Question 1

In the economy of Brightland, the commercial banks have deposits of $600 billion. Their reserves are $60 billion. All reserves are in deposits with the Central Bank and the commercial banks hold no excess reserves. There is $120 billion in Central Bank notes outside the banks, and there are no coins.
a) What is the economyʹs monetary base?
b) What is the quantity of money in the economy?
c) Calculate the money multiplier.
d) Suppose the Central Bank of Brightland undertakes an open market purchase of securities of so that the monetary base increases by $5 billion. By how much will the quantity of money change?

Accepted Answer

a) The monetary base is the sum of Centr...

Question 2

The Federal Open Market Committee FOMC)  is composed of

Accepted Answer

A)   Presidents of 5 Federal Reserve regional banks and the Board of Governors.
B)   the Board of Governors, the Vice-President of the United States, and the Secretary of Treasury for the United States.
C)   representatives from the governors of all 50 states.
D)   the 12 Presidents of the Federal Reserve regional banks.

Question 3

What is barter? What is a double coincidence of wants? How does the existence of money affect barter?

Accepted Answer

Barter is the direct exchange of one goo...

Question 4

The monetary base is the sum of

Accepted Answer

A)   currency
B)   Federal Reserve notes, coins, and deposits of depository institutions
C)   M1 and M2
D)   currency, travelersʹ checks, and checking deposits

Question 5

Which of the following is NOT a monetary policy tool of the Federal Reserve?

Accepted Answer

A)   last resort loans
B)   deposit insurance
C)   open market operations
D)   changes in required reserves

Question 6

The table below shows data in millions)  for Sun Trust Banks in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent.
 20072008 Loans $83$78 Reserves $4$5 Deposits $114$95\begin{array} { | c | c | c | } \hline & 2007 & 2008 \\hline 	ext { Loans } & \$ 83 & \$ 78 \\hline 	ext { Reserves } & \$ 4 & \$ 5 \\hline 	ext { Deposits } & \$ 114 & \$ 95 \\hline\end{array} Loans  Reserves  Deposits ​2007$83$4$114​2008$78$5$95​​ 
The data show that Sun Trust make more loans in 2007 and make more loans in 2008.

Accepted Answer

A)   cannot; cannot.
B)   cannot; can.
C)   can; cannot.
D)   can; can.

Question 7

-In the figure above, if the interest rate is 8 percent, people demand $0.1 trillion

Accepted Answer

A)   more money than the quantity supplied and the interest rate will fall.
B)   more money than the quantity supplied and the interest rate will rise.
C)   less money than the quantity supplied and the interest rate will fall.
D)   less money than the quantity supplied and the interest rate will rise.

Question 8

-In the above figure, if the interest rate is 4 percent, people

Accepted Answer

A)   buy stocks, because stocks are more liquid than currency.
B)   petition the Fed to tighten the quantity of money.
C)   buy bonds so as to have a better store of value.
D)   sell bonds so as to convert them into money.

Question 9

When the Fed buys one million dollars in government securities from a commercial bank,

Accepted Answer

A)   the commercial bankʹs total assets increase by one million dollars.
B)   there is a change in the composition of the commercial bankʹs assets: reserves increase and government securities decrease.
C)   the Fedʹs total assets decrease by one million dollars.
D)   All of the above answers are correct.

Question 10

Checks and credit cards are NOT considered money because they

Accepted Answer

A)   are not the means of payment.
B)   are not backed by all commercial banks.
C)   are issued by banks, not the Federal Reserve.
D)   typically require an identification check, such as your driverʹs license.

Question 11

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

Accepted Answer

A)   unit of account.
B)   double coincidence of want.
C)   medium of exchange.
D)   store of value.

Question 12

Which of the following is the most liquid?

Accepted Answer

A)   the U.S. dollars in your pocket.
B)   your friendʹs house.
C)   the funds in your checking account.
D)   your house.

Question 13

In the short run, which of the following actions raise the interest rate?

Accepted Answer

A)   a decrease in the demand for money
B)   an increase in the demand for money
C)   an increase in the quantity of money
D)   an increase in bond prices

Question 14

U.S. currency .

Accepted Answer

A)   is composed of the bills and coins that we use today
B)   is less efficient than barter
C)   is the sum of M1 and M2
D)   includes tobacco

Question 15

If a customer deposits $10,000 in currency into a checking account, the bankʹs total reserves
)

Accepted Answer

A)   decrease
B)   are greater than 100 percent
C)   do not change
D)   increase

Question 16

The money aggregate M1 consists of

Accepted Answer

A)   only demand deposits and time deposits.
B)   checking accounts, savings accounts and Treasury bills.
C)   currency and savings accounts.
D)   currency and demand deposits, including travelerʹs checks.

