Deck 13: The Role of Money in the Macro Economy

Question 1

A system where goods and services are exchanged directly without a common unit of account is called the:

A)commodity system.
B)fiat system.
C)barter system.
D)none of the above.

Answer 1

C

Question 2

The fraction of deposits banks are required to keep as reserves is called the:

A)deposit requirement.
B)reserve requirement.
C)excess reserve requirement.
D)none of the above.

Answer 2

B

Question 3

The reserve requirement is 0.10.What is the simple deposit multiplier?

A)2
B)20
C)0)2
D)10

Answer 3

D

Question 4

Large denomination time deposits are included in:

A)M1.
B)M2.
C)M3.
D)L)

Question 5

The reserve requirement is 0.20.What is the simple deposit multiplier?

A)1
B)5
C)0)10
D)100

Question 6

Institutions that accept deposits from individuals and organizations,against which depositors can write checks on demand for their market transactions and that use these deposits to make loans are called:

A)depository institutions.
B)financial market institutions.
C)insurance companies.
D)none of the above.

Question 7

The function of money that enables individuals to exchange goods and services in a common unit of account is called:

A)medium of exchange.
B)store of value.
C)unit of account.
D)measure of power.

Question 8

The ability of a financial asset to be used to immediately make transactions is called:

A)store of value.
B)medium of exchange.
C)illiquidity.
D)liquidity.

Question 9

Money serves all of the following functions except:

A)medium of exchange.
B)store of value.
C)unit of account.
D)measure of power.

Question 10

If $1000 was deposited in a bank and the reserve requirement is 0.20,how much is available for loans?

A)$900
B)$910
C)$800
D)$930

Question 11

If $1000 was deposited in a bank and the reserve requirement is 0.10,how much is available for loans?

A)$900
B)$910
C)$920
D)$930

Question 12

The banking system in the U.S.is based on:

A)100 percent reserve banking.
B)fractional reserve banking.
C)0 percent reserve banking.
D)none of the above.

Question 13

The money multiplier is computed as follows:

A)(c + 1)/(c + rr + e).
B)(c + 1)/(c + rr).
C)1/rr.
D)(c + 1)/(c + e).

Question 14

The simple deposit multiplier is:

A)1/excess reserves.
B)1/reserve requirement.
C)1/deposit requirement.
D)none of the above.

Question 15

The function of money that enables prices of goods and services to be quoted is called:

A)medium of exchange.
B)store of value.
C)unit of account.
D)measure of power.

Question 16

The currency deposit ratio,c,is 0.10.The reserve requirement,rr,is 0.08.The excess reserve ratio,e,is 0.05.What is the size of the money multiplier?

A)4)70
B)4)78
C)4)75
D)4)00

Question 17

The function of money that enables money to be used for future purchases is called:

A)medium of exchange.
B)store of value.
C)unit of account.
D)measure of power.

Question 18

The monetary base consists of:

A)currency plus reserves.
B)currency plus required reserves.
C)currency plus excess reserves.
D)currency plus demand deposits.

Question 19

Deposits held by commercial banks are insured by the:

A)Federal Trade Commission.
B)Federal Deposit Insurance Corporation.
C)Federal Communications Commission.
D)Resolution Trust Corporation.

Question 20

The money supply consists of:

A)currency plus reserves.
B)currency plus required reserves.
C)currency plus excess reserves.
D)currency plus demand deposits.

Question 21

Open market sale of government securities results in:

A)an increase in bank reserves.
B)a decrease in bank reserves.
C)a decrease in interest rates.
D)none of the above.

Question 22

The currency deposit ratio,c,is 0.10.The reserve requirement,rr,is 0.07.The excess reserve ratio,e,is 0.10.What is the size of the money multiplier?

A)4)70
B)4)07
C)4)75
D)4)00

Question 23

The central bank of the United States is the:

A)First American Bank.
B)Federal Reserve.
C)Federal Deposit Insurance Corporation.
D)U)S. Treasury.

Question 24

The interest rate the Federal Reserve charges banks which borrow reserves at the Federal Reserve's discount window is called the:

A)federal funds rate.
B)discount rate.
C)prime interest rate.
D)mortgage interest rate.

Question 25

The private financial market where banks borrow and loan reserves to meet the minimum research requirements is called:

A)federal funds market.
B)loanable funds market.
C)discount loans market.
D)repo market.

Question 26

A goal of expansionary monetary policy is to:

A)decrease the rate of growth of real GDP.
B)increase the rate of growth of real GDP.
C)increase inflation.
D)none of the above.

