Question 1

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 2

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

Accepted Answer

The answer of The upward trend in the currency-deposit ratio...

Question 3

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

Accepted Answer

Bracket creep occurs when inflation pushes individuals into higher tax brackets, resulting in more taxes owed. This, combined with the progressive nature of income taxes, led to an increase in currency holdings as people tried to keep more of their money in cash instead of paying higher taxes.

Question 4

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

The answer of Everything else held constant,an increase in the...

Question 5

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

Accepted Answer

The increasing use of debit cards has led to a decrease in the currency-deposit ratio as people are making fewer transactions with physical currency and instead relying more on electronic transfers and debit card payments.

Question 6

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

Accepted Answer

The answer of The factor accounting for the steepest rise...

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 will increase the opportunity cost of holding currency, as checkable deposits now offer a higher return. Therefore, individuals are likely to increase their holdings of checkable deposits relative to currency. This will cause a decrease in the amount of currency held relative to checkable deposits (i.e. a decrease in the currency ratio).

Question 8

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

An increase in the currency-deposit ratio and excess reserves leads to a decrease in the money multiplier (the inverse of the reserve ratio) and thus to a decrease in the money supply. Therefore, the money supply should have fallen.

Question 9

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 availability of ATMs has made acquiring currency easier and more convenient, which would decrease the cost of acquiring currency. This would cause the currency ratio (the ratio of currency to other forms of money in circulation) to increase, as more people would be inclined to hold onto physical currency rather than depositing it into their bank accounts or using other forms of digital transactions.

Question 10

Factors causing an increase in currency holdings include

Accepted Answer

An increase in illegal activity, such as drug trafficking and money laundering, can lead to an increase in currency holdings as these activities often involve cash transactions.

Question 11

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 12

The steepest increase in the currency ratio since 1892 occurred during

Accepted Answer

The steepest increase in the currency ratio since 1892 occurred during the Great Depression, which lasted from 1929 to the late 1930s. The currency ratio is the ratio of currency outside of banks to deposits in banks, and during the Great Depression, people lost confidence in banks and withdrew their deposits, leading to a sharp increase in the currency ratio.

Question 13

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 14

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

An increase in the excess reserve ratio decreases the amount of funds available for lending and decreases the money creation potential of banks. This means that it will decrease both the M1 and M2 money multipliers. Therefore, the correct choice is C.

Question 15

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 16

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

Accepted Answer

During World War II, high taxes were imposed to fund the war efforts, which led to an increase in illegal activities such as tax evasion and counterfeiting. This resulted in an increase in the currency ratio, as people hoarded cash to participate in these illegal activities.

Question 17

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...

Question 18

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.

Quiz 14: The Money Supply Process

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.

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

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

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.

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

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

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.

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

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.

Factors causing an increase in currency holdings include

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

The steepest increase in the currency ratio since 1892 occurred during

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

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

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 .

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

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?

During the bank panics of the Great Depression the currency ratio