Question 1

Financial markets increase the volume of saving and investment by

Accepted Answer

A)  storing large quantities of cash. 
B)  reducing the velocity of money. 
C)  providing savers a variety of ways to lend to borrowers. 
D)  maintaining low interest rates. 
A)  storing large quantities of cash. 
B)  reducing the velocity of money. 
C)  providing savers a variety of ways to lend to borrowers. 
D)  maintaining low interest rates.

Question 2

The rate at which money turns over is the definition of

Accepted Answer

A)  velocity. 
B)  liquidity. 
C)  GDP. 
D)  aggregate demand. 
A)  velocity. 
B)  liquidity. 
C)  GDP. 
D)  aggregate demand.

Question 3

The country of Zamula is currently experiencing conditions of full employment and capacity output. Which of the following is incorrect?

Accepted Answer

A)  Increases in the money supply by the central bank of Zamula become more and more likely to generate rising prices. 
B)  Real economic growth in Zamula is likely to increase. 
C)  Inflation will result in Zamula if the increase in the money supply is exactly large enough to provide funds for the enlarged volume of transactions. 
D)  All of the above are true. 
A)  Increases in the money supply by the central bank of Zamula become more and more likely to generate rising prices. 
B)  Real economic growth in Zamula is likely to increase. 
C)  Inflation will result in Zamula if the increase in the money supply is exactly large enough to provide funds for the enlarged volume of transactions. 
D)  All of the above are true.

Question 4

In a barter economy, the only way people can invest is if

Accepted Answer

A)  consumption is positive. 
B)  there is inflation. 
C)  they save by acquiring goods directly. 
D)  money is introduced. 
A)  consumption is positive. 
B)  there is inflation. 
C)  they save by acquiring goods directly. 
D)  money is introduced.

Question 5

The interest rate charged on overnight loans between banks is the

Accepted Answer

A)  discount rate. 
B)  federal funds rate. 
C)  Treasury bill rate. 
D)  prime rate. 
A)  discount rate. 
B)  federal funds rate. 
C)  Treasury bill rate. 
D)  prime rate.

Question 6

The __________ measure of money is the only definition of money that is generally accepted as a means for payment.

Accepted Answer

A)  M1 
B)  M2 
C)  M3 
D)  M4 
A)  M1 
B)  M2 
C)  M3 
D)  M4

Question 7

Parker bank is fully loaned up. Which of the following is not an option Parker has to obtain additional reserves?

Accepted Answer

A)  Call in loans 
B)  Buy securities 
C)  Sell securities 
D)  Borrow through the federal funds market 
A)  Call in loans 
B)  Buy securities 
C)  Sell securities 
D)  Borrow through the federal funds market

Question 8

Which of the following is not included in M2?

Accepted Answer

A)  Bank repurchase agreements 
B)  Savings deposits 
C)  Travelers' checks 
D)  Small-denomination time deposits 
A)  Bank repurchase agreements 
B)  Savings deposits 
C)  Travelers' checks 
D)  Small-denomination time deposits

Question 9

A bank is fully loaned up when it has no

Accepted Answer

A)  capital. 
B)  reserves. 
C)  excess reserves. 
D)  vault cash. 
A)  capital. 
B)  reserves. 
C)  excess reserves. 
D)  vault cash.

Question 10

A difference between M2 and M3 measures of the money supply is that M3 includes

Accepted Answer

A)  bank repurchase agreements. 
B)  retail money market mutual fund shares. 
C)  demand deposits at banks. 
D)  NOW accounts. 
A)  bank repurchase agreements. 
B)  retail money market mutual fund shares. 
C)  demand deposits at banks. 
D)  NOW accounts.

Question 11

A necessary but not sufficient condition for the continuation of inflation is

Accepted Answer

A)  an expanding money supply. 
B)  increasing government deficits. 
C)  rising interest rates. 
D)  decreasing velocity. 
A)  an expanding money supply. 
B)  increasing government deficits. 
C)  rising interest rates. 
D)  decreasing velocity.

Question 12

The value of money __________ the price level.

