Question 1

If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then:

Accepted Answer

A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen. 
B) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had fallen. 
C) the money supply would fall more than it would have fallen if the reserve-deposit ratio had 
D) risen. it is impossible to be certain whether the money supply would fall or rise in this case. 
A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen. 
B) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had fallen. 
C) the money supply would fall more than it would have fallen if the reserve-deposit ratio had 
D) risen. it is impossible to be certain whether the money supply would fall or rise in this case.

Question 2

According to the Baumol-Tobin model, an increase in the interest rate the demand for money, and an increase in expenditures the demand for money.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 3

The currency-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) .

Question 4

The minimum amount of owner's equity in a bank mandated by regulators is called a requirement.

Accepted Answer

A) reserve 
B) margin 
C) liquidity 
D) capital 
A) reserve 
B) margin 
C) liquidity 
D) capital

Question 5

When the Federal Reserve conducts an open market purchase, it buys bonds from the:

Accepted Answer

A) public. 
B) U.S. Treasury. 
C) Internal Revenue Service. 
D) International Monetary Fund. 
A) public. 
B) U.S. Treasury. 
C) Internal Revenue Service. 
D) International Monetary Fund.

Question 6

Bank reserves equal:

Accepted Answer

A) gold kept in bank vaults. 
B) gold kept at the central bank. 
C) currency plus demand deposits. 
D) deposits that banks have received but have not lent out. 
A) gold kept in bank vaults. 
B) gold kept at the central bank. 
C) currency plus demand deposits. 
D) deposits that banks have received but have not lent out.

Question 7

In the Baumol-Tobin model, if the nominal interest rate is 0.05, the cost of trips to the bank is $12, and expenditures equals $48,000, then average money holdings equal:

Accepted Answer

A) $980. 
B) $2,400. 
C) $3,394. 
D) $4,000. 
A) $980. 
B) $2,400. 
C) $3,394. 
D) $4,000.

Question 8

Banks create money in:

Accepted Answer

A) a 100-percent-reserve banking system but not in a fractional-reserve banking system. 
B) a fractional-reserve banking system but not in a 100-percent-reserve banking system. 
C) both a 100-percent-reserve banking system and a fractional-reserve banking system. 
D) neither a 100-percent-reserve banking system nor a fractional-reserve banking system. 
A) a 100-percent-reserve banking system but not in a fractional-reserve banking system. 
B) a fractional-reserve banking system but not in a 100-percent-reserve banking system. 
C) both a 100-percent-reserve banking system and a fractional-reserve banking system. 
D) neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

Question 9

A shortage of bank capital in 2008 and 2009 led to:

Accepted Answer

A) decreased money demand. 
B) decreased bank lending. 
C) increased interest rates. 
D) increased reserve requirements. 
A) decreased money demand. 
B) decreased bank lending. 
C) increased interest rates. 
D) increased reserve requirements.

Question 10

If the Federal Reserve wishes to increase the money supply, it should:

Accepted Answer

A) decrease the discount rate. 
B) increase reserve requirements. 
C) sell government bonds. 
D) decrease the monetary base. 
A) decrease the discount rate. 
B) increase reserve requirements. 
C) sell government bonds. 
D) decrease the monetary base.

Question 11

In a system with fractional-reserve banking:

Accepted Answer

A) all banks must hold reserves equal to a fraction of their loans. 
B) no banks can make loans. 
C) the banking system completely controls the size of the money supply. 
D) all banks must hold reserves equal to a fraction of their deposits. 
A) all banks must hold reserves equal to a fraction of their loans. 
B) no banks can make loans. 
C) the banking system completely controls the size of the money supply. 
D) all banks must hold reserves equal to a fraction of their deposits.

Question 12

If many banks fail, this is likely to:

Accepted Answer

A) increase the ratio of currency to deposits. 
B) decrease the ratio of currency to deposits. 
C) have no effect on the ratio of currency to deposits. 
D) decrease the amount of currency in circulation, if the Fed takes no action. 
A) increase the ratio of currency to deposits. 
B) decrease the ratio of currency to deposits. 
C) have no effect on the ratio of currency to deposits. 
D) decrease the amount of currency in circulation, if the Fed takes no action.

Question 13

In the Baumol-Tobin model, the optimal number of trips to the bank is determined by minimizing the total costs of holding money that are the:

Accepted Answer

A) forgone interest. 
B) costs of trips to the bank. 
C) forgone interest plus the costs of trips to the bank. 
D) costs of trips to the bank minus the forgone interest. 
A) forgone interest. 
B) costs of trips to the bank. 
C) forgone interest plus the costs of trips to the bank. 
D) costs of trips to the bank minus the forgone interest.

