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Economics Unit 3 Exam > Economics Module 13 > Flashcards

Economics Module 13 Flashcards

1
Q

Which of the following is an example of bartering?

A

A cabinet maker gives the plumber a desk since the plumber fixed the cabinet maker’s plugged bathtub.

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2
Q

What are the desirable characteristics of the good used as money? Select all that apply.

A

a
Money is a store of value.
b
Money is a medium of exchange.
d
Money is a unit of account.

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3
Q

You are keeping $50 in your pocket in case you find your favorite candy for sale. Sadly you’ve been told that the candy is discontinued, but you still carry the money in case you find the candy. Which function of money does this satisfy?

A

Money is a store of value.

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4
Q

Which of the following is a store of value? Select all that apply.

A

a
U.S. dollars and coins
c
Gold bars
d
A Picasso painting

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5
Q

Bitcoins are used to purchase goods and services from certain vendors. This is evidence that Bitcoin fulfills which of the following functions of money?

A

Bitcoins are a medium of exchange (for those stores that accept it).

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6
Q

What determines how much the money supply can expand? Select all that apply.

A

a
How much money people deposit into their bank accounts
b
How much excess reserves the bank holds
c
The required reserve ratio

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7
Q

Suppose that banks keep no excess reserves and individuals and firms hold on to no currency. If someone finds $7.5 million in currency and deposits all of it into a checking account, what is the upper limit or maximum amount of the money supply when the required reserve ratio is 10 percent?

A

$75 million

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8
Q

Suppose an individual deposits $7.5M in the bank but that all banks in the economy decide to hold an additional 10 percent in excess reserves beyond the amount legally required (which is still 10 percent). What will the total increase in new deposits be, assuming no participant in the market holds any cash?

A

$37.5M

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9
Q

If bank reserves are equal to $2,000, the required reserve ratio is 10 percent, and banks make as many loans as they can, what will be the upper limit of the money supply assuming no borrower withdraws currency and leaves the loan balance in the bank after a loan is created?

A

$20,000

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10
Q

Assume that bank reserves are equal to $2,000, and the required reserve ratio is changed from 10 percent to 20 percent. Banks make as many loans as they can. What is the upper limit of the money supply when the required reserve ratio is increased? Also, assume no borrower withdraws currency and leaves the loan balance in the bank after a loan is created.

A

$10,000

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11
Q

Currently, bank reserves are equal to $2,000, the required reserve ratio is 10 percent, banks make as many loans as they can, and no borrower withdraws currency and leaves the loan balance in the bank after a loan is created. A news report has made people want to carry currency, and this causes the reserves to fall to $1,500. Assume the change is permanent. How much has the money supply decreased?

A

$5,000

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12
Q

Currently, bank reserves are equal to $2,000, the required reserve ratio is 10 percent, banks make as many loans as they can, and no borrower withdraws currency and leaves the loan balance in the bank after a loan is created. There is $500 in currency that is found and deposited into the bank. Assume that the currency was not previously in the banking system and is permanent. How much has the money supply increased?

A

$5,000

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13
Q

Currently, bank reserves are equal to $2,000, the required reserve ratio is 10 percent, banks make as many loans as they can, and no borrower withdraws currency and leaves the loan balance in the bank after a loan is created. But now banks decide to increase their reserves and start to hold 15 percent of their reserves. Assume this change is permanent. How much will the money supply change?

A

$6,667

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14
Q

What would happen to the money market if there was an increase in economic growth?

A

Money demand will increase.

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15
Q

How would the money market change if there was an increase in bank reserves?

A

The money supply will increase.

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16
Q

Suppose that you have a bond that originally cost you to $1,000 to purchase. It pays you $50 in interest each year. That interest payment does not change, and the original purchase price will be returned to you far in the distant future. What would happen to the current market price of your bond (yes, there is a market, and you can resell the bond to someone else) if interest rates for all similar bonds in the economy rise to 6 percent?

A

The price of your bond will fall.

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17
Q

The simple money multiplier will ______________ as the required reserve ratio ______________.

A

increase; decreases

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18
Q

Which of the following will result in a decrease in the supply of money in the economy?

A

A customer repaying a loan

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19
Q

You have $5,000 in your pocket today. If the currency is deposited into a bank account paying 4 percent interest, what is the future value of that deposit in one year?

A

$5,200

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20
Q

Assume there is only one bank and that all the people deposit all of their money into the bank. The people deposit $10 million and the bank holds 5 percent of the deposits as reserves. What is the simple money multiplier in this economy?

A

20

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21
Q

You have $10,000 in your pocket today. If you deposit $5,000 into bank A and $5,000 into bank B with both accounts earning 4 percent interest, what is the future value of this deposit in one year?

A

$10,400

22
Q

The broader definition of the money supply M(2) includes which of the following? Select all that apply.

A

c
Small time Certificates of Deposit (CD’s)
d
Checkable deposits

23
Q

A friend has won a lottery and comes to you and asks which choice he should take. Either $185 million paid one year from now or $165 million paid now? What would you tell him to do?

A

Cannot tell with the information given.

24
Q

If prisoners did not have dollars to use to purchase goods and services in prison but they had access to Top Ramen noodles that is then used as money by the prisoners, then Top Ramen becomes:

A

a medium of exchange and a unit of account.

25
Q

Liquidity means:

A

how quickly something can be converted to currency

26
Q

What is the opportunity cost of holding currency?

A

The opportunity cost is the interest that could have been earned if the currency was in the bank.

27
Q

M(1) includes which of the following? Select all that apply.

A

a
Currency
b
Demand deposits
c
Travelers checks

28
Q

Today you have $10. If the interest rate is 3.25 percent, what is the future value of that $10 one year from now?

A

$10.33

29
Q

If individuals hold less currency because it is easy to get currency from automatic teller machines, and everything else is the same, will the money supply be larger or smaller?

A

Larger, because banks will be able to make more loans given the amount of reserves.

30
Q

An increase in spending in the economy will cause which of the following changes in interest rates?

A

An increase in interest rates as the demand for money increases

31
Q

Today you have $700. If the interest is 9 percent, what is the future value of $700 in one year from now?

A

$763

32
Q

Which of the following will likely cause an increase in the supply of money?

A

An increase in bank reserves

33
Q

Credit cards are part of

A

Neither M(1) nor M(2)

34
Q

The interest rate is 6 percent; in one year from today, what is the future value of $500?

A

$530

35
Q

Which of the following is not included in bartering?

A

Money

36
Q

If banks were required to keep 100 percent in reserves, and if all the currency in the economy was in the bank, then:

A

money supply would not change

37
Q

A friend has won a lottery and comes to you and asks which choice he should take. Either $185 million spread out over 5 annual payments or $165 million paid now. If the average interest rate is six percent, what would you tell him to do?

A

Take $165 million since it’s worth more.

38
Q

An increase in interest rates causes the:

A

quantity demanded of money to decrease

39
Q

You have a choice of either $1,000 today or $1,500 in 5 years. If the interest rate is 8 percent, which choice gives you the highest amount of money?

A

$1,500 in 5 years

40
Q

Store owners in the U.S. accept dollars for the purchase of goods and services. Every day, you have woken up and believed that the exchange of dollars for goods and services could occur. Why?

A

Money is a medium of exchange.

41
Q

You receive dollars for payment when you mow your neighbor’s lawn. Which function of money does this best demonstrate?

A

Medium of exchange

42
Q

The U.S. $20 dollar bill is a commodity:

A

is an incorrect statement

43
Q

Three years ago, you put $1,500 into an account paying 3 percent interest. How much is the account worth today?

A

$1.639.09

44
Q

Money includes which of the following? Select all that apply.

A

a
Currency in circulation.
b
Checking account deposits.

45
Q

M1 includes which of the following? Select all that apply.

A

a
Currency in circulation.
c
Checking account deposits.

46
Q

What does the demand for money depend upon? Choose all that apply.

A

b
Income
c
Amount of business

47
Q

With the supply and demand curves you drew for Problem 1.4, what would happen to the equilibrium price and quantity in a money market if GDP in the economy increases. Select all that apply.

A

a
New demand is to the right of original demand
c
Increase in demand

48
Q

The people of Micro Island use sea shells as a way of exchanging goods and services. The shells are:

A

money since the shells are used to exchange goods and services.

49
Q

If $800 is deposited and banks keep 8% of deposits in reserve, how much will deposits increase if the banks make the most loans they can?

A

$10,000

50
Q

What is the opportunity cost of $1.00 when the annual interest rate is 60 percent?

A

The opportunity cost is $0.60.

51
Q

You have $4,000 in your pocket today. If you deposit this into a bank account paying 4 percent interest, what is the future value of that money in one year?

A

$4,160

52
Q

The annual interest rate is 6%. You are given the option of receiving $800 today or $853 a year from now. Which option should you accept?

A

$853 in one year from now

Economics Unit 3 Exam (6 decks)

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