Accepted Answer

A)  is the same as 
B)  varies positively with 
C)  varies inversely with 
D)  None of the above. 
A)  is the same as 
B)  varies positively with 
C)  varies inversely with 
D)  None of the above.

Question 13

A highly liquid asset is one that

Accepted Answer

A)  loses its value. 
B)  appreciates over time. 
C)  can be quickly turned into the medium of exchange without loss. 
D)  cannot be used in financial transactions. 
A)  loses its value. 
B)  appreciates over time. 
C)  can be quickly turned into the medium of exchange without loss. 
D)  cannot be used in financial transactions.

Question 14

During the 1930s, the money supply increased 35 percent while consumer prices

Accepted Answer

A)  rose 70 percent. 
B)  also rose 35 percent. 
C)  were virtually unchanged. 
D)  fell 20 percent. 
A)  rose 70 percent. 
B)  also rose 35 percent. 
C)  were virtually unchanged. 
D)  fell 20 percent.

Question 15

A bank can make new loans as long as it has

Accepted Answer

A)  excess reserves. 
B)  required reserves. 
C)  reserves. 
D)  capital. 
A)  excess reserves. 
B)  required reserves. 
C)  reserves. 
D)  capital.

Question 16

If the money supply is $1 trillion and the velocity of money is 5.0, nominal GDP is __________.

Accepted Answer

A)  $200 billion 
B)  $5 trillion 
C)  $500 billion 
D)  Cannot be determined from the information given. 
A)  $200 billion 
B)  $5 trillion 
C)  $500 billion 
D)  Cannot be determined from the information given.

Question 17

If people lost confidence in the medium of exchange, the likely result would be

Accepted Answer

A)  inflation. 
B)  increased barter activity. 
C)  increased financial intermediation. 
D)  no more transactions taking place. 
A)  inflation. 
B)  increased barter activity. 
C)  increased financial intermediation. 
D)  no more transactions taking place.

Question 18

In the United States, currency is

Accepted Answer

A)  backed by gold. 
B)  backed by silver. 
C)  backed by nothing tangible. 
D)  a liability on the books of commercial banks. 
A)  backed by gold. 
B)  backed by silver. 
C)  backed by nothing tangible. 
D)  a liability on the books of commercial banks.

Question 19

Assume that nominal GDP is $2 trillion and the money supply is $400 billion. The velocity of money is __________.

Accepted Answer

A)  $2.4 trillion 
B)  $1.6 trillion 
C)  0.2 
D)  5.0 
A)  $2.4 trillion 
B)  $1.6 trillion 
C)  0.2 
D)  5.0

Question 20

Rising prices at a fast and furious pace is referred to as

Accepted Answer

A)  inflation. 
B)  hyperinflation. 
C)  deflation. 
D)  a recession. 
A)  inflation. 
B)  hyperinflation. 
C)  deflation. 
D)  a recession.

Exam 2: The Role of Money in the Macroeconomy

Financial markets increase the volume of saving and investment by

The rate at which money turns over is the definition of

The country of Zamula is currently experiencing conditions of full employment and capacity output. Which of the following is incorrect?

In a barter economy, the only way people can invest is if

The interest rate charged on overnight loans between banks is the

The __________ measure of money is the only definition of money that is generally accepted as a means for payment.

Parker bank is fully loaned up. Which of the following is not an option Parker has to obtain additional reserves?

Which of the following is not included in M2?

A bank is fully loaned up when it has no

A difference between M2 and M3 measures of the money supply is that M3 includes

A necessary but not sufficient condition for the continuation of inflation is

The value of money __________ the price level.

A highly liquid asset is one that

During the 1930s, the money supply increased 35 percent while consumer prices

A bank can make new loans as long as it has

If the money supply is $1 trillion and the velocity of money is 5.0, nominal GDP is __________.

If people lost confidence in the medium of exchange, the likely result would be

In the United States, currency is

Assume that nominal GDP is $2 trillion and the money supply is $400 billion. The velocity of money is __________.

Rising prices at a fast and furious pace is referred to as

Introducing Money, Banking, and Financial Markets

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

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