Question 1

The definition of M2 includes

Accepted Answer

A)   time deposits.
B)   savings deposits.
C)   M1.
D)   all of the aboveE) None of the above
F) A) and D)

Question 2

Which of the following is NOT included in the M1 definition of money?

Accepted Answer

A)   checking deposits at savings and loans
B)   currency held outside banks
C)   time deposits
D)   traveler's checksE) All of the above
F) A) and B)

Question 3

Modern U.S. commercial banks perform all of the following functions EXCEPT

Accepted Answer

A)   make loans to households and business firms.
B)   issue paper currency.
C)   accept checking deposits.
D)   accept savings deposits.E) A) and B)
F) A) and C)

Question 4

Commercial banks do not

Accepted Answer

A)   make loans to creditworthy individuals and businesses.
B)   buy U.S. government Treasury bills.
C)   determine what assets are money.
D)   accept deposits from their customers.E) B) and C)
F) A) and D)

Question 5

The change in the quantity of money divided by the change in the monetary base is called the
Multiplier.

Accepted Answer

A)   monetary policy
B)   monetary base
C)   money
D)   depositE) A) and C)
F) C) and D)

Question 6

A highly liquid asset

Accepted Answer

A)   is highly leveraged.
B)   has high transaction costs associated with its sale.
C)   generally has a very limited market for its resale.
D)   can be converted into a means of payment easily without loss of value.E) C) and D)
F) A) and B)

Question 7

When the quantity of money demanded is greater than the quantity of money supplied, people
Bonds and the interest rate .

Accepted Answer

A)   sell; rises
B)   buy; rises
C)   buy; falls
D)   sell; fallsE) C) and D)
F) B) and D)

Question 8

A decrease in decreases the demand for money.

Accepted Answer

A)   the interest rate
B)   the discount rate
C)   the quantity of money
D)   real GDPE) A) and D)
F) A) and C)

Question 9

An open market operation involves

Accepted Answer

A)   raising the debt limit of the United States.
B)   the issuance of new corporate stock.
C)   the Federal Reserve's purchase or sale of government securities.
D)   changing federal income tax rates.E) B) and D)
F) A) and C)

Question 10

Assuming velocity is constant, a 10 percent increase in the quantity of money leads to a 10 percent increase in nominal GDP in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 11

List and discuss the four economic functions that depository institutions provide their customers.

Accepted Answer

Depository institutions create liquidity...

Question 12

Liquidity is the same as

Accepted Answer

A)   easy conversion of money to an asset, allowing for loss of value.
B)   easy conversion of an asset to a means of payment, with little or no loss of value.
C)   diversification of an investor's store of value.
D)   easy conversion of an asset to a means of payment, allowing for loss of value.E) All of the above
F) B) and C)

Question 13

According to the quantity theory of money, what is the effect of an increase in the quantity of money?

Accepted Answer

According to the quantity theo...

Question 14

_ in the desired reserve ratio will the money multiplier.

Accepted Answer

A)   A decrease; will have no effect on
B)   An increase; decrease
C)   An increase; have no effect on
D)   A decrease; decreaseE) A) and C)
F) B) and D)

Question 15

International data supports the quantity theory of money conclusion that high money growth rates are associated with inflation.

Accepted Answer

A) True 
 B)False

Question 16

Most of the day- to- day power in monetary policy decisions lies with

Accepted Answer

A)   the Senate Banking Committee
B)   the President of the United States
C)   the chairman of the Board of Governors
D)   large commercial banksE) B) and C)
F) A) and D)

Question 17

Liquidity is the

Accepted Answer

A)   ease with which an asset can be converted into a means of payment with little loss of value.
B)   degree to which an asset acts as money without a loss of value.
C)   ease with which credit cards are accepted as a means of payment.
D)   degree to which money can be converted into an asset with little loss of value.E) A) and C)
F) B) and C)

Question 18

For a commercial bank, the term "reserves" refers to

Accepted Answer

A)   a banker's concern ("reservation")  in making loans to an individual without a job.
B)   the net interest that it earns on loans.
C)   the profit that the bank retains at the end of the year.
D)   the cash in its vaults and its deposits at the Federal Reserve.E) B) and D)
F) B) and C)

Question 19

Suppose the money growth rate is 3 percent, velocity is constant, and real GDP is growing at 2 percent. What is the inflation rate?

Accepted Answer

A)   6 percent
B)   3 percent
C)   1 percent
D)   5 percentE) None of the above
F) A) and B)

Question 20

An increase in the interest rate creates a _ the money demand curve, and an increase in real GDP creates a the money demand curve.

Accepted Answer

A)   movement down along; leftward shift of
B)   rightward shift of; movement up along
C)   leftward shift of; rightward shift of
D)   movement up along; rightward shift ofE) A) and B)
F) A) and C)

Exam 8: Money, the Price Level, and Inflation

The change in the quantity of money divided by the change in the monetary base is called the Multiplier.

Correct AnswerverifiedShow Answer

When the quantity of money demanded is greater than the quantity of money supplied, people Bonds and the interest rate .

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An increase in the interest rate creates a _ the money demand curve, and an increase in real GDP creates a the money demand curve.

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Liquidity is the same as

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An open market operation involves

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Suppose the money growth rate is 3 percent, velocity is constant, and real GDP is growing at 2 percent. What is the inflation rate?

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For a commercial bank, the term "reserves" refers to

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A decrease in decreases the demand for money.

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List and discuss the four economic functions that depository institutions provide their customers.

Correct AnswerverifiedDepository institutions create liquidity...View AnswerShow Answer

A highly liquid asset

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According to the quantity theory of money, what is the effect of an increase in the quantity of money?

Correct AnswerverifiedAccording to the quantity theo...View AnswerShow Answer

Modern U.S. commercial banks perform all of the following functions EXCEPT

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Most of the day- to- day power in monetary policy decisions lies with

Correct AnswerverifiedShow Answer

Assuming velocity is constant, a 10 percent increase in the quantity of money leads to a 10 percent increase in nominal GDP in both the short run and the long run.

Correct AnswerverifiedShow Answer

Liquidity is the

Correct AnswerverifiedShow Answer

International data supports the quantity theory of money conclusion that high money growth rates are associated with inflation.

Correct AnswerverifiedShow Answer

Which of the following is NOT included in the M1 definition of money?

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_ in the desired reserve ratio will the money multiplier.

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Commercial banks do not

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The definition of M2 includes

Correct AnswerverifiedShow Answer

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Depository institutions create liquidity...
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According to the quantity theo...
View Answer

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