Question 1

Nominal money is equal to real

Accepted Answer

The answer of Nominal money is equal to real
...

Question 2

Use the information below to answer the following questions.
Fact 24.3.2
The Bank of Hobbiton has chosen the following initial balance sheet:
 
-Refer to Fact 24.3.2.Based on the Bank of Hobbiton's initial balance sheet,what is its desired reserve ratio?

Accepted Answer

The desired reserve ratio can be calculated by dividing the desired reserves by the bank's total deposits. In this case, the desired reserves are $8,500 and the total deposits are $170,000, so the reserve ratio is 5 percent. Therefore, the correct answer is D.

Question 3

Use the figure below to answer the following questions.
  
Figure 24.4.2
-Refer to Figure 24.4.2.Which one of the following best describes the response to a decrease in the market price of bonds?

Accepted Answer

A decrease in the market price of bonds typically leads to an increase in the interest rate, which is represented by a movement from point A to point B on the demand curve for money.

Question 4

When the interest rate falls in the money market,the quantity of money demanded ________ and the quantity of money supplied ________.

Accepted Answer

The answer of When the interest rate falls in the...

Question 5

If the desired reserve ratio is 3 percent and deposits totaled $5.75 billion,banks hold

Accepted Answer

To find the required reserves, we multiply the deposits by the desired reserve ratio:
$5.75 billion x 0.03 = $172.5 million
Therefore, banks are holding $172.5 million in reserves, which is the correct answer choice.

Question 6

The Canadian money multiplier is calculated as the

Accepted Answer

The Canadian money multiplier is calculated as the change in the quantity of money divided by the change in the monetary base. This reflects the relationship between the monetary base (controlled by the central bank) and the broader money supply in the economy, which is affected by the lending activities of banks and other financial institutions.

Question 7

Use the figure below to answer the following questions.
  
Figure 24.4.1
-Refer to Figure 24.4.1.Everything else remaining the same,which graph best shows an increase in real GDP?

Accepted Answer

The answer of Use the figure below to answer the...

Question 8

Use the figure below to answer the following questions.
  
Figure 24.4.2
-Refer to Figure 24.4.2.Which one of the following best describes the response to an increase in real GDP?

Accepted Answer

The answer of Use the figure below to answer the...

Question 9

Use the information below to answer the following questions.
Fact 24.3.2
The Bank of Hobbiton has chosen the following initial balance sheet:
 
-Refer to Fact 24.3.2.Bilbo Baggins comes to the bank and deposits a $100 bill.After Bilbo's deposit,but before any other actions occur,the total quantity of money in the economy

Accepted Answer

When Bilbo deposits a $100 bill, the currency in circulation decreases by $100, but the deposits in the bank increase by $100, keeping the total money supply unchanged.

Question 10

Suppose that the interest rate is greater than the equilibrium interest rate.Which of the following statements is true?
I.There is an excess quantity of money.
II.The quantity of money automatically increases.
III.The interest rate falls.

Accepted Answer

If the interest rate is greater than the equilibrium interest rate, it means that there is a surplus of money in the market. This excess quantity of money leads to a decrease in the interest rate due to the increased supply of loanable funds. Therefore, statement I is true.

However, the quantity of money does not automatically increase in this situation. Instead, it is already in excess and there is no need for further monetary expansion. Thus, statement II is false.

As explained above, an excess quantity of money leads to a decrease in the interest rate. Therefore, statement III is true.

Overall, only statements I and III are true in this scenario, making choice D the correct answer.

Question 11

If the price level doubles,all else constant,the quantity of

Accepted Answer

The answer of If the price level doubles,all else constant,the...

Question 12

Use the figure below to answer the following questions.
  
Figure 24.4.1
-Refer to Figure 24.4.1.Everything else remaining the same,which graph best shows a decrease in real GDP?

Accepted Answer

The answer of Use the figure below to answer the...

Question 13

When the nominal interest rate rises,the opportunity cost of holding money ________.

Accepted Answer

When the nominal interest rate rises, the opportunity cost of holding money increases. This means that people will choose to hold less money and instead invest in assets that offer a higher return, such as bonds or stocks. Therefore, option D is the correct answer.

Question 14

Use the figure below to answer the following questions.
  
Figure 24.4.2
-Refer to Figure 24.4.2.Which one of the following best describes the response to a decrease in real GDP?

Accepted Answer

The answer of Use the figure below to answer the...

Question 15

Everything else remaining the same,an increase in real GDP

Accepted Answer

An increase in real GDP leads to an increase in the demand for real money because people have more income and wealth to hold. With higher income and wealth, people will want to hold more money to facilitate more transactions.

