Deck 12: Money

Question 1

The transactions demand for money is most closely related to money functioning as a:

A)unit of account
B)medium of exchange
C)store of purchasing power
D)measure of value
E)index of satisfaction

Answer 1

B

Question 2

Money functions as:

A)a store of purchasing power
B)a measure of value
C)a means of exchange
D)a store of purchasing power, a measure of value, and a means of exchange
E)a store of purchasing power and a measure of value only

Answer 2

D

Question 3

Demand deposits are classified as money because:

A)they can be readily used in the making of purchases and payment of debts
B)banks hold currency equal to the value of their outstanding deposits
C)they are ultimately the obligation of the government
D)they earn significant interest income for the depositor
E)banks hold stocks equal to the value of their outstanding deposits

Answer 3

A

Question 4

The M1+ definition of money is composed of:

A)iii and vii
B)ii, iii, and v
C)iii and iv
D)iii, iv and vii
E)iv, v, and vi

Question 5

Currency held within chartered banks is considered to be part of:

A)the M3 definition of the money supply
B)the M2 definition of the money supply
C)the M1+ definition of the money supply
D)the M2+ definition of the money supply
E)none of the definitions of the money supply

Question 6

Purchasing common stock by writing a cheque best exemplifies money serving as a(n):

A)store of purchasing power
B)measure of value
C)means of exchange
D)index of satisfaction
E)standard of deferred payments

Question 7

The M3 definition of money is composed of:

A)i through vi
B)ii through vii
C)ii, iii, iv, and v
D)i, ii, iii, iv, and vi
E)iv, v, and vi

Question 8

Which of the following is never defined as near money?

A)term deposits at chartered banks
B)term deposits at near banks
C)money market mutual funds
D)notice deposits at near banks
E)publicly held demand deposits

Question 9

The asset demand for money:

A)varies directly with the interest rate
B)varies inversely with the interest rate
C)varies inversely with the level of real output
D)varies inversely with the price level
E)varies directly with the amount of money demanded for transactions purposes

Question 10

The asset demand for money is most closely related to money functioning as a:

A)unit of account
B)means of exchange
C)index of satisfaction
D)measure of value
E)store of purchasing power

Question 11

The M2+ definition of money is composed of:

A)i through vi
B)ii through vii
C)ii, iii, iv, v and vii
D)i, ii, iii, iv, and vi
E)iv, v, and vi

Question 12

In Canada,the M1 + definition of the money supply is composed of:

A)currency outside chartered banks and notice deposits at chartered banks
B)currency outside chartered banks and all notice deposits at both chartered banks and near banks
C)all currency and demand deposits at chartered banks
D)all currency
E)currency outside chartered banks, publicly held demand deposits at chartered banks and chequable notice deposits at chartered banks and near banks

Question 13

If you place a part of your summer earnings as cash in a safety deposit box,you are employing money as:

A)a means of exchange
B)a store of purchasing power
C)a measure of value
D)an income-earning asset
E)a standard of deferred payments

Question 14

The M2 definition of money is composed of:

A)i, ii, iii, and iv
B)ii, iii, iv, and v
C)ii, iii, and iv
D)ii, iv, and vi
E)iv, v, and vi

Question 15

Stock market price quotations best exemplify money serving as a(n):

A)store of purchasing power
B)an income-earning asset
C)means of exchange
D)index of satisfaction
E)standard of deferred payments

Question 16

The price of a bond having no expiration date is originally $10 000 and has a fixed annual interest payment of $1000.A change in the interest rate to 6.67 percent will result in a bond price of:

A)$16 667
B)$6667
C)$10 000
D)$15 000
E)$3333

Question 17

If you are estimating your total expenses for school next year,you are using money as:

A)a means of exchange
B)a store of purchasing power
C)a measure of value
D)an income-earning asset
E)a standard of deferred payments

Question 18

The difference between M1+ and M2 is that the:

A)former includes notice deposits at chartered banks
B)latter includes nonchequable notice and personal term deposits at chartered banks and does not include chequable notice deposits at near banks
C)latter includes government bonds
D)latter includes cash held by chartered banks
E)former includes all currency

