Student: ___________________________________________________________________________
1. In the United States saving is allocated to its most productive use by:
A. the Federal Reserve.
B. the federal, state, and local governments.
C. regulations and laws designed to improve productivity.
D. a decentralized, market-oriented financial system.
2. Decentralized market-based financial systems improve the allocation of saving by:
A. ensuring capital gains exceed dividend payments.
B. eliminating the need for commercial banks or other financial intermediaries.
C. matching net capital inflows to net capital outflows.
D. providing information and risk-sharing services.
3. The financial system consists of financial _____, such as commercial banks, and financial
markets, such as the stock market.
A. corporations
B. allocations
C. intermediaries
D. brokers
4. Firms that extend credit to borrowers using funds from raised from savers are called:
A. bond dealers.
B. stock brokers.
C. central banks.
D. financial intermediaries.
5. The specialized information-gathering activities that banks use to evaluate borrowers are an
example of the:
A. cost-benefit principle.
B. principle of comparative advantage.
C. scarcity principle.
D. principle of increasing opportunity cost.
6. Privately-owned firms that accept deposits from individuals and businesses and use those
deposits to make loans are called:
A. mortgage banks.
B. brokerage firms.
C. commercial banks.
D. investment banks.
7. Banks help savers find productive uses for their funds because banks are specialized in:
A. gathering information about and evaluating potential borrowers.
B. obtaining preferential tax treatment for savers.
C. securing government guarantees for loans.
D. evaluating the riskiness of stocks.
8. Financial intermediaries, such as commercial banks, help borrowers, particularly small borrowers,
by:
A. providing information to evaluate financial investments.
B. offering tax-preferred borrowing opportunities.
C. eliminating the risk of borrowing.
D. providing credit that might otherwise not be available.
9. Savers may prefer to use financial intermediaries rather than lending directly to borrowers
because financial intermediaries:
A. reduce the cost of gathering information about borrowers.
B. have a monopoly on lending.
C. increase the risk of lending.
D. offer higher rates of return than available elsewhere.
10. Two reasons savers keep deposits at banks are to:
A. secure mortgages and to purchase stocks.
B. earn a return on their savings and to facilitate making payments.
C. lower interest rates and to increase the money supply.
D. equalize loan supply and demand and to earn interest.
11. Money is:
A. the same as income.
B. all financial assets.
C. any asset used to make purchases.
D. the sum of assets minus debts.
12. The direct trade of goods and services for other goods and services is called:
A. financial intermediation.
B. diversification.
C. barter.
D. using a medium of exchange.
13. Double coincidence of wants is avoided if money is used as a:
A. medium of exchange.
B. measure of value.
C. standard of deferred payment.
D. store of value
14. Finding both parties to a trade who have something the other party wishes to trade for is called a:
A. unit of account.
B. store of value.
C. medium of exchange.
D. double coincidence of wants.
15. Money serves as a medium of exchange when:
A. it is used to purchase goods and services.
B. there is direct trade of goods and services.
C. it is a basic measure of economic value.
D. it is a means of holding wealth.
16. When a baker exchanges a pie for dollars, this is an example of dollars serving as:
A. barter.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
17. When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is
an example of dollars serving as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
18. If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using
money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
19. If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
20. If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be
surprised when you find it again next winter, you are using money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
