Question 1

Banks create money whenever they

Accepted Answer

A)  accept a deposit. 
B)  lend unplanned reserves to a borrower. 
C)  receive monthly payments on their loans. 
D)  receive interest on existing loans. 
A)  accept a deposit. 
B)  lend unplanned reserves to a borrower. 
C)  receive monthly payments on their loans. 
D)  receive interest on existing loans.

Question 2

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have ________ of desired reserves and ________ of unplanned reserves.

Accepted Answer

A)  $600,000; $0 
B)  $400,000; $200,000 
C)  $400,000; $600,000 
D)  $600,000; $200,000 
A)  $600,000; $0 
B)  $400,000; $200,000 
C)  $400,000; $600,000 
D)  $600,000; $200,000

Question 3

Which of the following explains why a bank holds reserves?
I. Banks are required by law to hold reserves.
II. To meet depositors' currency withdrawals
III. To use them to make loans to households

Accepted Answer

A)  I only 
B)  II only 
C)  I and II 
D)  I, II, and III 
E)  I and III 
A)  I only 
B)  II only 
C)  I and II 
D)  I, II, and III 
E)  I and III

Question 4

The Federal Reserve System is the

Accepted Answer

A)  insurance agency that insures deposits. 
B)  central bank of the United States. 
C)  law enforcement agency that tracks counterfeit money. 
D)  federal government agency that undertakes deregulation for depository institutions. 
A)  insurance agency that insures deposits. 
B)  central bank of the United States. 
C)  law enforcement agency that tracks counterfeit money. 
D)  federal government agency that undertakes deregulation for depository institutions.

Question 5

The required reserve ratio is the ratio of reserves to ________ required by banking regulations.

Accepted Answer

A)  deposits 
B)  loans 
C)  profits 
D)  currency 
A)  deposits 
B)  loans 
C)  profits 
D)  currency

Question 6

Which of the following best describes the chain of events in the money creation process?

Accepted Answer

A)  The monetary base increases. Banks acquire unplanned reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional unplanned reserves. 
B)  Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. 
C)  Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. 
D)  Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money. 
A)  The monetary base increases. Banks acquire unplanned reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional unplanned reserves. 
B)  Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. 
C)  Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. 
D)  Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money.

Question 7

"When the Fed buys securities from a bank, the quantity of money eventually decreases by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer.

Accepted Answer

The statement is wrong on two counts. Fi

Question 8

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 unplanned reserves 
B)  $200 
C)  $50 
D)  $850 
A)  zero, because Bank A has no unplanned reserves 
B)  $200 
C)  $50 
D)  $850

Question 9

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

Question 10

An asset category that caries the highest interest rate is

Accepted Answer

A)  checkable deposit accounts. 
B)  loans. 
C)  cash in the bank vault. 
D)  savings deposits. 
A)  checkable deposit accounts. 
B)  loans. 
C)  cash in the bank vault. 
D)  savings deposits.

Question 11

What assets are included in M1? In M2? Is all of M1 and M2 money? If some assets of M1 or M2 are not money, why are they included in M1 or M2?

Accepted Answer

M1 is the sum of currency outside of the

Question 12

How has growth in M2 minus the growth in real GDP compared to the inflation rate in the United States?

Accepted Answer

Since 1960, M2 growth minus the growth i

Question 13

In a barter system, we would see

Accepted Answer

A)  many different units of money. 
B)  money and goods exchanged for each other. 
C)  wide-spread depository institutions. 
D)  goods traded directly for other goods and services. 
A)  many different units of money. 
B)  money and goods exchanged for each other. 
C)  wide-spread depository institutions. 
D)  goods traded directly for other goods and services.

Question 14

In comparing growth rates of money growth and inflation across countries, the long-run proposition of the quantity theory of money is supported.

Accepted Answer

A) True 
 B)False

Question 15

Financial innovation is

Accepted Answer

A)  the process of turning assets into a more liquid form. 
B)  the development of new financial products and services. 
C)  responsible for credit cards being included as part of money. 
D)  causing a decrease in bank profits. 
A)  the process of turning assets into a more liquid form. 
B)  the development of new financial products and services. 
C)  responsible for credit cards being included as part of money. 
D)  causing a decrease in bank profits.