Question 19

A $175 price tag on a cashmere sweater in a department store window is an example of money functioning as:

A)a measure of value
B)a standard of deferred payments
C)a store of purchasing power
D)a means of exchange
E)an income-earning asset

Question 20

If a person writes a cheque on a Saskatoon bank to purchase a new car,he or she is employing money as:

A)a means of exchange
B)a store of purchasing power
C)a measure of value
D)an income-earning asset
E)a standard of deferred payments

Question 21

If the money demand and money supply curves shift leftward,we can conclude that the equilibrium:

A)interest rate will decline, but we cannot predict the change in the equilibrium quantity of money
B)quantity of money and the equilibrium interest rate will both increase
C)quantity of money will increase, but we cannot predict the change in the equilibrium interest rate
D)quantity of money will decline, but we cannot predict the change in the equilibrium interest rate
E)quantity of money will stay the same, causing no change in the equilibrium interest rate

Question 22

If,in the money market,the quantity of money demanded exceeds the money supply,we would expect the interest rate to:

A)fall, causing households and businesses to hold less money
B)rise, causing households and businesses to hold less money
C)rise, causing households and businesses to hold more money
D)fall, causing households and businesses to hold more money
E)stay the same, causing no change in the money held by households and businesses

Question 23

Consider the following table

$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Interest rate } \\( \% )\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand } \\\text { for money }\end{array} \\\hline 12 & \$ 100 & \$ 0 \\\hline 10 & 100 & 20 \\\hline 8 & 100 & 40 \\\hline 6 & 100 & 60 \\\hline 4 & 100 & 80 \\\hline 2 & 100 & 100 \\\hline\end{array}$

-These data suggest that the amount of money demanded for transactions purposes:

A)varies directly with the interest rate
B)varies inversely with the interest rate
C)varies inversely with real output
D)is independent of the interest rate
E)is independent of real output

Question 24

If,in the money market the money supply exceeds the quantity of money that households and businesses want to hold,we would expect the interest rate to:

A)fall, causing households and businesses to hold less money
B)rise, causing households and businesses to hold less money
C)rise, causing households and businesses to hold more money
D)fall, causing households and businesses to hold more money
E)stay the same, meaning that households and businesses hold the same amount of money as before

Question 25

When the money market is in equilibrium:

A)the quantity of money demanded exceeds the money supply
B)the interest rate is increasing
C)the interest rate is decreasing
D)bond prices are stable
E)the money supply exceeds the quantity of money demanded

Question 26

Consider the following table:

$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Interest } \\\text { rate } \%\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand for } \\\text { money }\end{array} & \begin{array} { c } \text { Money } \\\text { supply }\end{array} \\\hline 2 & \$ 220 & \$ 300 & \$ 460 \\\hline 4 & 220 & 280 & 460 \\\hline 6 & 220 & 260 & 460 \\\hline 8 & 220 & 240 & 460 \\\hline 10 & 220 & 220 & 460 \\\hline\end{array}$

-At equilibrium in the money market,the total quantity of money demanded is:

A)$520
B)$500
C)$480
D)$460
E)$440

Question 27

Consider the following table:

$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Interest } \\\text { rate } \%\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand for } \\\text { money }\end{array} & \begin{array} { c } \text { Money } \\\text { supply }\end{array} \\\hline 2 & \$ 220 & \$ 300 & \$ 460 \\\hline 4 & 220 & 280 & 460 \\\hline 6 & 220 & 260 & 460 \\\hline 8 & 220 & 240 & 460 \\\hline 10 & 220 & 220 & 460 \\\hline\end{array}$

-The transactions demand for money in this money market would graph as a:

A)single point
B)horizontal line
C)line sloping downward and to the right
D)line sloping upward and to the right
E)vertical line

Question 28

Suppose the demand for money and the supply of money increase simultaneously.We can:

