Question 1

If bank reserves are 200,the public holds 400 in currency,and the desired reserve-deposit ratio is 20%,deposits are ________ and the money supply is ________.

Accepted Answer

A)   200;600
B)   400;800
C)   600;1,000
D)   1,000;1,400
E)   2,400;2,800F) C) and D)
G) A) and C)

Question 2

Banks hold reserves

Accepted Answer

A)   to earn interest.
B)   to increase profits.
C)   to escape the double coincidence of wants.
D)   to meet depositor withdrawals and payments.
E)   only because the government requires them to hold reserves.F) C) and D)
G) All of the above

Question 3

When an individual deposits currency into a chequing account,

Accepted Answer

A)   bank reserves increase,which increases the amount banks can lend,thereby increasing the money supply.
B)   bank reserves decrease,which reduces the amount banks can lend,thereby reducing the money supply.
C)   bank reserves are unchanged.
D)   bank reserves decrease,which increases the amount banks can lend,thereby increasing the money supply.
E)   bank reserves increase,which reduces the amount banks can lend,thereby reducing the money supply.F) C) and D)
G) All of the above

Question 4

M1 differs from M2 in that

Accepted Answer

A)   M1 includes currency and balances held in chequing accounts,which are not included in M2.
B)   M2 includes personal deposits and non-personal demand and notice deposits,which are not included in M1.
C)   M2 includes small savings accounts,and money market mutual funds,which are not included in M1.
D)   M1 is a broader measure of the money supply than M2.
E)   the assets in M2 are more liquid than the assets in M1.F) All of the above
G) C) and D) B

Question 5

Based on the following information,compute the value of the M2 measure of the money supply.

Accepted Answer

A)   $20 billion.
B)   $50 billion.
C)   $130 billion.
D)   $550 billion.
E)   $630 billion.F) B) and D)
G) A) and D)

Question 6

The money supply in Macroland is currently 3,000,bank reserves are 250,currency held by the public is 500,and the banks' desired reserve-deposit ratio is 10%.Assuming that the values of the currency held by the public and the desired reserve-deposit ratio do not change,if the Central Bank of Macroland wishes to decrease the money supply to 2,500,then it should conduct an open-market _________ government bonds to/from the public.

Accepted Answer

A)   purchase of 50
B)   purchase of 250
C)   purchase of 500
D)   sale of 50
E)   sale of 500F) None of the above
G) B) and E)

Question 7

An episode when depositors,spurred by news or rumours of the imminent bankruptcy of one or more banks,rush to withdraw their deposits from the banking system is called a(n)

Accepted Answer

A)   open-market withdrawal.
B)   open-market sale.
C)   banking panic.
D)   bank run.
E)   reserve requirement crisis.F) B) and D)
G) B) and E)

Question 8

The M1 measure of money consists of the sum of

Accepted Answer

A)   currency and demand deposits.
B)   currency and travellers' cheques.
C)   currency,demand deposits,and savings deposits.
D)   demand deposits and travellers' cheques.
E)   demand and savings deposits.F) A) and B)
G) A) and C)

Question 9

Given a required reserve-deposit ratio of 5% for all banks and assuming individuals hold no cash,total bank reserves of $400 billion can support deposits of

Accepted Answer

A)   $400 billion.
B)   $800 billion.
C)   $4,000 billion.
D)   $8,000 billion.
E)   $9,000 billion.F) B) and D)
G) A) and E)

Question 10

In Macroland,currency held by the public is 2000 econs,bank reserves are 600 econs,and the desired reserve-deposit ratio is 15%.If the central bank sells government bonds to the public in exchange for 300 econs that are then destroyed,the money supply in Macroland will decrease from ________ econs to ________ econs,assuming that the public does not wish to change the amount of currency it holds.

Accepted Answer

A)   2,000;1,700
B)   2,600;2,300
C)   2,990;2,645
D)   6,000;4,000
E)   7,000;6,000F) B) and D)
G) A) and D) D

Question 11

In Macroland,currency held by the public is 2000 econs,bank reserves are 300 econs,and the desired reserve-deposit ratio is 10%.If the central bank sells government bonds to the public in exchange for 200 econs that are then destroyed,the money supply in Macroland will decrease from _________ econs to _________ econs,assuming that the public does not wish to change the amount of currency it holds.