Question 17

Financial innovation is

Accepted Answer

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

Question 18

The increased use of automatic teller machines has decreased the demand for money.

Accepted Answer

A) True 
 B)False

Question 19

TBK Bank Balance Sheet A ssets  Liabilities 	ext { TBK Bank Balance Sheet A ssets }\quad\quad 	ext { Liabilities } TBK Bank Balance Sheet A ssets  Liabilities  
  Reserves $120 Deposits $600 Loans 580 Net worth 100 Total assets $700 Total assets $700\begin{array}{|lc|lc|}\hline 	ext { Reserves } & \$ 120 &	ext { Deposits }&\$600\	ext { Loans } & 580 &	ext { Net worth }&100\	ext { Total assets } \quad\quad\quad\quad\quad\quad\quad& \$ 700&	ext { Total assets }&\$700 \\hline\end{array} Reserves  Loans  Total assets ​$120580$700​ Deposits  Net worth  Total assets ​$600100$700​​ 
-The above table presents the balance sheet of the TBK commercial bank. What is this bank?s actual reserve ratio?

Accepted Answer

A)   20 percent
B)   $700
C)   17.14 percent
D)   $120

Question 20

The smaller the currency drain, the

Accepted Answer

A)   larger the increase in the quantity of money from an increase in reserves.
B)   more likely it is that the banking system will hold a larger proportion of excess reserves.
C)   smaller the increase in the quantity of money from an increase in reserves.
D)   the smaller the effect of a change in the discount rate.

Exam 8: Money, the Price Level, and Inflation

Which of the following is NOT a monetary policy tool of the Federal Reserve?

Correct Answer
verified

-In the above figure, if the interest rate is 4 percent, people

Correct Answer
verified

Correct Answer
verified
a) The monetary base is the sum of Centr...
View Answer

What is barter? What is a double coincidence of wants? How does the existence of money affect barter?

Correct Answer
verified
Barter is the direct exchange of one goo...
View Answer

If a customer deposits $10,000 in currency into a checking account, the bankʹs total reserves )

Correct Answer
verified

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

Correct Answer
verified

U.S. currency .

Correct Answer
verified

Correct Answer
verified

The money aggregate M1 consists of

Correct Answer
verified

Financial innovation is

Correct Answer
verified

Correct Answer
verified

Which of the following is the most liquid?

Correct Answer
verified

-In the figure above, if the interest rate is 8 percent, people demand $0.1 trillion

Correct Answer
verified

The Federal Open Market Committee FOMC) is composed of

Correct Answer
verified

In the short run, which of the following actions raise the interest rate?

Correct Answer
verified

The monetary base is the sum of

Correct Answer
verified

The increased use of automatic teller machines has decreased the demand for money.

Correct Answer
verified

Checks and credit cards are NOT considered money because they

Correct Answer
verified

When the Fed buys one million dollars in government securities from a commercial bank,

Correct Answer
verified

The smaller the currency drain, the

Correct Answer
verified

Exam 8: Money, the Price Level, and Inflation

Which of the following is NOT a monetary policy tool of the Federal Reserve?

Correct AnswerverifiedShow Answer

-In the above figure, if the interest rate is 4 percent, people

Correct AnswerverifiedShow Answer

Correct Answerverifieda) The monetary base is the sum of Centr...View AnswerShow Answer

What is barter? What is a double coincidence of wants? How does the existence of money affect barter?

Correct AnswerverifiedBarter is the direct exchange of one goo...View AnswerShow Answer

If a customer deposits $10,000 in currency into a checking account, the bankʹs total reserves )

Correct AnswerverifiedShow Answer

Suppose that I find out from an L.L. Bean catalogue that a sweater costs $30.00. In this case, money is serving as a

Correct AnswerverifiedShow Answer

U.S. currency .

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The money aggregate M1 consists of

Correct AnswerverifiedShow Answer

Financial innovation is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the most liquid?

Correct AnswerverifiedShow Answer

-In the figure above, if the interest rate is 8 percent, people demand $0.1 trillion

Correct AnswerverifiedShow Answer

The Federal Open Market Committee FOMC) is composed of

Correct AnswerverifiedShow Answer

In the short run, which of the following actions raise the interest rate?

Correct AnswerverifiedShow Answer

The monetary base is the sum of

Correct AnswerverifiedShow Answer

The increased use of automatic teller machines has decreased the demand for money.

Correct AnswerverifiedShow Answer

Checks and credit cards are NOT considered money because they

Correct AnswerverifiedShow Answer

When the Fed buys one million dollars in government securities from a commercial bank,

Correct AnswerverifiedShow Answer

The smaller the currency drain, the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a) The monetary base is the sum of Centr...
View Answer

Correct Answer
verified
Barter is the direct exchange of one goo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified