medium of exchange
D)   store of valueE) All of the above
F) C) and D)

Question 18

In the short run, when the Fed increases the quantity of money

Accepted Answer

A)   bond prices rise and the interest rate falls.
B)   bond prices fall and the interest rate rises.
C)   the demand for money increases.
D)   the supply of money curve shifts leftward.E) None of the above
F) A) and D)

Question 19

A bank's required reserves are calculated by multiplying ________.

Accepted Answer

A)   its deposits by the required reserve ratio
B)   the sum of its deposits and cash in its vault by the required reserve ratio
C)   cash in its vault by the required reserve ratio
D)   the gold in its vault by the required reserve ratioE) None of the above
F) C) and D)

Question 20

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?

Accepted Answer

A)   zero, because Bank A has no excess reserves
B)   $200
C)   $50
D)   $850E) B) and C)
F) A) and C)

Exam 8: Money, the Price Level, and Inflation

-The figure above illustrates the effect of

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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?

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If an economy has a velocity of circulation of 3, then

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An individual wanting the most liquid asset possible will hold

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In the short run, when the Fed increases the quantity of money

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Other things constant, the quantity theory of money concludes that any increase in the quantity of money

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-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to ________ could be explained by ________.

Correct AnswerverifiedShow Answer

"Credit cards are considered money because they serve to purchase goods and services." Is the previous statement true or false?

Correct AnswerverifiedThe statement is False. Credit cards are...View AnswerShow Answer

A bank's required reserves are calculated by multiplying ________.

Correct AnswerverifiedShow Answer

Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is currently holding $200,000 in reserves, the excess reserves are equal to

Correct AnswerverifiedShow Answer

The quantity of money that people choose to hold is

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"Banks hold 100 percent of their customers' deposits as reserves." Is the previous statement correct or not?

Correct AnswerverifiedThe statement is incorrect. If...View AnswerShow Answer

An open market operation occurs when ________ buys or sells securities ________.

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The quantity theory of money states that in the long run

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Members of the Federal Reserve System's Board of Governors

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Federal Reserve policy tools include all of the following EXCEPT

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Which of the following does NOT describe a function of money?

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When the Fed buys U.S. government securities from a bank, the Fed

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The main policy-making organization of the Federal Reserve System is the ________.

Correct AnswerverifiedShow Answer

In 2006, real GDP in Belgium grew at a 3 percent rate and inflation was 1.8 percent while the population did not change. As a result, there was ________ demand for money curve in Belgium.

Correct AnswerverifiedShow Answer

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-Use the figure above to answer this question. Suppose the economy is operating at point a. A move to could be explained by .

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The statement is False. Credit cards are...
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The statement is incorrect. If...
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An open market operation occurs when buys or sells securities .

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