Question 1

Everything else held constant,an increase in the money market fund ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Accepted Answer

An increase in the money market fund ratio means that more money is being held in money market funds, which are included in the M2 money supply. This will lead to an increase in the M2 money multiplier, which is the ratio of M2 to the monetary base. An increase in the M2 money multiplier will lead to an increase in the M2 money supply.

Question 2

During the bank panics of the Great Depression the excess reserve ratio

Accepted Answer

During the bank panics of the Great Depression, banks increased their holdings of excess reserves as a precaution against potential bank runs, leading to a sharp increase in the excess reserve ratio.

Question 3

During the bank panics of the Great Depression the currency ratio

Accepted Answer

During the bank panics of the Great Depression, the currency ratio increased sharply as people withdrew their savings from banks and held onto cash, fearing bank failures.

Question 4

The upward trend in the currency-deposit ratio during 1994-2007 can be explained by

Accepted Answer

The increased holdings of U.S. currency by foreigners during this period contributed to the upward trend in the currency-deposit ratio.

Question 5

Everything else held constant,an increase in the excess reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Accepted Answer

An increase in the excess reserve ratio means banks are holding more reserves relative to their deposits, which decreases the amount of money they can lend out. This leads to a decrease in the M2 money multiplier because less money is being created through the lending process. Consequently, the M2 money supply also decreases because there is less money being circulated in the economy.

Question 6

In the early 1930s,the currency-deposit ratio rose,as did the level of excess reserves. Money supply analysis predicts that,everything else held constant,the money supply should have

Accepted Answer

The currency-deposit ratio and excess reserves have a negative relationship with the money supply. As the currency-deposit ratio and excess reserves increased, the money supply should have decreased. Therefore, the best choice is B, fallen.

Question 7

Everything else held constant,an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio.

Accepted Answer

An increase in the interest rate paid on checkable deposits makes checkable deposits more attractive relative to currency holdings, leading to an increase in the amount of checkable deposits held. This also means that the currency ratio (currency held relative to checkable deposits) decreases. Therefore, the correct choice is B, as it reflects an increase in checkable deposits held and a decrease in the currency ratio.

Question 8

Everything else held constant,an increase in wealth will cause the holdings of checkable deposits to the holdings of currency to ________ and the currency ratio will ________.

Accepted Answer

When wealth increases, people tend to hold more money in checkable deposits relative to currency because deposits can earn interest or be used more conveniently for transactions. This means the ratio of checkable deposits to currency increases. However, the currency ratio (currency relative to deposits) decreases because a smaller proportion of a person's wealth is held in currency.

Question 9

The steepest increase in the currency ratio since 1892 occurred during

Accepted Answer

The steepest increase in the currency ratio occurred during the Great Depression, which was a time of economic turmoil and uncertainty. The value of currency became extremely inflated as people hoarded cash, leading to a sharp increase in the ratio of currency to other forms of money. This was a unique and unprecedented event in the history of modern finance, making it the best choice among the given options.

Question 10

Part of the increase in currency holdings in the 1960s and 1970s can be attributed to

Accepted Answer

Bracket creep refers to the phenomenon where inflation pushes taxpayers into higher tax brackets even though their real income has not increased. This leads to higher tax payments and can create an incentive for individuals to hold more cash to pay their tax bills. As a result, the increase in currency holdings in the 1960s and 1970s can be attributed to bracket creep due to inflation and progressive income taxes.

Question 11

The increase in the availability of ATMs has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________,everything else held constant.

Accepted Answer

The increase in ATMs means there are more places to access currency, therefore decreasing the cost of acquiring it. As a result, the currency ratio will increase, since it will take more of the currency to purchase goods and services.

Question 12

Factors causing an increase in currency holdings include

Accepted Answer

An increase in illegal activity, particularly those involving drugs and other illegal substances, often leads to an increase in currency holdings as these transactions are typically conducted in cash.

Question 13

The declining trend in the currency-deposit ratio during 2007-2014 can be explained by

Accepted Answer

The increasing use of debit cards could have contributed to the declining trend in the currency-deposit ratio. As more people use debit cards for transactions, they may withdraw less cash, leading to lower currency holdings and a lower currency-deposit ratio.

Question 14

The increase in the currency ratio during World War II was due to

Accepted Answer

The increase in the currency ratio during World War II was mainly caused by high taxes and the rise of illegal activities such as black market transactions, which led to a decrease in the use of bank deposits and an increase in the demand for cash. As a result, the currency ratio (the ratio of currency to demand deposits) increased significantly during this period. Bank panics and the spread of ATMs were not major factors affecting the currency ratio during World War II. The drop in the rate of interest paid on checking deposits may have had some impact, but it was likely relatively minor compared to the other factors mentioned.

Question 15

The factor accounting for the steepest rise in the currency ratio since 1892 is

Accepted Answer

Bank panics lead to a loss of confidence in the banking system, causing people to withdraw their deposits and hold more currency, thus increasing the currency ratio significantly.

Question 16

Everything else held constant,an increase in the excess reserve ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Accepted Answer

Excess reserve ratio has a negative relationship with both M1 and M2 money multiplier. A higher excess reserve ratio indicates that banks are holding more reserves than required, reducing the amount of money that can be created through loans, hence decreasing the money multiplier for both M1 and M2.

Question 17

Everything else held constant,an increase in the money market fund ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Accepted Answer

The money market fund ratio is a part of M2 money supply but not M1 money supply. Therefore, an increase in the money market fund ratio will not have any direct effect on the M1 multiplier. However, an increase in the money market fund ratio will increase the M2 money supply. Therefore, the M2 multiplier will increase.

Question 18

The monetary base increased by 20% during the contraction of 1929-1933,but the money supply fell by 25%. Explain why this occurred. How can the money supply fall when the base increases?

Accepted Answer

The answer of The monetary base increased by 20% during...

Quiz 14: The Money Supply Process

Everything else held constant,an increase in the money market fund ratio will mean in the M2 money multiplier and in the M2 money supply.

During the bank panics of the Great Depression the excess reserve ratio

During the bank panics of the Great Depression the currency ratio

The upward trend in the currency-deposit ratio during 1994-2007 can be explained by

Everything else held constant,an increase in the excess reserve ratio will mean in the M2 money multiplier and in the M2 money supply.

In the early 1930s,the currency-deposit ratio rose,as did the level of excess reserves. Money supply analysis predicts that,everything else held constant,the money supply should have

Everything else held constant,an increase in the interest rate paid on checkable deposits will cause in the amount of checkable deposits held relative to currency holdings and in the currency ratio.

Everything else held constant,an increase in wealth will cause the holdings of checkable deposits to the holdings of currency to and the currency ratio will .