A)expect the interest rate to rise and bond prices to fall
B)expect the interest rate to fall and bond prices to rise
C)expect real output to expand
D)expect the interest rate and bond prices both to fall
E)not predict what will happen to the interest rate or bond prices

Question 29

Consider the following table:

$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Interest } \\\text { rate } \%\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand for } \\\text { money }\end{array} & \begin{array} { c } \text { Money } \\\text { supply }\end{array} \\\hline 2 & \$ 220 & \$ 300 & \$ 460 \\\hline 4 & 220 & 280 & 460 \\\hline 6 & 220 & 260 & 460 \\\hline 8 & 220 & 240 & 460 \\\hline 10 & 220 & 220 & 460 \\\hline\end{array}$

-The equilibrium interest rate is:

A)2 percent
B)4 percent
C)6 percent
D)8 percent
E)10 percent

Question 30

The table below shows the amounts of money that households and businesses want to hold at various interest rates.

$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Interest Rate } \\( \% )\end{array} & \begin{array} { c } \text { Quantity of money demanded } \\\text { (\$ billions) }\end{array} \\\hline 10 & 20 \\\hline 8 & 40 \\\hline 6 & 60 \\\hline 4 & 80 \\\hline 2 & 100 \\\hline\end{array}$

-If the supply of money is $80 billion,the equilibrium interest rate will be:

A)10 percent
B)8 percent
C)6 percent
D)4 percent
E)2 percent

Question 31

If the quantity of money demanded exceeds the money supply,it can be expected that the:

A)money demand curve will shift leftward
B)money supply curve will shift rightward
C)interest rate will rise
D)interest rate will fall
E)bond prices will rise

Question 32

Consider the following table:

$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Interest } \\\text { rate } \%\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand for } \\\text { money }\end{array} & \begin{array} { c } \text { Money } \\\text { supply }\end{array} \\\hline 2 & \$ 220 & \$ 300 & \$ 460 \\\hline 4 & 220 & 280 & 460 \\\hline 6 & 220 & 260 & 460 \\\hline 8 & 220 & 240 & 460 \\\hline 10 & 220 & 220 & 460 \\\hline\end{array}$

-The total money demand curve in this money market would graph as a:

A)single point
B)horizontal line
C)line sloping upward to the right
D)line sloping downward to the right
E)vertical line

Question 33

If the interest rate was at 3 percent,people would:

A)sell bonds, which would cause bond prices to fall and the interest rate to rise
B)buy bonds, which would cause bond prices to fall and the interest rate to rise
C)sell bonds, which would cause bond prices to rise and the interest rate to rise
D)buy bonds, which would cause bond prices to rise but have an uncertain effect upon the interest rate
E)sell bonds, which would cause bond prices to fall and the interest rate to fall

Question 34

If the Bank of Canada increased the supply of money,the:

A)S_m curve would shift leftward and the equilibrium interest rate would rise
B)S_m curve would shift rightward and the equilibrium interest rate would fall
C)D_m curve would shift leftward and the equilibrium interest rate would fall
D)S_m curve would shift rightward, but the effect on the equilibrium interest rate would be uncertain
E)D_m curve would shift rightward and the equilibrium interest rate would rise

Question 35

The table below shows the amounts of money that households and businesses want to hold at various interest rates.

$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Interest Rate } \\( \% )\end{array} & \begin{array} { c } \text { Quantity of money demanded } \\\text { (\$ billions) }\end{array} \\\hline 10 & 20 \\\hline 8 & 40 \\\hline 6 & 60 \\\hline 4 & 80 \\\hline 2 & 100 \\\hline\end{array}$

-If the interest rate is 6 percent while the supply of money is $80 billion,there is a:

A)surplus of money, causing a rise in the interest rate
B)shortage of money, causing a rise in the interest rate
C)surplus of money, causing a fall in the interest rate
D)shortage of money, causing a fall in the interest rate
E)state of equilibrium, which means the interest rate is stable

Question 36

Which of the following statements is correct?

A)Interest rates and bond prices vary directly.
B)Interest rates and bond prices vary inversely.
C)Interest rates and bond prices are unrelated.
D)Interest rates and bond prices vary directly during inflationary periods and inversely during recessions.
E)Interest rates and bond prices vary directly during recessions and inversely during inflationary periods.

