Question 1

The ratio of the money supply to the monetary base is called the:

Accepted Answer

A) currency-deposit ratio. 
B) reserve-deposit ratio. 
C) high-powered money. 
D) money multiplier. 
A) currency-deposit ratio. 
B) reserve-deposit ratio. 
C) high-powered money. 
D) money multiplier.

Question 2

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

Accepted Answer

A) accept deposits. 
B) make loans. 
C) hold reserves. 
D) exchange currency for deposits. 
A) accept deposits. 
B) make loans. 
C) hold reserves. 
D) exchange currency for deposits.

Question 3

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

Accepted Answer

A) increases by $100. 
B) decreases by $100. 
C) increases by more than $100. 
D) remains the same. 
A) increases by $100. 
B) decreases by $100. 
C) increases by more than $100. 
D) remains the same.

Question 4

The size of monetary base is determined by:

Accepted Answer

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

Question 5

In the Baumol-Tobin theory of the transactions demand for money, the number of trips to the bank will:

Accepted Answer

A) increase as the interest rate decreases. 
B) increase as the interest rate increases. 
C) decrease as expenditure increases. 
D) increase as wealth increases. 
A) increase as the interest rate decreases. 
B) increase as the interest rate increases. 
C) decrease as expenditure increases. 
D) increase as wealth increases.

Question 6

If the reserve-deposit ratio is less than 1, and the monetary base increases by $1 million, then the money supply will:

Accepted Answer

A) increase by $1 million. 
B) decrease by $1 million. 
C) increase by more than $1 million. 
D) decrease by more than $1 million. 
A) increase by $1 million. 
B) decrease by $1 million. 
C) increase by more than $1 million. 
D) decrease by more than $1 million.

Question 7

When the Fed decreases reserve requirements, if the ratio of currency to deposits decreases also while the monetary base 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 two changes exactly offset each other. 
A) it cannot be determined whether the money supply increases or decreases. 
B) the money supply increases. 
C) the money supply decreases. 
D) the two changes exactly offset each other.

Question 8

$$\begin{array}{l}
\text { Table: Bank Balance Sheet }\
\begin{array} { l r l r } 
\hline \text { Assets } & & { \text { Liabilities \& Net Worth } } \
\hline \text { Reserves } & \$ 10,000 & \text { Deposits } & \$ 100,000 \
\text { Loans } & 100,000 & \text { Debt } & 20,000 \
\text { Securities } & 40,000 & \text { Equity } & 30,000
\end{array}
\end{array}$$ Reference: Ref 19-1
 
(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by percent.

Accepted Answer

A) 10 
B) 20 
C) 30 
D) 40 
A) 10 
B) 20 
C) 30 
D) 40

Question 9

In 2008 and 2009, the U.S. Treasury put public funds in some banks in an attempt to restore bank lending to more normal levels. This infusion of funds initially increased what item on the banks' balance sheets?

Accepted Answer

A) capital 
B) loans 
C) securities 
D) deposits 
A) capital 
B) loans 
C) securities 
D) deposits

Question 10

Portfolio theories of the demand for money are based on money's function as a , while transaction theories of the demand for money are based on money's function as a .

Accepted Answer

A) medium of exchange; store of value 
B) medium of exchange; unit of account 
C) store of value; medium of exchange 
D) store of value; unit of account 
A) medium of exchange; store of value 
B) medium of exchange; unit of account 
C) store of value; medium of exchange 
D) store of value; unit of account

Question 11

The banking system creates:

Accepted Answer

A) liquidity. 
B) wealth. 
C) reserves. 
D) currency. 
A) liquidity. 
B) wealth. 
C) reserves. 
D) currency.

Question 12

In the Baumol-Tobin model, the benefit of holding money is:

Accepted Answer

A) the interest forgone. 
B) convenience. 
C) the lower risk and higher return compared to other assets. 
D) the interest elasticity of money demand. 
A) the interest forgone. 
B) convenience. 
C) the lower risk and higher return compared to other assets. 
D) the interest elasticity of money demand.

Question 13

Portfolio theories of money demand emphasize the role of money as a:

Accepted Answer

A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) standard for making deferred payments. 
A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) standard for making deferred payments.

Question 14

According to the Baumol-Tobin demand for money:
a. if interest rates increase by 5 percent, what happens to the demand for money? (Give a specific numerical answer.)
b. if income increases by 5 percent, what happens to money demand? (Give a specific numerical answer.)
c. how does the inability of people to make fractional trips to the bank (e.g., one-half of a trip) alter the predicted income and interest rate elasticities?