21. The main disadvantage of using money as a store of value is that:
A. other assets provide greater anonymity than cash.
B. barter is a more efficient way to conduct transactions than using money.
C. unlike other assets, money serves as a medium of exchange.
D. other assets pay relatively higher rates of interest than money.
22. The three functions of money are:
A. spending for consumption, investment, and government purchases.
B. measuring balance of payments, exchange rates, and interest rates.
C. implementing monetary policy, fiscal policy, and structural policy.
D. serving as a medium of exchange, unit of account, and store of value.
23. Money serves as a basic yardstick for measuring economic value (a unit of account), allowing:
A. people to hold their wealth in a liquid form.
B. governments to restrict the issuance of private monies.
C. easy comparison of the relative prices of goods and services.
D. goods and services to be exchanged with a double coincidence of wants.
24. The M1 measure of money consists of the sum of:
A. currency, checking deposits, and travelers' checks.
B. currency and travelers' checks.
C. currency, checking deposits, and savings deposits.
D. checking deposits and travelers' checks.
25. The M2 measure of money consists of the sum of:
A. savings deposits, small time deposits, and money market mutual funds.
B. currency, checking and savings deposits, and small time deposits.
C. currency, checking and savings deposits.
D. M1, savings deposits, small time deposits, and money market mutual funds.
26. The components of M2 that are not also in M1:
A. sum to an amount that is smaller than the sum of the components of M1.
B. pay lower rates of interest than do the components of M1.
C. are not usable for making payments.
D. are usable for making payments, but at a greater cost or inconvenience than currency or checks.
27. M1 differs from M2 in that:
A. M1 includes currency and balances held in checking accounts, which are not included in M2.
B. M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1.
C. M1 is a broader measure of the money supply than M2.
D. the assets in M2 are more liquid than the assets in M1.
28. Savings deposits are ______ the M1 measure of money and ______ the M2 measure of money.
A. included in; excluded from
B. included in; included in
C. excluded from; excluded from
D. excluded from; included in
29. Money market mutual funds are ______ the M1 measure of money and ______ the M2 measure of
money.
A. included in; excluded from
B. included in; included in
C. excluded from; excluded from
D. excluded from; included in
30. Credit card balances are not considered to be money primarily because they:
A. are rarely used to make purchases.
B. are not part of people's wealth.
C. are an asset used in making transactions.
D. do not represent an obligation to pay someone else.
31. Based on the following information, the value of the M1 measure of the money supply is ______
and the value of the M2 measure of the money supply is ______.
A. $530 billion; $3,700 billion
B. $330 billion; $4,230 billion
C. $520 billion; $4,320 billion
D. $530 billion; $4,230 billion
32. The amount of money in the United States is determined by:
A. the Federal Reserve.
B. the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.
C. the public
D. the combined behavior of commercial banks and the public.
33. Assets of the commercial banking system include:
A. reserves and loans.
B. deposits.
C. reserves and deposits.
D. loans and deposits.
34. Liabilities of the commercial banking system include:
A. reserves and loans.
B. deposits.
C. reserves and deposits.
D. loans and deposits.
35. Bank reserves are:
A. currency and customer checking deposits.
B. currency, customer checking and savings deposits.
C. any asset used to purchase goods and services.
D. cash and similar assets held to meet depositor withdrawals or payments.
36. One hundred percent reserve banking refers to a situation in which banks' reserves equal 100
percent of their: A. loans.
B. deposits.
C. profits.
D. income.
37. Banks hold reserves:
A. to earn interest.
B. to increase profits.
C. only because the government requires them to hold reserves.
D. to meet depositor withdrawals and payments.
38. In a fractional-reserve banking system the reserve/deposit ratio equals:
A. more than 100 percent.
B. currency held by the public divided by deposits.
C. 100 percent.
D. less than 100 percent.
39. Commercial banks create new money:
A. when they increase their desired reserve/deposit ratio.
B. by issuing checks.
C. through multiple rounds of lending.
D. when they buy government bonds from the Federal Reserve.
40. When a bank makes a loan by crediting the borrower's checking account balance with an amount
equal to the loan:
A. money is created.
B. the bank gains new reserves.
C. the bank immediately loses reserves.
D. the Fed has made an open-market purchase.
41. When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:
A. do nothing because this is a profitable situation.
B. stop making loans.
C. send the extra reserves to the central bank.
D. make more loans.
42.
There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:
A. $5,000,000
B. $6,250,000
C. $10,000,000
D. $20,000,000
43. If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy,
the public deposits all currency into the banking system, and banks have a desired
reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.