Question 14

Traditionally, monetary assets differ from nonmonetary assets because only monetary assets:

Accepted Answer

A) earn interest. 
B) serve as a store of value. 
C) serve as a medium of exchange. 
D) are held by the public. 
A) earn interest. 
B) serve as a store of value. 
C) serve as a medium of exchange. 
D) are held by the public.

Question 15

Compare the portfolio approach to the demand for money and the transaction approach to the demand for money. a. On which function of money does each approach focus?
b. Which measures of money are most suited to the approach?
c. What variables are important in determining money demand?

Accepted Answer

a. Portfolio approaches emphasize money

Question 16

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) 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 17

If the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

Accepted Answer

A) reserves divided by rr. 
B) 1/rr. 
C) reserves times rr. 
D) reserves divided by (1 - rr). 
A) reserves divided by rr. 
B) 1/rr. 
C) reserves times rr. 
D) reserves divided by (1 - rr).

Question 18

According to the Baumol-Tobin model, the demand for money will increase if:

Accepted Answer

A) automatic teller machines become more readily available. 
B) Internet banking becomes widely available. 
C) bank service charges increase. 
D) real wages decrease. 
A) automatic teller machines become more readily available. 
B) Internet banking becomes widely available. 
C) bank service charges increase. 
D) real wages decrease.

Question 19

One factor contributing to the increased instability of money demand is:

Accepted Answer

A) targeting the federal funds rate. 
B) the increased instability of the monetary base. 
C) the existence of near monies. 
D) more frequent open-market purchases. 
A) targeting the federal funds rate. 
B) the increased instability of the monetary base. 
C) the existence of near monies. 
D) more frequent open-market purchases.

Question 20

According to the Baumol-Tobin model, an increase in the fixed costs of going to the bank will the demand for money.

Accepted Answer

A) increase 
B) decrease 
C) not change 
D) possibly increase or decrease 
A) increase 
B) decrease 
C) not change 
D) possibly increase or decrease

If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then:

According to the Baumol-Tobin model, an increase in the interest rate the demand for money, and an increase in expenditures the demand for money.

The currency-deposit ratio is determined by:

The minimum amount of owner's equity in a bank mandated by regulators is called a requirement.

When the Federal Reserve conducts an open market purchase, it buys bonds from the:

Bank reserves equal:

In the Baumol-Tobin model, if the nominal interest rate is 0.05, the cost of trips to the bank is $12, and expenditures equals $48,000, then average money holdings equal:

Banks create money in:

A shortage of bank capital in 2008 and 2009 led to:

If the Federal Reserve wishes to increase the money supply, it should:

In a system with fractional-reserve banking:

If many banks fail, this is likely to:

In the Baumol-Tobin model, the optimal number of trips to the bank is determined by minimizing the total costs of holding money that are the:

Traditionally, monetary assets differ from nonmonetary assets because only monetary assets:

Compare the portfolio approach to the demand for money and the transaction approach to the demand for money. a. On which function of money does each approach focus? b. Which measures of money are most suited to the approach? c. What variables are important in determining money demand?

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

If the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

According to the Baumol-Tobin model, the demand for money will increase if:

One factor contributing to the increased instability of money demand is:

According to the Baumol-Tobin model, an increase in the fixed costs of going to the bank will the demand for money.

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

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Exam 19: A Macroeconomic Theory of the Open Economy

If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then:

According to the Baumol-Tobin model, an increase in the interest rate the demand for money, and an increase in expenditures the demand for money.

The currency-deposit ratio is determined by:

The minimum amount of owner's equity in a bank mandated by regulators is called a requirement.

When the Federal Reserve conducts an open market purchase, it buys bonds from the:

Bank reserves equal:

In the Baumol-Tobin model, if the nominal interest rate is 0.05, the cost of trips to the bank is $12, and expenditures equals $48,000, then average money holdings equal:

Banks create money in:

A shortage of bank capital in 2008 and 2009 led to:

If the Federal Reserve wishes to increase the money supply, it should:

In a system with fractional-reserve banking:

If many banks fail, this is likely to:

In the Baumol-Tobin model, the optimal number of trips to the bank is determined by minimizing the total costs of holding money that are the:

Traditionally, monetary assets differ from nonmonetary assets because only monetary assets:

Compare the portfolio approach to the demand for money and the transaction approach to the demand for money. a. On which function of money does each approach focus? b. Which measures of money are most suited to the approach? c. What variables are important in determining money demand?

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

If the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

According to the Baumol-Tobin model, the demand for money will increase if:

One factor contributing to the increased instability of money demand is:

According to the Baumol-Tobin model, an increase in the fixed costs of going to the bank will the demand for money.

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