Question 27

Contractionary monetary policy is achieved by:

A)decreasing the amount of bank reserves and lowering the federal funds rate.
B)decreasing the amount of bank reserves and raising the federal funds rate.
C)increasing the amount of bank reserves and lowering the federal funds rate.
D)increasing the amount of bank reserves and raising the federal funds rate.

Question 28

The interest rate that banks charge on loans to their best customers is called the:

A)federal funds rate.
B)discount rate.
C)mortgage interest rate.
D)prime rate.

Question 29

An increase in the discount rate would:

A)decrease bank borrowing of reserves and reflect an expansionary monetary policy.
B)decrease bank borrowing of reserves and reflect a contractionary monetary policy.
C)increase bank borrowing of reserves and reflect an expansionary monetary policy.
D)increase bank borrowing of reserves and reflect a contractionary monetary policy.

Question 30

Open market purchases and sales are conducted at the:

A)Federal Reserve Bank of Kansas City.
B)Federal Reserve Bank of New York.
C)Federal Reserve Bank of Chicago.
D)Federal Reserve Bank of St. Louis.

Question 31

The legislation that made all depository institutions regardless of Federal Reserve membership subject to the reserve requirements established by the Fed is called the:

A)Glass-Steagall Act.
B)McFadden Act.
C)Monetary Control Act of 1980.
D)none of the above

Question 32

How many Federal Reserve District Banks are there?

A)5
B)7
C)12
D)1

Question 33

A decrease in the discount rate would:

A)decrease bank borrowing of reserves and reflect an expansionary monetary policy.
B)decrease bank borrowing of reserves and reflect a contractionary monetary policy.
C)increase bank borrowing of reserves and reflect an expansionary monetary policy.
D)increase bank borrowing of reserves and reflect a contractionary monetary policy.

Question 34

Open market purchase of government securities results in:

A)an increase in bank reserves.
B)a decrease in bank reserves.
C)an increase in interest rates.
D)none of the above.

Question 35

There are ________ voting members on the FOMC.

A)4
B)7
C)12
D)15

Question 36

A goal of contractionary monetary policy is to:

A)decrease the rate of growth of real GDP.
B)increase the rate of growth of real GDP.
C)increase inflation.
D)none of the above.

Question 37

Expansionary monetary policy is achieved by:

A)decreasing the amount of bank reserves and lowering the federal funds rate.
B)decreasing the amount of bank reserves and raising the federal funds rate.
C)increasing the amount of bank reserves and lowering the federal funds rate.
D)increasing the amount of bank reserves and raising the federal funds rate.

Question 38

The ________ book provides information of current economic conditions and is used by the Federal Reserve in formulating monetary policy.

A)Red
B)Blue
C)Beige
D)Green

Question 39

The interest rate that commercial banks charge each other for loans of reserves to meet their minimum reserve requirements is called:

A)treasury bill rate.
B)federal funds rate.
C)prime interest rate.
D)none of the above.

Question 40

The primary responsibility of conducting monetary policy rests with the:

A)Board of Governors.
B)Federal Open Market Committee.
C)Federal Deposit Insurance Corporation.
D)U)S. Treasury.

Question 41

A decrease in the real money supply can result from:

A)increase in the nominal money supply or an increase in the price level.
B)increase in the nominal money supply or a decrease in the price level.
C)decrease in the nominal money supply or an increase in the price level.
D)decrease in the nominal money supply or a decrease in the price level.

Question 42

Credit cards do not fulfill the three functions of money.

Question 43

In the money market,an excess demand of money will:

A)increase the supply of bonds, increase bond prices, and decrease interest rates.
B)increase the supply of bonds, decrease bond prices, and decrease interest rates.
C)increase the supply of bonds, increase bonds prices, and increase interest rates.
D)increase the supply of bonds, decrease bond prices, and increase interest rates.

Question 44

In the money market,an excess supply of money will:

A)increase the demand for bonds, increase bond prices, and decrease interest rates.
B)increase the demand for bonds, decrease bond prices, and decrease interest rates.
C)decrease the demand for bonds, increase bonds prices, and increase interest rates.
D)decrease the demand for bonds, decrease bond prices, and increase interest rates.

Question 45

An increase in the real money supply can result from:

A)increase in the nominal money supply or an increase in the price level.
B)increase in the nominal money supply or a decrease in the price level.
C)decrease in the nominal money supply or an increase in the price level.
D)decrease in the nominal money supply or a decrease in the price level.