Question 37

If the interest rate was 8 percent,people would:

A)sell bonds, which would cause bond prices to fall and the interest rate to fall
B)buy bonds, which would cause bond prices to rise and the interest rate to fall
C)have insufficient liquidity, which would cause them to reduce their spending on consumer goods
D)buy bonds, which would cause bond prices to fall and the interest rate to rise
E)sell bonds, which would cause bond prices to fall and the interest rate to rise

Question 38

If there is an increase in the economy's real output,the:

A)D_m curve would shift rightward and the equilibrium interest rate would rise
B)D_m curve would shift leftward and the equilibrium interest rate would fall
C)S_m curve would shift rightward and the equilibrium interest rate would fall
D)D_m curve would shift leftward and the equilibrium interest rate would rise
E)D_m curve would shift rightward and the equilibrium interest rate would fall

Question 39

Consider the following table

$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Interest rate } \\( \% )\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand } \\\text { for money }\end{array} \\\hline 12 & \$ 100 & \$ 0 \\\hline 10 & 100 & 20 \\\hline 8 & 100 & 40 \\\hline 6 & 100 & 60 \\\hline 4 & 100 & 80 \\\hline 2 & 100 & 100 \\\hline\end{array}$

-These data suggest that the amount of money that society wishes to hold as an asset:

A)varies directly with the interest rate
B)varies inversely with the interest rate
C)varies inversely with real output
D)is independent of the interest rate
E)varies directly with the amount of money demanded for transactions purposes

Question 40

If the money supply is reduced,we would expect:

A)the money demand curve to shift rightward
B)the interest rate to fall
C)bond prices to fall
D)the money demand curve to shift leftward
E)the money supply curve to shift to the right

Question 41

Suppose that a member of the public deposits $100 of currency in the bank.If the reserve ratio is 5 percent,the maximum amount by which the money supply can increase is:

A)$2000
B)$1900
C)$500
D)$475
E)$100

Question 42

According to monetarists:

A)changes in the money supply are the primary cause of changes in the price level
B)a contractionary monetary policy will lower interest rates and thereby tend to overstimulate the economy
C)changes in the velocity of money are more important than changes in the money supply in causing the price level to change
D)the supply of money changes in response to changes in real output and the price level
E)central banks should be given complete control over the conduct of monetary policy

Question 43

Assume that the banking system has deposits of $10 billion and excess reserves of $1 billion at a time when the reserve ratio is 10 percent.If the reserve ratio rises to 20 percent,the banking system then has:

A)excess reserves of $2.0 billion
B)neither an excess nor a deficiency of reserves
C)a deficiency of reserves of $0.5 billion
D)excess reserves of only $0.5 billion
E)a deficiency of reserves of $1.0 billion

Question 44

In order to determine the velocity of money one would need to know:

A)nominal GDP and real GDP
B)the money supply and the price level
C)nominal GDP and the money supply
D)real GDP and the money supply
E)the money supply and the size of the federal budget deficit

Question 45

The monetarist view of discretionary monetary policy is that:

A)its use has tended to destabilize the economy
B)it doesn't work because M and V always vary in opposite directions
C)it is a weaker stabilization tool than fiscal policy
D)it should be used only in combination with fiscal policy to stabilize the economy
E)it doesn't work because P and Q always move in opposite directions

Question 46

If the reserve ratio were 100 percent,the value of the money multiplier would be:

A)0
B)1
C)10
D)100
E)1000

Question 47

If chartered banks lower their reserve ratio:

A)they will be prompted to reduce their lending
B)the size of the money multiplier will increase
C)the actual cash reserves of the chartered banks will increase
D)the size of the money multiplier will decrease
E)the size of the money multiplier will remain constant