Accepted Answer

A)   2,000;1,800
B)   2,300;2,100
C)   3,000;1,000
D)   5,000;3,000
E)   6,000;2,000F) B) and E)
G) B) and D) D

Question 12

-The table above represents a bank's T-account.Suppose it is the only bank in town and individuals in town hold no cash.Assuming the reserve ratio is 10%,what will be the bank's loans at the end of the money creation process?

Accepted Answer

A)   $180,000.
B)   $200,000.
C)   $1,800,000.
D)   $2,000,000.
E)   $2,200,000.F) A) and E)
G) C) and D)

Question 13

The equation stating that the rate of growth of the money supply equals the rate of inflation applies better to countries with ________ than to countries with ________.

Accepted Answer

A)   zero inflation;hyperinflation
B)   zero inflation;low or moderate inflation
C)   low or moderate inflation;zero inflation
D)   low or moderate inflation;high inflation
E)   hyperinflation;low or moderate inflationF) C) and E)
G) A) and B)

Question 14

An episode when depositors,spurred by news or rumours of the imminent bankruptcy of a particular bank,rush to withdraw their deposits from that bank is called a(n)

Accepted Answer

A)   open-market withdrawal.
B)   open-market sale.
C)   banking panic.
D)   bank run.
E)   reserve requirement crisis.F) C) and D)
G) B) and C)

Question 15

After the central bank decreases reserves in the banking system through open-market sales,banks reduce deposits through multiple rounds of calling in loans and losing deposits until the

Accepted Answer

A)   central bank requires them to stop.
B)   reserve-deposit ratio reaches one-half.
C)   actual reserve-deposit ratio is greater than the desired reserve-deposit ratio.
D)   actual reserve-deposit ratio is equal to the desired reserve-deposit ratio.
E)   actual reserve-deposit ratio is less than the desired reserve-deposit ratio.F) All of the above
G) B) and D)

Question 16

When the central bank sells $1,000,000 worth of government bonds to the public,the money supply

Accepted Answer

A)   decreases by more than $1,000,000.
B)   decreases by $1,000,000.
C)   decreases by less than $1,000,000.
D)   does not change.
E)   increases by $1,000,000.F) B) and C)
G) All of the above

Question 17

If a bank's desired reserve-deposit ratio is 33% and it has deposit liabilities of $100 million and reserves of $50 million,it

Accepted Answer

A)   has too few reserves and will reduce its lending.
B)   has excess reserves and will increase its lending.
C)   has the correct amount of reserves and outstanding loans.
D)   should increase the amount of its reserves.
E)   should decrease the amount of its reserves.F) B) and C)
G) A) and D)

Question 18

A promise by the central bank to maintain its key policy rate at the effective lower bound for an extended period of time is called a(n) ___________ commitment.

Accepted Answer

A)   overnight lending
B)   prime rate
C)   credit easing.
D)   zero interest rate.
E)   long-term real interest rateF) A) and B)
G) A) and D)

Question 19

When the actual reserve-deposit ratio exceeds the desired reserve-deposit ratio,banks will

Accepted Answer

A)   do nothing because this is a profitable situation.
B)   stop making loans.
C)   send the extra reserves to the central bank.
D)   request that customers withdraw deposits from the bank.
E)   make more loans in order to earn interest.F) B) and C)
G) A) and E)

Question 20

Holding money as a store of wealth has the advantage of being useful as a medium of exchange.The disadvantages of holding your wealth in the form of money are that it

Accepted Answer

A)   may be stolen or lost,and people may think you're a smuggler or drug dealer.
B)   is difficult to trace,and may be lost or stolen.
C)   may be lost or stolen,and usually pays no interest.
D)   pays no interest,and it is difficult to trace.
E)   pays no interest,and people may think you're a smuggler or drug dealer.F) A) and C)
G) A) and E)

Exam 9: The Aggregate Demand - Aggregate Supply Model

If bank reserves are 200,the public holds 400 in currency,and the desired reserve-deposit ratio is 20%,deposits are and the money supply is .

Correct Answer
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Banks hold reserves

Correct Answer
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When an individual deposits currency into a chequing account,

Correct Answer
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M1 differs from M2 in that

Correct Answer
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B

Based on the following information,compute the value of the M2 measure of the money supply.