Question 46

In the money market,a decrease in money demand will:

A)result in a rightward shift in the money demand curve increasing interest rates.
B)result in a rightward shift in the money demand curve decreasing interest rates.
C)result in a leftward shift in the money demand curve increasing interest rates.
D)result in a leftward shift in the money demand curve decreasing interest rates.

Question 47

A subway token does not fulfill the three functions of money.

Question 48

The store of value does not require that money hold its value of time in terms of its purchasing power.

Question 49

The Resolution Trust Corporation insures bank deposits.

Question 50

In the money market,an increase in money demand will:

A)result in a rightward shift in the money demand curve increasing interest rates.
B)result in a rightward shift in the money demand curve decreasing interest rates.
C)result in a leftward shift in the money demand curve increasing interest rates.
D)result in a leftward shift in the money demand curve decreasing interest rates.

Question 51

An increase in the discount rate will result in:

A)increase in bank reserves and a decrease in the federal funds rate.
B)increase in bank reserves and an increase in the federal funds rate.
C)decrease in bank reserves and a decrease in the federal funds rate.
D)decrease in bank reserves and an increase in the federal funds rate.

Question 52

If banks operated under a 100 percent reserve system,commercial banks would not be able to create any further money.

Question 53

The equilibrium price in the money market is the:

A)inflation rate.
B)exchange rate.
C)interest rate.
D)none of the above.

Question 54

A decrease in the reserve requirement would:

A)decrease excess reserves and reflect an expansionary monetary policy.
B)decrease excess reserves and reflect a contractionary monetary policy.
C)increase excess reserves and reflect an expansionary monetary policy.
D)increase excess reserves and reflect a contractionary monetary policy.

Question 55

An increase in the reserve requirement would:

A)decrease excess reserves and reflect an expansionary monetary policy.
B)decrease excess reserves and reflect a contractionary monetary policy.
C)increase excess reserves and reflect an expansionary monetary policy.
D)increase excess reserves and reflect a contractionary monetary policy.

Question 56

The most liquid form of money is M3.

Question 57

The barter system requires the double coincidence of wants to be fulfilled.

Question 58

The opportunity cost of hold real money balances is the:

A)interest rate.
B)price level.
C)all of the above.
D)none of the above.

Question 59

Open market purchase will result in:

A)increase in bank reserves and a decrease in the federal funds rate.
B)increase in bank reserves and an increase in the federal funds rate.
C)decrease in bank reserves and a decrease in the federal funds rate.
D)decrease in bank reserves and an increase in the federal funds rate.

Question 60

Open market sale will result in:

A)increase in bank reserves and a decrease in the federal funds rate.
B)increase in bank reserves and an increase in the federal funds rate.
C)decrease in bank reserves and a decrease in the federal funds rate.
D)decrease in bank reserves and an increase in the federal funds rate.

Question 61

Banks with excess reserves will supply more reserves to the federal funds market as the interest rate increases.

Question 62

The primary monetary policy tool is reserve requirements.

Question 63

Contractionary monetary policy increases the federal funds rate.

Question 64

There are 15 Federal Reserve District Banks.

Question 65

Open market operations are an appropriate tool for day-to-day changes in monetary policy.

Question 66

Holding the real money supply constant,an increase in real money demand will reduce interest rates.

Question 67

The quantity of money demanded is positively related to the interest rate.

Question 68

In the money market,an excess demand for money is equivalent to an excess demand for bonds.

Question 69

Real money supply expresses the money supply in terms of real goods and services.

Question 70

Open market sale of government securities by the Fed decreases the federal funds rate.

Question 71

The monetary base is smaller than the money supply.

Question 72

Financial innovations such as ATMs and electronic banking have caused an increase in the demand for money.

Question 73

The discount rate is influenced by Fed actions whereas the Fed sets the federal funds rate.

Question 74

The simple deposit multiplier is larger than the money multiplier.

Question 75

Real demand for money is positively related to the level of real income in the economy.

Question 76

In the money market,an excess supply of money is equivalent to an excess supply of bonds.

Question 77

Expansionary monetary policy decreases the federal funds rate.

Question 78

During the 1920s,the discount rate was the major policy tool of the Federal Reserve.

Question 79

The liquidity-money (LM)curve shows the alternative combinations of interest rates and real income that clears the money market.

Question 80

Open market purchase of government securities by the Fed increases the federal funds rate.