Question 1

The specialized information-gathering activities that banks use to evaluate borrowers are an example of the:

Accepted Answer

A)  cost-benefit principle.
B)  principle of comparative advantage.
C)  scarcity principle.
D)  principle of increasing opportunity cost.

Question 2

Money market mutual funds are ______ the M1 measure of money and ______ the M2 measure of money.

Accepted Answer

A)  included in; excluded from
B)  included in; included in
C)  excluded from; excluded from
D)  excluded from; included in

Question 3

Two countries, Alpha and Beta, have the same levels of nominal and real GDP.Each dollar in Alpha is used more frequently than each dollar in Beta.Therefore, it must be the case that ______ in Alpha than in Beta.

Accepted Answer

A)  the rate of inflation is greater
B)  the money stock is smaller
C)  the price level is greater
D)  the velocity is lower

Question 4

In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.

Accepted Answer

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

Question 5

Nominal GDP divided by the money stock equals:

Accepted Answer

A)  real GDP.
B)  the value of transactions.
C)  the price level.
D)  velocity.

Question 6

Assets of the commercial banking system include:

Accepted Answer

A)  reserves and loans.
B)  deposits.
C)  reserves and deposits.
D)  loans and deposits.

Question 7

The money supply will increase by a multiple of the increase in bank reserves created by the central bank unless:

Accepted Answer

A)  there is fractional reserve banking.
B)  there is 100 percent reserve banking.
C)  the public holds no currency.
D)  banks'desired reserve/deposit ratio is 0.20.

Question 8

In the long run, countries with higher rates of money growth usually have:

Accepted Answer

A)  higher rates of inflation.
B)  lower rates of inflation.
C)  faster growth rates of real output.
D)  smaller budget deficits.

Question 9

In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ______, which led to ______.

Accepted Answer

A)  reduced the amount of currency held by the public; a smaller money supply
B)  increased bank reserves; a larger reserve/deposit ratio
C)  printed large quantities of paper money; hyperinflation
D)  ordered the central bank to sell government bonds; an increase in the money supply

Question 10

When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:

Accepted Answer

A)  increases by more than $1,000,000.
B)  increases by $1,000,000.
C)  increases by less than $1,000,000.
D)  decreases by $1,000,000.

Question 11

The three functions of money are:

Accepted Answer

A)  spending for consumption, investment, and government purchases.
B)  measuring balance of payments, exchange rates, and interest rates.
C)  implementing monetary policy, fiscal policy, and structural policy.
D)  serving as a medium of exchange, unit of account, and store of value.

Question 12

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

Accepted Answer

A)  bank reserves.
B)  a medium of exchange.
C)  a unit of account.
D)  a store of value.

Question 13

Money serves as a basic yardstick for measuring economic value (a unit of account) , allowing:

Accepted Answer

A)  people to hold their wealth in a liquid form.
B)  governments to restrict the issuance of private monies.
C)  easy comparison of the relative prices of goods and services.
D)  goods and services to be exchanged with a double coincidence of wants.

Question 14

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:

Accepted Answer

A)  bank reserves.
B)  a medium of exchange.
C)  a unit of account.
D)  a store of value.

Question 15

Two reasons savers keep deposits at banks are to:

Accepted Answer

A)  secure mortgages and to purchase stocks.
B)  earn a return on their savings and to facilitate making payments.
C)  lower interest rates and to increase the money supply.
D)  equalize loan supply and demand and to earn interest.

Question 16

The M1 measure of money consists of the sum of:

Accepted Answer

A)  currency, checking deposits, and travelers'checks.
B)  currency and travelers'checks.
C)  currency, checking deposits, and savings deposits.
D)  checking deposits and travelers'checks.

Question 17

If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals:

Accepted Answer

A)  1.5.
B)  2.
C)  3.
D)  6,000.

Question 18

Credit card balances are not considered to be money primarily because they:

Accepted Answer

A)  are rarely used to make purchases.
B)  are not part of people's wealth.
C)  are an asset used in making transactions.
D)  do not represent an obligation to pay someone else.

Question 19

The quantity equation states that:

Accepted Answer

A)  money times velocity equals nominal GDP.
B)  money times velocity equals real GDP.
C)  money times the average price level equals nominal GDP.
D)  money times the average price level equals real GDP.the Quantity Equation which says: PY = MV.

Question 20

The introduction of credit cards and debit cards has ______ velocity.

Accepted Answer

A)  increased
B)  decreased
C)  had no impact on
D)  eliminated

Exam 9: Money, Prices, and the Financial System

The M1 measure of money consists of the sum of:

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The quantity equation states that:

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If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals:

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In the long run, countries with higher rates of money growth usually have:

Correct AnswerverifiedShow Answer

The introduction of credit cards and debit cards has ______ velocity.

Correct AnswerverifiedShow Answer

Credit card balances are not considered to be money primarily because they:

Correct AnswerverifiedShow Answer

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:

Correct AnswerverifiedShow Answer

Money serves as a basic yardstick for measuring economic value (a unit of account) , allowing:

Correct AnswerverifiedShow Answer

The money supply will increase by a multiple of the increase in bank reserves created by the central bank unless:

Correct AnswerverifiedShow Answer

When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:

Correct AnswerverifiedShow Answer

Two countries, Alpha and Beta, have the same levels of nominal and real GDP.Each dollar in Alpha is used more frequently than each dollar in Beta.Therefore, it must be the case that ______ in Alpha than in Beta.

Correct AnswerverifiedShow Answer

The specialized information-gathering activities that banks use to evaluate borrowers are an example of the:

Correct AnswerverifiedShow Answer

Nominal GDP divided by the money stock equals:

Correct AnswerverifiedShow Answer

Assets of the commercial banking system include:

Correct AnswerverifiedShow Answer

In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.

Correct AnswerverifiedShow Answer

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

Correct AnswerverifiedShow Answer

Two reasons savers keep deposits at banks are to:

Correct AnswerverifiedShow Answer

In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ______, which led to ______.

Correct AnswerverifiedShow Answer

Money market mutual funds are ______ the M1 measure of money and ______ the M2 measure of money.

Correct AnswerverifiedShow Answer

The three functions of money are:

Correct AnswerverifiedShow Answer

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In an open-market purchase the Federal Reserve government bonds from the public and the supply of bank reserves .

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In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they , which led to .

Correct Answer
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Money market mutual funds are the M1 measure of money and the M2 measure of money.

Correct Answer
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