Question 1

The most frequently used tool of monetary policy is:

Accepted Answer

A) open-market operations. changes 
B) in the discount rate. 
C) changes in reserve requirements. 
D) changes in the money multiplier. 
A) open-market operations. changes 
B) in the discount rate. 
C) changes in reserve requirements. 
D) changes in the money multiplier. A

Question 2

As interest rates increase, people economize on their holdings of currency relative to other types of bank deposits, and banks economize on their holdings of reserves relative to deposits.
a. Using the monetary base-money multiplier framework, explain how the money supply changes as interest rates increase.
b. Graphically illustrate money supply and money demand when the nominal interest rate is on the vertical axis and the quantity of money is on the horizontal axis.

Accepted Answer

a. Higher interest rates reduce the currency-deposit ratio and the reserve-deposit ratio which increases the money multiplier. For a given monetary base, the money supply will increase as interest rates increase because the money multiplier increases with the interest rate.
b.

Question 3

The reserve-deposit ratio is determined by:

Accepted Answer

A) the Federal Reserve. 
B) business policies of banks and the laws regulating banks. 
C) preferences of households about the form of money they wish to hold. 
D) the Federal Deposit Insurance Corporation (FDI
C) . 
A) the Federal Reserve. 
B) business policies of banks and the laws regulating banks. 
C) preferences of households about the form of money they wish to hold. 
D) the Federal Deposit Insurance Corporation (FDI
C) . B

Question 4

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

Accepted Answer

A) it cannot be determined whether the money supply increases or decreases. 
B) the money supply increases. 
C) the money supply decreases. 
D) the money supply does not change. 
A) it cannot be determined whether the money supply increases or decreases. 
B) the money supply increases. 
C) the money supply decreases. 
D) the money supply does not change.

Question 5

When the Fed increases the discount rate, it:

Accepted Answer

A) increases the reserve to deposit ratio (rr). 
B) decreases the reserve to deposit ratio (rr). 
C) is likely to increase the monetary base (
B) . 
D) is likely to decrease the monetary base (
B) . 
A) increases the reserve to deposit ratio (rr). 
B) decreases the reserve to deposit ratio (rr). 
C) is likely to increase the monetary base (
B) . 
D) is likely to decrease the monetary base (
B) .

Question 6

In a fractional-reserve banking system, banks create money because:

Accepted Answer

A) each dollar of reserves generates many dollars of demand deposits. 
B) banks have the legal authority to issue new currency. 
C) funds are transferred from households wishing to save to firms wishing to borrow. 
D) the wealth of the economy expands when borrowers undertake new debt obligations. 
A) each dollar of reserves generates many dollars of demand deposits. 
B) banks have the legal authority to issue new currency. 
C) funds are transferred from households wishing to save to firms wishing to borrow. 
D) the wealth of the economy expands when borrowers undertake new debt obligations.

Question 7

Open-market operations change the ; changes in reserve requirements change the ; and changes in the discount rate change the .

Accepted Answer

A) monetary base; monetary base; monetary base 
B) money multiplier; money multiplier; money multiplier 
D) C.monetary base; money multiplier; monetary base 
D) money multiplier; monetary base; money multiplier 
A) monetary base; monetary base; monetary base 
B) money multiplier; money multiplier; money multiplier 
D) C.monetary base; money multiplier; monetary base 
D) money multiplier; monetary base; money multiplier

Question 8

Excess reserves are reserves that banks keep:

Accepted Answer

A) in their vaults. 
B) at the central bank. 
C) to meet legal reserve requirements. 
D) above the legally required amount. 
A) in their vaults. 
B) at the central bank. 
C) to meet legal reserve requirements. 
D) above the legally required amount.

Question 9

The preferences of households determine the:

Accepted Answer

A) reserve-deposit ratio. 
B) currency-deposit ratio. 
C) size of the monetary base. 
D) loan-deposit ratio. 
A) reserve-deposit ratio. 
B) currency-deposit ratio. 
C) size of the monetary base. 
D) loan-deposit ratio.

Question 10

The quantity theory of money assumes that the demand for real money balances:

Accepted Answer

A) depends on both the interest rate and income. 
B) depends only on the interest rate. 
C) is proportional to income. 
D) is proportional to the interest rate. 
A) depends on both the interest rate and income. 
B) depends only on the interest rate. 
C) is proportional to income. 
D) is proportional to the interest rate.

Question 11

The interest rate charged on loans by the Federal Reserve to banks is called the:

Accepted Answer

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

Question 12

Under the policy of interest rate targeting adopted by the Federal Reserve in the 1990s, the money supply is:

Accepted Answer

A) increased at a constant rate. 
B) decreased at a constant rate. 
C) held constant. 
D) allowed to fluctuate. 
A) increased at a constant rate. 
B) decreased at a constant rate. 
C) held constant. 
D) allowed to fluctuate.

Question 13

The monetary base consists of:

Accepted Answer

A) currency held by the public, plus reserves held by banks. 
B) all outstanding currency, plus reserves held by banks. 
C) all outstanding currency, plus demand deposits. 
D) all bank reserves. 
A) currency held by the public, plus reserves held by banks. 
B) all outstanding currency, plus reserves held by banks. 
C) all outstanding currency, plus demand deposits. 
D) all bank reserves.

Question 14

In the United States, bank reserves consist of:

Accepted Answer

A) currency and demand deposits. 
B) vault cash and deposits at the Federal Reserve. 
C) gold deposits at the Federal Reserve. 
D) the money supply. 
A) currency and demand deposits. 
B) vault cash and deposits at the Federal Reserve. 
C) gold deposits at the Federal Reserve. 
D) the money supply.

Question 15

According to portfolio theories of money demand, increases in the expected return on stock the demand for money, and increases in the expected return on bonds the demand for money.

Accepted Answer

A) increase; increase 
B) increase; 
C) decrease decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; 
C) decrease decrease; increase 
D) decrease; decrease

Question 16

The demand for money as a medium of exchange is best explained by theories of money demand, while the demand for money as a store of value is best explained by theories of money demand.

Accepted Answer

A) rational expectations; quantity 
B) quantity; rational expectations 
C) portfolio; transaction 
D) transaction; portfolio 
A) rational expectations; quantity 
B) quantity; rational expectations 
C) portfolio; transaction 
D) transaction; portfolio

Question 17

The money supply will increase if the:

Accepted Answer

A) currency-deposit ratio increases. 
B) reserve-deposit ratio increases. 
C) monetary base increases. 
D) discount rate increases. 
A) currency-deposit ratio increases. 
B) reserve-deposit ratio increases. 
C) monetary base increases. 
D) discount rate increases.

Question 18

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

Accepted Answer

A) 0.6. 
B) 1.67. 
C) 2.0. 
D) 2.5. 
A) 0.6. 
B) 1.67. 
C) 2.0. 
D) 2.5.

Question 19

In the United States, the money supply is determined:

Accepted Answer

A) only by the Fed. 
B) only by the behavior of individuals who hold money and of banks in which money is held. 
C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. 
D) according to a constant-growth-rate rule. 
A) only by the Fed. 
B) only by the behavior of individuals who hold money and of banks in which money is held. 
C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. 
D) according to a constant-growth-rate rule.

Question 20

When the Fed makes an open-market sale, it:

Accepted Answer

A) increases the money multiplier (m). 
B) increases the currency-deposit ratio 
C) (cr). increases the monetary base (
B) . 
D) decreases the monetary base (
B) . 
A) increases the money multiplier (m). 
B) increases the currency-deposit ratio 
C) (cr). increases the monetary base (
B) . 
D) decreases the monetary base (
B) .

The most frequently used tool of monetary policy is:

The reserve-deposit ratio is determined by:

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

When the Fed increases the discount rate, it:

In a fractional-reserve banking system, banks create money because:

Open-market operations change the ; changes in reserve requirements change the ; and changes in the discount rate change the .

Excess reserves are reserves that banks keep:

The preferences of households determine the:

The quantity theory of money assumes that the demand for real money balances:

The interest rate charged on loans by the Federal Reserve to banks is called the:

Under the policy of interest rate targeting adopted by the Federal Reserve in the 1990s, the money supply is:

The monetary base consists of:

In the United States, bank reserves consist of:

According to portfolio theories of money demand, increases in the expected return on stock the demand for money, and increases in the expected return on bonds the demand for money.

The demand for money as a medium of exchange is best explained by theories of money demand, while the demand for money as a store of value is best explained by theories of money demand.

The money supply will increase if the:

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

In the United States, the money supply is determined:

When the Fed makes an open-market sale, it:

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Filters

Exam 19: A Macroeconomic Theory of the Open Economy

The most frequently used tool of monetary policy is:

The reserve-deposit ratio is determined by:

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

When the Fed increases the discount rate, it:

In a fractional-reserve banking system, banks create money because:

Open-market operations change the ; changes in reserve requirements change the ; and changes in the discount rate change the .

Excess reserves are reserves that banks keep:

The preferences of households determine the:

The quantity theory of money assumes that the demand for real money balances:

The interest rate charged on loans by the Federal Reserve to banks is called the:

Under the policy of interest rate targeting adopted by the Federal Reserve in the 1990s, the money supply is:

The monetary base consists of:

In the United States, bank reserves consist of:

According to portfolio theories of money demand, increases in the expected return on stock the demand for money, and increases in the expected return on bonds the demand for money.

The demand for money as a medium of exchange is best explained by theories of money demand, while the demand for money as a store of value is best explained by theories of money demand.

The money supply will increase if the:

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

In the United States, the money supply is determined:

When the Fed makes an open-market sale, it:

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Filters