Question 1

The velocity of circulation is

Accepted Answer

A)   equal to the price level multiplied by real GDP.
B)   equal to the quantity of money multiplied by nominal GDP.
C)   the average number of times a dollar bill is used in a year to buy the goods and services in GDP.
D)   average quantity of money that exists during a year.

Question 2

When the Federal Reserve lends reserves to depository institutions,it charges them interest.That interest rate is called the

Accepted Answer

A)   federal funds rate.
B)   loan rate.
C)   prime rate.
D)   discount rate.

Question 3

In August 2007,Sun Trust Bank has $83 million in loans and $114 million in M1 deposits. If Sun Trust is holding $4 million in reserves,the bank's reserve ratio is

Accepted Answer

A)   $31 million.
B)   4.8 percent
C)   3.5 percent.
D)   72.8 percent.

Question 4

In the list of assets below,which is the most liquid?

Accepted Answer

A)   $500 worth of Ford Motors common stock
B)   $500 worth of Ford Motors bonds
C)   a $500 traveler's check
D)   a one-ounce gold coin

Question 5

What are the three functions of money?

Accepted Answer

Money serves as a medium of exchange (so...

Question 6

The data show that money growth and inflation are

Accepted Answer

A)   positively correlated.
B)   negatively correlated.
C)   not correlated.
D)   independent phenomena.

Question 7

The Federal Open Market Committee of the Federal Reserve System is responsible for

Accepted Answer

A)   maintaining competition among the nation's commercial banks.
B)   determining monetary policy actions.
C)   establishing the official price of gold.
D)   defining the foreign exchange value of the dollar.

Question 8

The required reserve ratio ranges from

Accepted Answer

A)   0 to 3 percent.
B)   0 to 7 percent.
C)   3 to 30 percent.
D)   0 to 10 percent.

Question 9

A decrease in the quantity of reserves held by commercial banks could be the result of

Accepted Answer

A)   a decision by U.S. households to hold less currency.
B)   the sale of government securities by the Federal Reserve.
C)   a decrease in the government's budget deficit.
D)   an increase in the exchange rate.

Question 10

Commercial banks do not

Accepted Answer

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

Question 11

An increase in the opportunity cost of holding money creates a ________ the money demand curve and an increase in real GDP creates a ________ the money demand curve.

Accepted Answer

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

Question 12

When the Fed buys U.S.government securities from a bank,the Fed

Accepted Answer

A)   loans the money needed to buy the securities to the bank.
B)   increases the bank's reserves at the Fed.
C)   obtains the money for the purchase from the U.S. Treasury.
D)   decreases the monetary base and raises the federal funds rate.

Question 13

Which of the following is NOT an economic benefit of depository institutions?

Accepted Answer

A)   They borrow long and lend short.
B)   They create liquidity.
C)   They pool risk.
D)   They reduce the cost of monitoring borrowers.

Question 14

A money market mutual fund is

Accepted Answer

A)   essentially the same as a demand deposit account.
B)   a time deposit of $100,000 or less.
C)   a time deposit of more than $100,000.
D)   a depository institution that sells shares and buys securities such as U.S. Treasury bills.

Question 15

Which of the following is NOT an asset of the Federal Reserve System?

Accepted Answer

A)   loans to depository institutions
B)   reserves of depository institutions
C)   U.S. government securities
D)   None of the above are correct because they are all assets of the Federal Reserve

Question 16

"The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?

Accepted Answer

The statement is incorrect.The...

Question 17

If you have assets that include $50 in cash,a checking account with $135,a savings account with $500,and a jar of coins for laundry of $15.75,how much M1 do you have?

Accepted Answer

You have $200.75 of M1,compris...

Question 18

Which of the following is an example of money functioning as a medium of exchange?

Accepted Answer

A)   Walmart accepting your $20 when buy a CD.
B)   Apple pricing an iPhone at $299.
C)   Bank of America paying you 3 percent on your saving account.
D)   You saving your spare change in a jar before depositing them in your savings account.

Question 19

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

Accepted Answer

A)   foreign policy.
B)   monetary policy.
C)   fiscal policy.
D)   bank antitrust policy.

Question 20

The monetary base does NOT include

Accepted Answer

A)   Federal Reserve notes.
B)   reserves of depository institutions.
C)   checking accounts at commercial banks.
D)   commercial banks' reserves.

Exam 8: Money, The Price Level, and Inflation

If you have assets that include $50 in cash,a checking account with $135,a savings account with $500,and a jar of coins for laundry of $15.75,how much M1 do you have?

Correct AnswerverifiedYou have $200.75 of M1,compris...View AnswerShow Answer

An increase in the opportunity cost of holding money creates a ________ the money demand curve and an increase in real GDP creates a ________ the money demand curve.

Correct AnswerverifiedShow Answer

In August 2007,Sun Trust Bank has $83 million in loans and $114 million in M1 deposits. If Sun Trust is holding $4 million in reserves,the bank's reserve ratio is

Correct AnswerverifiedShow Answer

Which of the following is NOT an economic benefit of depository institutions?

Correct AnswerverifiedShow Answer

The monetary base does NOT include

Correct AnswerverifiedShow Answer

"The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?

Correct AnswerverifiedThe statement is incorrect.The...View AnswerShow Answer

The velocity of circulation is

Correct AnswerverifiedShow Answer

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

Correct AnswerverifiedShow Answer

A money market mutual fund is

Correct AnswerverifiedShow Answer

The Federal Open Market Committee of the Federal Reserve System is responsible for

Correct AnswerverifiedShow Answer

Which of the following is an example of money functioning as a medium of exchange?

Correct AnswerverifiedShow Answer

In the list of assets below,which is the most liquid?

Correct AnswerverifiedShow Answer

What are the three functions of money?

Correct AnswerverifiedMoney serves as a medium of exchange (so...View AnswerShow Answer

The data show that money growth and inflation are

Correct AnswerverifiedShow Answer

Commercial banks do not

Correct AnswerverifiedShow Answer

The required reserve ratio ranges from

Correct AnswerverifiedShow Answer

Which of the following is NOT an asset of the Federal Reserve System?

Correct AnswerverifiedShow Answer

When the Fed buys U.S.government securities from a bank,the Fed

Correct AnswerverifiedShow Answer

A decrease in the quantity of reserves held by commercial banks could be the result of

Correct AnswerverifiedShow Answer

When the Federal Reserve lends reserves to depository institutions,it charges them interest.That interest rate is called the

Correct AnswerverifiedShow Answer

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You have $200.75 of M1,compris...
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An increase in the opportunity cost of holding money creates a the money demand curve and an increase in real GDP creates a the money demand curve.

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The statement is incorrect.The...
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Money serves as a medium of exchange (so...
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