Correct Answer
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Correct Answer
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An episode when depositors,spurred by news or rumours of the imminent bankruptcy of one or more banks,rush to withdraw their deposits from the banking system is called a(n)

Correct Answer
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The M1 measure of money consists of the sum of

Correct Answer
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Given a required reserve-deposit ratio of 5% for all banks and assuming individuals hold no cash,total bank reserves of $400 billion can support deposits of

Correct Answer
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D

Correct Answer
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D

-The table above represents a bank's T-account.Suppose it is the only bank in town and individuals in town hold no cash.Assuming the reserve ratio is 10%,what will be the bank's loans at the end of the money creation process?

Correct Answer
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The equation stating that the rate of growth of the money supply equals the rate of inflation applies better to countries with than to countries with .

Correct Answer
verified

An episode when depositors,spurred by news or rumours of the imminent bankruptcy of a particular bank,rush to withdraw their deposits from that bank is called a(n)

Correct Answer
verified

After the central bank decreases reserves in the banking system through open-market sales,banks reduce deposits through multiple rounds of calling in loans and losing deposits until the

Correct Answer
verified

When the central bank sells $1,000,000 worth of government bonds to the public,the money supply

Correct Answer
verified

If a bank's desired reserve-deposit ratio is 33% and it has deposit liabilities of $100 million and reserves of $50 million,it

Correct Answer
verified

A promise by the central bank to maintain its key policy rate at the effective lower bound for an extended period of time is called a(n) ___________ commitment.

Correct Answer
verified

When the actual reserve-deposit ratio exceeds the desired reserve-deposit ratio,banks will

Correct Answer
verified

Holding money as a store of wealth has the advantage of being useful as a medium of exchange.The disadvantages of holding your wealth in the form of money are that it

Correct Answer
verified

Exam 9: The Aggregate Demand - Aggregate Supply Model

If bank reserves are 200,the public holds 400 in currency,and the desired reserve-deposit ratio is 20%,deposits are ________ and the money supply is ________.

Correct AnswerverifiedShow Answer

Banks hold reserves

Correct AnswerverifiedShow Answer

When an individual deposits currency into a chequing account,

Correct AnswerverifiedShow Answer

M1 differs from M2 in that

Correct AnswerverifiedB

Based on the following information,compute the value of the M2 measure of the money supply.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An episode when depositors,spurred by news or rumours of the imminent bankruptcy of one or more banks,rush to withdraw their deposits from the banking system is called a(n)

Correct AnswerverifiedShow Answer

The M1 measure of money consists of the sum of

Correct AnswerverifiedShow Answer

Given a required reserve-deposit ratio of 5% for all banks and assuming individuals hold no cash,total bank reserves of $400 billion can support deposits of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

Correct AnswerverifiedD

-The table above represents a bank's T-account.Suppose it is the only bank in town and individuals in town hold no cash.Assuming the reserve ratio is 10%,what will be the bank's loans at the end of the money creation process?

Correct AnswerverifiedShow Answer

The equation stating that the rate of growth of the money supply equals the rate of inflation applies better to countries with ________ than to countries with ________.

Correct AnswerverifiedShow Answer

An episode when depositors,spurred by news or rumours of the imminent bankruptcy of a particular bank,rush to withdraw their deposits from that bank is called a(n)

Correct AnswerverifiedShow Answer

After the central bank decreases reserves in the banking system through open-market sales,banks reduce deposits through multiple rounds of calling in loans and losing deposits until the

Correct AnswerverifiedShow Answer

When the central bank sells $1,000,000 worth of government bonds to the public,the money supply

Correct AnswerverifiedShow Answer

If a bank's desired reserve-deposit ratio is 33% and it has deposit liabilities of $100 million and reserves of $50 million,it

Correct AnswerverifiedShow Answer

A promise by the central bank to maintain its key policy rate at the effective lower bound for an extended period of time is called a(n) ___________ commitment.

Correct AnswerverifiedShow Answer

When the actual reserve-deposit ratio exceeds the desired reserve-deposit ratio,banks will

Correct AnswerverifiedShow Answer

Holding money as a store of wealth has the advantage of being useful as a medium of exchange.The disadvantages of holding your wealth in the form of money are that it

Correct AnswerverifiedShow Answer

If bank reserves are 200,the public holds 400 in currency,and the desired reserve-deposit ratio is 20%,deposits are and the money supply is .

Correct Answer
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B

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D

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D

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The equation stating that the rate of growth of the money supply equals the rate of inflation applies better to countries with than to countries with .

Correct Answer
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Correct Answer
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