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

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

Question 2

Factors causing an increase in currency holdings include

Accepted Answer

An increase in illegal activity would cause an increase in currency holdings as it is often used for black market transactions. The other options would not necessarily lead to an increase in currency holdings.

Question 3

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 4

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 on checkable deposits will make them more attractive to hold than currency, leading to an increase in the amount of checkable deposits held relative to currency holdings. This means the currency ratio will decrease (as currency holdings will decrease relative to checkable deposits).

Question 5

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 6

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, as widespread bank failures and deflation led to a significant decrease in the money supply while the demand for currency increased.

Question 7

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 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

According to the quantity theory of money, the money supply is directly proportional to the currency-deposit ratio and inversely proportional to the reserve-deposit ratio. In this scenario, the currency-deposit ratio increased, and the excess reserves also increased, which means the reserve-deposit ratio also increased. As a result, the money supply should have decreased (fallen), so the correct answer is B.

Question 9

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 10

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 11

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 12

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 13

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 the availability of ATMs has made it easier to acquire currency, thereby reducing the cost of acquiring currency. This reduction in cost will lead to an increase in the currency ratio. Therefore, the correct answer is option C, i.e., decrease in the cost of acquiring currency will cause the currency ratio to increase.

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

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 15

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

Accepted Answer

Bracket creep due to inflation and progressive income taxes caused increases in currency holdings in the 1960s and 1970s. As inflation increased, individuals moved into higher tax brackets even if their real income did not increase, causing them to hold onto more cash to pay their increased taxes. Additionally, the progressive income tax system in place at the time meant that individuals with higher incomes were taxed at higher rates, which also led to an increase in currency holdings.

Question 16

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 largely due to high taxes and illegal activities. The government needed to finance the war effort, and one way to do this was through higher taxes. As taxes increased, some individuals and businesses turned to illegal activities, such as tax evasion and black market transactions, to avoid paying higher taxes. This led to an increase in the demand for cash, which in turn drove up the currency ratio.

Question 17

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 18

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

Accepted Answer

The increasing use of debit cards has made it easier for people to access their bank deposits, reducing the need for holding cash in hand. This has led to a decline in the currency-deposit ratio during 2007-2014.

Quiz 17: 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.

Factors causing an increase in currency holdings include

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.

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?

The steepest increase in the currency ratio since 1892 occurred during

During the bank panics of the Great Depression 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

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

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.

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 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.

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

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

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

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

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