Question 48

Consider the following table

$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Interest rate } \\( \% )\end{array} & \begin{array} { c } \text { Transaction demand } \\\text { for money }\end{array} & \begin{array} { c } \text { Asset demand } \\\text { for money }\end{array} \\\hline 12 & \$ 100 & \$ 0 \\\hline 10 & 100 & 20 \\\hline 8 & 100 & 40 \\\hline 6 & 100 & 60 \\\hline 4 & 100 & 80 \\\hline 2 & 100 & 100 \\\hline\end{array}$

-If the money supply is $160,the equilibrium interest rate will be:

A)10 percent
B)4 percent
C)2 percent
D)8 percent
E)6 percent

Question 49

The multiple by which the banking system can increase the money supply on the basis of each dollar of excess reserves is equal to:

A)1/reserve ratio
B)1 - reserve ratio
C)1/MPW
D)1 - MPW
E)1/desired reserves

Question 50

The equation of exchange suggests that,if the supply of money (M)and the velocity of money (V)remain unchanged,an increase in the physical volume of products produced (Q)will cause:

A)unemployment to rise as a percentage of the labour force
B)a rise in the price level
C)a decline in the price level
D)an automatic budget deficit
E)an automatic budget surplus

Question 51

If the money supply is $180 billion and the economy's nominal GDP is $540 billion,then the:

A)velocity of money is 1
B)average price per final product sold is $3
C)velocity of money is 4
D)velocity of money is 3
E)circulation period of money must be three months

Question 52

The reserve ratio is found using the following formula:

A)desired reserves/deposits
B)excess reserves/deposits
C)deposits/desired reserves
D)total reserves/deposits
E)excess reserves/desired reserves

Question 53

The value of the money multiplier is found using the formula:

A)1/MPW
B)1/excess reserves
C)1/MPC
D)1/reserve ratio
E)1/desired reserves

Question 54

If the reserve ratio is 5 percent,then the money multiplier for the banking system will be:

A)5
B)1/5
C)20
D)1/20
E)1/.5

Question 55

The velocity of money may be stated as:

A)(P x M)/V
B)nominal GDP/M
C)(Q x M)/P
D)(P x M)/Q
E)M/nominal GDP

Question 56

When the reserve ratio increases:

A)desired reserves are changed into excess reserves
B)the excess reserves of banks are increased
C)a single bank can no longer lend dollar-for-dollar with its excess reserves
D)excess reserves are turned into desired reserves
E)the money supply increases

Question 57

When applying the money multiplier formula to real-world settings,one must take account of the fact that:

A)the public holds currency
B)chartered banks are now moving away from taking deposits from the public
C)many Canadians are engaging in domestic transactions in currencies other than the Canadian dollar
D)deposit-taking institutions such as chartered banks hold some of their reserves in the form of currency
E)financial institutions are increasingly dispensing currency to customers through automated teller machines

Question 58

According to the quantity theory of money:

A)the velocity of money often varies in the short run
B)adjustments in the price level are customarily due to changes in real output
C)changes in the money supply are due to changes in the price level
D)real output varies only slightly from its potential level
E)changes in the money supply are due to changes in real output

Question 59

Monetarists argue that the relationship between the amount of money which households and businesses want to hold and the level of national income:

A)has increased historically because of increased accessibility to credit
B)rises during recessions and falls during periods of full employment
C)falls during recessions and rises during periods of full employment
D)is stable
E)varies both seasonally and through the business cycle in highly unpredictable ways

Question 60

As monetarists view the equation of exchange:

A)V changes erratically, in that it may either rise or fall in response to a given change in M
B)V is quite stable
C)V usually changes in the same direction of any given change in M
D)V usually changes in the opposite direction of any given change in M
E)V changes in the same direction as M when M is increasing, but in the opposite direction when M is decreasing

Question 61

According to monetarists:

A)governments should use discretionary monetary policy, but not discretionary fiscal policy
B)governments should impose a monetary rule that forces their central bank to increase the money supply by a constant rate
C)governments should use discretionary fiscal policy, but not discretionary monetary policy
D)governments should use both discretionary fiscal and monetary policies to lessen the severity of the business cycle
E)governments should use a consistently expansionary monetary policy to push up employment and output