Question 16

Choose the correct statement.

Accepted Answer

Nominal money is simply the quantity of money measured in dollars, without adjusting for inflation. Therefore, option B is the correct statement. Option A is incorrect because it confuses nominal and real money. Option C is partially correct, but the relationship between the quantity of nominal money demanded and the price level is not a simple inverse relationship. Option D is also incorrect because real GDP and quantity of nominal money demanded are not directly related. Option E is incorrect because as the interest rate rises, the quantity of real money demanded decreases due to opportunity cost.

Question 17

The banks on Sunny Island have deposits of $4 million,reserves of $600,000,and loans of $2.4 million.The desired reserve ratio is 10 percent.The banks have ________ of desired reserves and ________ of excess reserves.

Accepted Answer

The desired reserve ratio is 10%, which means that banks need to hold 10% of their deposits as reserves. Therefore, the banks on Sunny Island should have desired reserves of 10% of $4 million, or $400,000. However, they only have $600,000 in reserves, which is $200,000 more than the desired reserves. This means they have excess reserves of $200,000, which is the amount of money they can potentially lend out. Therefore, the answer is C, as it correctly indicates the amount of desired and excess reserves.

Question 18

The quantity of money that the banking system can create is limited by

Accepted Answer

The quantity of money that the banking system can create is limited by the monetary base (which is controlled by the central bank), desired reserves (which banks must hold as a fraction of their deposits), and desired currency holdings (which are determined by consumers). Bank managers' decisions, the number of consumers applying for loans, and the credit ratings of consumers do not directly limit the quantity of money that the banking system can create. The quantity of banknotes released by the central bank is also a factor, but it is included in the monetary base.

Question 19

The opportunity cost of holding money increases when the

Accepted Answer

The opportunity cost of holding money is the return that could have been earned if the money was invested elsewhere. When nominal interest rates rise, the potential return from investing money increases, making the opportunity cost of holding money higher. Therefore, choice B is the correct answer.

Question 20

Real money is equal to

Accepted Answer

Real money is the nominal amount of money adjusted for inflation, therefore it is equal to nominal money divided by the price level. Choice A is the equation for the quantity theory of money, which relates the money supply, velocity of circulation, price level, and output. Choice B is the equation for the inflation rate (which is equal to the growth rate of nominal income minus the growth rate of real income) and Choice D is not a valid equation. Choice E is the reciprocal of the equation for the price level.

Quiz 24: Money, the Price Level, and Inflation

Nominal money is equal to real

Use the information below to answer the following questions. Fact 24.3.2 The Bank of Hobbiton has chosen the following initial balance sheet: -Refer to Fact 24.3.2.Based on the Bank of Hobbiton's initial balance sheet,what is its desired reserve ratio?

Use the figure below to answer the following questions. Figure 24.4.2 -Refer to Figure 24.4.2.Which one of the following best describes the response to a decrease in the market price of bonds?

When the interest rate falls in the money market,the quantity of money demanded and the quantity of money supplied .

If the desired reserve ratio is 3 percent and deposits totaled $5.75 billion,banks hold

The Canadian money multiplier is calculated as the

Use the figure below to answer the following questions. Figure 24.4.1 -Refer to Figure 24.4.1.Everything else remaining the same,which graph best shows an increase in real GDP?

Use the figure below to answer the following questions. Figure 24.4.2 -Refer to Figure 24.4.2.Which one of the following best describes the response to an increase in real GDP?

Suppose that the interest rate is greater than the equilibrium interest rate.Which of the following statements is true? I.There is an excess quantity of money. II.The quantity of money automatically increases. III.The interest rate falls.

If the price level doubles,all else constant,the quantity of

Use the figure below to answer the following questions. Figure 24.4.1 -Refer to Figure 24.4.1.Everything else remaining the same,which graph best shows a decrease in real GDP?

When the nominal interest rate rises,the opportunity cost of holding money ________.

Use the figure below to answer the following questions. Figure 24.4.2 -Refer to Figure 24.4.2.Which one of the following best describes the response to a decrease in real GDP?

Everything else remaining the same,an increase in real GDP

Choose the correct statement.

The banks on Sunny Island have deposits of $4 million,reserves of $600,000,and loans of $2.4 million.The desired reserve ratio is 10 percent.The banks have of desired reserves and of excess reserves.

The quantity of money that the banking system can create is limited by

The opportunity cost of holding money increases when the

Real money is equal to