Accepted Answer

a. Money demand is predicted to decrease

Question 15

The only tax that those in the underground economy probably cannot evade is the:

Accepted Answer

A) personal income tax. 
B) sales tax. 
C) inflation tax. 
D) corporate income tax. 
A) personal income tax. 
B) sales tax. 
C) inflation tax. 
D) corporate income tax.

Question 16

Some nonmonetary assets are called near money because they:

Accepted Answer

A) are controlled by the Federal Reserve. 
B) earn about the same interest rate as money. 
C) have nearly the same liquidity as money. 
D) generate the same velocity as money. 
A) are controlled by the Federal Reserve. 
B) earn about the same interest rate as money. 
C) have nearly the same liquidity as money. 
D) generate the same velocity as money.

Question 17

Transaction theories of money demand emphasize the role of money as a:

Accepted Answer

A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) standard for making deferred payments. 
A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) standard for making deferred payments.

Question 18

Some economists have advocated replacing government deposit insurance with 100-percent- reserve banking. Under this plan, banks would hold all deposits as reserves. Deposit insurance would no longer be necessary, because banks would always have the reserves to meet customer withdrawals.
a. What would happen to the money supply (defined as currency and bank deposits) in the transition from fractional reserve to 100-percent reserve, if this plan were implemented, holding other factors constant?
b.What will be the value of the money multiplier?

Accepted Answer

a.In the process of moving from fraction

Question 19

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

Accepted Answer

A) fell; fell 
B) fell; rose 
C) rose; fell 
D) rose; rose 
A) fell; fell 
B) fell; rose 
C) rose; fell 
D) rose; rose

Question 20

$$\text { Question }$$ In the portfolio theory of money demand, all of the following economic factors play a direct role except:

Accepted Answer

A) the expected real return on stock. 
B) the expected inflation rate. 
C) the unemployment rate. 
D) wealth. 
A) the expected real return on stock. 
B) the expected inflation rate. 
C) the unemployment rate. 
D) wealth.

The ratio of the money supply to the monetary base is called the:

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

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

The size of monetary base is determined by:

In the Baumol-Tobin theory of the transactions demand for money, the number of trips to the bank will:

If the reserve-deposit ratio is less than 1, and the monetary base increases by $1 million, then the money supply will:

When the Fed decreases reserve requirements, if the ratio of currency to deposits decreases also while the monetary base is constant, then:

In 2008 and 2009, the U.S. Treasury put public funds in some banks in an attempt to restore bank lending to more normal levels. This infusion of funds initially increased what item on the banks' balance sheets?

Portfolio theories of the demand for money are based on money's function as a , while transaction theories of the demand for money are based on money's function as a .

The banking system creates:

In the Baumol-Tobin model, the benefit of holding money is:

Portfolio theories of money demand emphasize the role of money as a:

The only tax that those in the underground economy probably cannot evade is the:

Some nonmonetary assets are called near money because they:

Transaction theories of money demand emphasize the role of money as a:

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

$\text { Question }$ In the portfolio theory of money demand, all of the following economic factors play a direct role except:

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 ratio of the money supply to the monetary base is called the:

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

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

The size of monetary base is determined by:

In the Baumol-Tobin theory of the transactions demand for money, the number of trips to the bank will:

If the reserve-deposit ratio is less than 1, and the monetary base increases by $1 million, then the money supply will:

When the Fed decreases reserve requirements, if the ratio of currency to deposits decreases also while the monetary base is constant, then:

In 2008 and 2009, the U.S. Treasury put public funds in some banks in an attempt to restore bank lending to more normal levels. This infusion of funds initially increased what item on the banks' balance sheets?

Portfolio theories of the demand for money are based on money's function as a , while transaction theories of the demand for money are based on money's function as a .

The banking system creates:

In the Baumol-Tobin model, the benefit of holding money is:

Portfolio theories of money demand emphasize the role of money as a:

The only tax that those in the underground economy probably cannot evade is the:

Some nonmonetary assets are called near money because they:

Transaction theories of money demand emphasize the role of money as a:

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base and the currency-deposit and reserve-deposit ratios both .

Question \text { Question } Question In the portfolio theory of money demand, all of the following economic factors play a direct role except:

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

$\text { Question }$ In the portfolio theory of money demand, all of the following economic factors play a direct role except: