Quiz 11

Question 1

M1 includes those assets that are:
Select one:

a. directly usable as a medium of exchange.
b. good as a store of value, but not useful as a medium of exchange.
c. not liquid enough to be included in M2.
d. near-monies.

Answer 1

a. directly usable as a medium of exchange.

Question 2

Open-market operations are carried out by the Federal Reserve Bank of New York as a means of:
Select one:

a. conducting monetary policy.
b. helping banks become profitable.
c. helping consumers acquire loans more easily.
d. reducing the amount of U.S. currency held overseas.

Answer 2

a. conducting monetary policy.

Question 3

The monetary base is:
Select one:

a. the sum of currency in circulation and bank reserves.
b. equal to M1.
c. equal to M2.
d. the amount of currency held in bank vaults.

Answer 3

a. the sum of currency in circulation and bank reserves.

Question 4

Which of the following is NOT a role played by money?
Select one:

a. It is a medium of exchange.
b. It is a store of value.
c. It is a unit of account.
d. It is a means to increase purchasing power.

Answer 4

d. It is a means to increase purchasing power.

Question 5

The value of fiat money arises from its:
Select one:

a. usefulness as a commodity.
b. ability to be redeemed in precious metals.
c. historical reputation as a currency that maintains its value in international markets.
d. official status as a means of exchange.

Answer 5

d. official status as a means of exchange.

Question 6

The money multiplier is the ratio of:
Select one:

a. the money supply to the monetary base.
b. bank deposits to currency in circulation.
c. bank reserves to bank deposits.
d. M2 to M1.

Answer 6

a. the money supply to the monetary base.

Question 7

The money supply is the:
Select one:

a. total value of financial assets that can be used to purchase goods and services.
B. Total value of financial assets that can be used to purchase goods and services
c. total value of stock market holdings.
d. annual sum of gains from trade.

Answer 7

B. Total value of financial assets that can be used to purchase goods and services

Question 8

he money supply expands when:
Select one:

a. you cash a paycheck.
b. you deposit your paycheck into your checking account
c. you deposit your paycheck into your savings account.
d. banks make loans against the excess reserves they hold.

Answer 8

d. banks make loans against the excess reserves they hold.

Question 9

Which of the following is part of both the monetary base and the money supply?
Select one:

a. near-monies
b. currency in circulation
c. savings deposits
d. checkable bank deposits

Answer 9

b. currency in circulation

Question 10

Which of the following transactions would leave M2 unchanged but increase M1?
Select one:

a. transferring funds from your checking account to your savings account
b. transferring funds from your savings account to your checking account
c. writing a check to a locksmith, who then deposits it in her checking account
d. writing a check to a locksmith, who then deposits it in her savings account

Answer 10

b. transferring funds from your savings account to your checking account

Question 11

If an increase in the rate of money supply growth causes interest rates to fall:
Select one:

a. then investment spending will decline, but consumption spending will rise.
b. then both investment spending and consumption spending will decline.
c. then both investment spending and consumption spending will rise.
d. then investment spending will rise, but consumption spending will decline

Answer 11

c. then both investment spending and consumption spending will rise.

Question 12

If the Federal Open Market Committee issues a statement saying that monetary policy will be relatively expansionary, then it is reasonable to expect that:
Select one:

a. interest rates will fall.
b. interest rates will rise.
c. open market operations will be used to contract the money supply.
d. the Federal Reserve will increase its sales of bonds on the open market.

Answer 12

a. interest rates will fall.

Question 13

Rising interest rates means that the:
Select one:

a. demand for money will rise.
b. public will shift some of its wealth out of short-term financial assets into money.
c. opportunity cost of holding money has declined.
d. opportunity cost of holding money has risen.

Answer 13

d. opportunity cost of holding money has risen.

Question 14

Once the Federal Reserve sets a target for the Federal funds rate, how is the actual Federal funds rate adjusted to reach this target?
Select one:

a. through changes in required reserves for banks
b. through changes in the public’s desired money balances
c. through open market operations conducted by the Federal Reserve
d. through long-term changes in aggregate supply and aggregate demand

Answer 14

c. through open market operations conducted by the Federal Reserve

Question 15

The Federal funds rate is the:
Select one:

a. interest rate on short-term Treasury bills.
b. interest rate charged by banks on long-term loans.
c. interest rate a bank pays to borrow reserves from another bank.
d. Highest interest rate credit card companies are legally allowed to charge

Answer 15

c. interest rate a bank pays to borrow reserves from another bank.

Question 16

The public will hold higher nominal money balances when the:
Select one:

a. price level falls.
b. price level rises.
c. interest rate rises.
d. opportunity cost of holding money rises.

Answer 16

b. price level rises.

Question 17

When economists say that money is neutral in the long run, they mean that changes in the money supply:
Select one:

a. do not affect the rate of inflation.
b. do not affect the price level.
c. do not affect real GDP or its components.
d. have the same effect in the short run as they do in the long run.

Answer 17

c. do not affect real GDP or its components.

Question 18

Which of the following has increased the demand for money?
Select one:

a. the widespread availability of ATMs
b. the increasing acceptance of credit cards by merchants
c. the increasing volume of credit card transactions over the Internet
d. new banking regulations that allow interest to be paid on checking accounts

Answer 18

d. new banking regulations that allow interest to be paid on checking accounts

Question 19

Which of the following statements is TRUE?
Select one:

a. If the money market is in equilibrium, the loanable funds market will be out of equilibrium.
b. Both the money market and the loanable funds market will be in equilibrium at the same interest rate.
c. The money market will be in equilibrium at a higher interest rate than will the loanable funds market.
d. The loanable funds market will be in equilibrium at a higher interest rate than will the money market.

Answer 19

b. Both the money market and the loanable funds market will be in equilibrium at the same interest rate.

Question 20

Which policy action would be appropriate for correcting a recessionary gap?
Select one:

a. The Federal Reserve reduces the money supply.
b. The Federal Reserve raises interest rates.
c. The Federal Reserve sells Treasury bills on the open market.
d. The Federal Reserve buys Treasury bills on the open market.

Answer 20

d. The Federal Reserve buys Treasury bills on the open market.