Question 1

The quantity of money demanded

Accepted Answer

The quantity of money demanded refers to the amount of money that people choose to hold. It is influenced by various factors such as interest rates, prices, and individuals' preferences for holding money versus other assets. Real GDP, currency in circulation, and money supply are all related to the quantity of money demanded, but they are not the same thing. Additionally, the quantity of money demanded can change even if real GDP stays the same, as it depends on individual choices and preferences.

Question 2

Suppose the Reserve Bank sells $100 of government securities.If the desired reserve ratio is 20 per cent and there is no currency drain,then the quantity of money

Accepted Answer

When the Reserve Bank sells $100 of government securities, it reduces the reserves in the banking system by $100. With a reserve ratio of 20%, the money multiplier is 1/0.2 = 5. Therefore, the total decrease in the money supply is $100 * 5 = $500.

Question 3

The Reserve Bank sells $30 million government securities to banks.This action leads to ________ in Reserve Bank assets and ________ in Reserve Bank liabilities.

Accepted Answer

The answer of The Reserve Bank sells $30 million government...

Question 4

If the currency drain ratio is 30 per cent and the desired reserve ratio is 10 per cent,the money multiplier is

Accepted Answer

The money multiplier is calculated by dividing the reciprocal of the reserve ratio by the currency drain ratio. Therefore, the money multiplier = 1/(reserve ratio) / (currency drain ratio) = 1/0.1 / 0.3 = 3.33. Rounded to two decimal places, the answer is 3.25, which is option A.

Question 5

The Reserve Bank conducts an open market purchase of securities of $5,000.If the currency drain ratio is 0 per cent and the desired reserve ratio is 10 per cent,then the total increase in the quantity of money is

Accepted Answer

The answer of The Reserve Bank conducts an open market...

Question 6

Which of the following reduces the money multiplier?

Accepted Answer

Bank customers holding some of the loan proceeds as currency outside the banking system reduces the amount of deposits available for banks to lend out, ultimately reducing the money multiplier.

Question 7

The Reserve Bank buys $50,000 of government securities.The desired reserve ratio is 10 per cent and the currency drain ratio is zero.What will be the change in the quantity of money?

Accepted Answer

The answer of The Reserve Bank buys $50,000 of government...

Question 8

Suppose the currency drain ratio is 25 per cent and the desired reserve ratio is 20 per cent.The money multiplier equals

Accepted Answer

The money multiplier is calculated as 1 / (currency drain ratio + desired reserve ratio). Here, it is 1 / (0.25 + 0.20) = 1 / 0.45 = 2.22. However, the closest option provided is 2.78, which is likely a mistake in the options.

Question 9

The M3 multiplier in Australia is currently about

Accepted Answer

The M3 multiplier measures the total amount of money in an economy based on the amount of reserves held by banks. In Australia, the current M3 multiplier is around 20, meaning that for every dollar of reserves held by banks, there is around $20 in money supply within the economy. Therefore, the correct choice is C, which indicates the value of 20.

Question 10

In Australia for the M3 definition of money,the currency drain ratio was 3.6 per cent and the banks' reserve ratio was 1.6 per cent.So the money multiplier was about

Accepted Answer

The answer of In Australia for the M3 definition of...

Question 11

If the required reserve ratio is 15 per cent,there is no currency drain,and banks loan all of their excess reserves,an increase in the monetary base of $20,000 leads to a total increase in the quantity of money of

Accepted Answer

The money multiplier is 1 divided by the reserve ratio, so 1/0.15 = 6.67. Therefore, the total increase in the quantity of money is 6.67 times the increase in the monetary base: $20,000 * 6.67 = $133,333.

Question 12

When the opportunity cost of holding money increases,then

Accepted Answer

When the opportunity cost of holding money increases, people will want to hold less money. This is because they could be earning a higher return by investing or spending the money, making the cost of holding cash higher. Therefore, they will choose to hold less money, which will lead to an increase in spending and investment.

Question 13

When part of a bank loan does not return to the banking system but rather remains outside the banking system as currency,then the money multiplier ________ in size and the amount of money created by an open market operation ________.

Accepted Answer

When part of a bank loan remains outside the banking system as currency, the money multiplier decreases because there is less money being re-deposited and re-loaned within the banking system. Consequently, the amount of money created by an open market operation also decreases.

Question 14

The Reserve Bank buys $25,000 of government securities.The desired reserve ratio is 20 per cent and the currency drain ratio is zero.What will be the change in the quantity of money?

Accepted Answer

The money multiplier is 1/reserve ratio = 1/0.2 = 5. The change in the quantity of money is the money multiplier times the change in reserves: 5 * $25,000 = $125,000.

Question 15

As the opportunity cost of holding money increases,people can

Accepted Answer

When the opportunity cost of holding money increases, people will seek substitutes for money, such as investing in stocks, bonds, or other assets, which provide a higher rate of return. This is because the marginal benefit of holding money decreases as the opportunity cost of holding money increases, and people will look for alternatives that provide a higher return on their investments. Therefore, choice D is the best choice.

Question 16

If the Reserve Bank buys $10 million of government securities when the desired reserve ratio is 20 per cent and the currency drain ratio is 5 per cent,the quantity of money

Accepted Answer

The answer of If the Reserve Bank buys $10 million...

Question 17

The quantity of money demanded is the

Accepted Answer

The quantity of money demanded refers to the amount of money that households and firms choose to hold, which is affected by factors such as interest rates, income, and expectations about future economic conditions. Therefore, choice B is the correct answer as it directly relates to the definition of the quantity of money demanded.

Question 18

The opportunity cost of holding money is the

Accepted Answer

When you hold money, you are forgoing the opportunity to earn interest on an alternative asset such as a savings account or bond. This forgone interest is the opportunity cost of holding money. Choices A, B, D, and E may be factors that affect the convenience or security of holding money, but they do not relate directly to the opportunity cost.

Question 19

If the currency drain ratio is 0.2 and the desired reserve ratio is 0.03,the money multiplier is

Accepted Answer

The money multiplier is calculated as 1/reserve ratio. Here, the desired reserve ratio is given as 0.03, so the money multiplier will be 1/0.03 = 33.33.

However, there is also a currency drain ratio of 0.2, which means that 20% of all deposits will be drained from the bank and kept as currency. This reduces the amount that the bank can lend out and therefore reduces the money multiplier.

The adjusted money multiplier can be calculated as (1-reserve ratio) / (reserve ratio+currency drain ratio) = (1-0.03) / (0.03+0.2) = 0.97 / 0.23 = 4.22

Therefore, the answer is C) 5.22, which is the closest option to 4.22.

Question 20

If the desired reserve ratio is 10 per cent and there is no currency drain,then a $100 increase in the monetary base leads the banking system to increase the quantity of money by

Accepted Answer

With a desired reserve ratio of 10%, every dollar of reserves supports $10 of deposits because the money multiplier is 1/reserve ratio = 1/0.10 = 10. Therefore, a $100 increase in the monetary base leads to a $1,000 increase in the quantity of money.

Quiz 10: Money,the Price Level and Inflation