Question 16

Changing which of the following is a Federal Reserve monetary policy tool?

Accepted Answer

A)  required reserve ratios 
B)  desired reserve ratios 
C)  excess reserve ratios. 
D)  gold and foreign reserve ratios 
A)  required reserve ratios 
B)  desired reserve ratios 
C)  excess reserve ratios. 
D)  gold and foreign reserve ratios

Question 17

If the interest rate is above the equilibrium interest rate, then

Accepted Answer

A)  there is an excess demand for money. 
B)  the quantity of money demanded exceeds the quantity supplied. 
C)  people will sell bonds and the interest rate will fall. 
D)  people will buy bonds and the interest rate will fall. 
A)  there is an excess demand for money. 
B)  the quantity of money demanded exceeds the quantity supplied. 
C)  people will sell bonds and the interest rate will fall. 
D)  people will buy bonds and the interest rate will fall.

Question 18

The higher the nominal interest rate, the

Accepted Answer

A)  greater the opportunity cost of holding money. 
B)  lower the quantity of money demanded. 
C)  more the demand for money curve shifts leftward. 
D)  Both answers A and B are correct. 
A)  greater the opportunity cost of holding money. 
B)  lower the quantity of money demanded. 
C)  more the demand for money curve shifts leftward. 
D)  Both answers A and B are correct.

Question 19

The First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves?

Accepted Answer

Reserves include the bank's de

Question 20

Checks are NOT money because they

Accepted Answer

A)  are issued by banks, not by the government. 
B)  are merely instructions to transfer money. 
C)  have value in exchange but little intrinsic value. 
D)  are not backed by either gold or silver. 
A)  are issued by banks, not by the government. 
B)  are merely instructions to transfer money. 
C)  have value in exchange but little intrinsic value. 
D)  are not backed by either gold or silver.

Banks create money whenever they

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have of desired reserves and of unplanned reserves.

Which of the following explains why a bank holds reserves? I. Banks are required by law to hold reserves. II. To meet depositors' currency withdrawals III. To use them to make loans to households

The Federal Reserve System is the

The required reserve ratio is the ratio of reserves to ________ required by banking regulations.

Which of the following best describes the chain of events in the money creation process?

"When the Fed buys securities from a bank, the quantity of money eventually decreases by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer.

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?

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.

An asset category that caries the highest interest rate is

What assets are included in M1? In M2? Is all of M1 and M2 money? If some assets of M1 or M2 are not money, why are they included in M1 or M2?

How has growth in M2 minus the growth in real GDP compared to the inflation rate in the United States?

In a barter system, we would see

In comparing growth rates of money growth and inflation across countries, the long-run proposition of the quantity theory of money is supported.

Financial innovation is

Changing which of the following is a Federal Reserve monetary policy tool?

If the interest rate is above the equilibrium interest rate, then

The higher the nominal interest rate, the

The First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves?

Checks are NOT money because they

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 8: Money, the Price Level, and Inflation

Banks create money whenever they

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have ________ of desired reserves and ________ of unplanned reserves.

Which of the following explains why a bank holds reserves? I. Banks are required by law to hold reserves. II. To meet depositors' currency withdrawals III. To use them to make loans to households

The Federal Reserve System is the

The required reserve ratio is the ratio of reserves to ________ required by banking regulations.

Which of the following best describes the chain of events in the money creation process?

"When the Fed buys securities from a bank, the quantity of money eventually decreases by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer.

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?

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.

An asset category that caries the highest interest rate is

What assets are included in M1? In M2? Is all of M1 and M2 money? If some assets of M1 or M2 are not money, why are they included in M1 or M2?

How has growth in M2 minus the growth in real GDP compared to the inflation rate in the United States?

In a barter system, we would see

In comparing growth rates of money growth and inflation across countries, the long-run proposition of the quantity theory of money is supported.

Financial innovation is

Changing which of the following is a Federal Reserve monetary policy tool?

If the interest rate is above the equilibrium interest rate, then

The higher the nominal interest rate, the

The First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves?

Checks are NOT money because they

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have of desired reserves and of unplanned reserves.