A. $1,000; $1,000
B. $9,000; $9,000
C. $9,000; $10,000
D. $1,000; $9,000
44. When an individual deposits currency into a checking account:
A. bank reserves increase, which allows banks to lend more and increases the money supply.
B. bank reserves decrease, which reduces the amount banks can lend and reduces the growth of the money supply.
C. bank reserves are unchanged.
D. bank liabilities increase, which reduces the amount banks can lend and reduces the growth of the money supply.
45. The money supply will increase by a multiple of the increase in bank reserves created by the
central bank unless:
A. there is fractional reserve banking.
B. there is 100 percent reserve banking.
C. the public holds no currency.
D. banks' desired reserve/deposit ratio is 0.20.
46. After the Federal Reserve increases reserves in the banking system, banks create new deposits
through multiple rounds of lending and accepting deposits until the:
A. Federal Reserve requires them to stop.
B. deposit insurance limit is reached.
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.
47. In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks
hold the rest as reserves. If banks' desired reserve/deposit ratio is 10%, deposits in Macroland equal ______ and the money supply equals _______.
A. $50,000,000; $60,000,000
B. $55,000,000; $55,000,000
C. $50,000,000; $55,000,000
D. $100,000,000; $100,000,000
48. In Macroland there is $12,000,000 in currency. The public holds half of the currency and banks
hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ______ and the money supply equals _______.
A. $48,000,000; $75,000,000
B. $54,000,000; $54,000,000
C. $48,000,000; $54,000,000
D. $96,000,000; $96,000,000
49. In Macroland there is $1,000,000 in currency that can either be held by the public as currency or
deposited into banks. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______.
A. increase.
B. decrease.
C. remain the same.
D. either increase or decrease.
50. If the public switches from using cash for most transactions to using checks instead, then all else
equal, the money supply will:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease.
51. If the desired reserve/deposit ratio equals 0.10, then every dollar of currency in bank reserves
supports ______ of deposits and the money supply, while every dollar of currency held by the public contributes ______ to the money supply.
A. $1; $10
B. $0.10; $1
C. $1; $0.10
D. $10; $1
52. If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the
same amount of currency, and the Fed takes no actions, the money supply will:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease.
53. If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is
0.25, the deposits are ______ and the money supply is _____.
A. 200; 600
B. 400; 800
C. 600; 1,000
D. 800; 1,200
54. If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and
reserves of $50 million, it:
A. has too few reserves and will reduce its lending.
B. has too many reserves and will increase its lending.
C. has the correct amount of reserves and outstanding loans.
D. should increase the amount of its reserves.
55. If the desired reserve/deposit ratio is 0.25 and the banking system receives an additional $10
million in reserves, bank deposits will increase by:
A. $10 million.
B. $250 million.
C. $40 million.
D. $4 million.
56. The money supply in Econland is 1,000, and currency held by the public equals bank reserves.
The desired reserve/deposit ratio is 0.25. Bank reserves equal _____. A. 200
B. 250
C. 500
D. 800
57. The central bank of the United States is:
A. Bank of America.
B. Bank of the United States.
C. the U.S. Treasury.
D. the Federal Reserve System.
58. The two main responsibilities of the Federal Reserve System are to ______ and to ______.
A. apprehend counterfeiters; regulate the stock market
B. enable banks to make affordable mortgages; control the exchange rate of the U.S. dollar
C. insure bank deposits; print currency
D. conduct monetary policy; oversee financial markets
59. The most important, most convenient, and most flexible way in which the Federal Reserve affects
the supply of bank reserves is through:
A. conducting open-market operations.
B. changing the Federal Reserve discount rate.
C. changing bank reserve requirement ratios.
D. changing interest rates.
60. The most important tool of monetary policy is:
A. reserve requirement ratios.
B. the discount rate.
C. open-market operations.
D. market interest rates.
61. In an open-market purchase the Federal Reserve ______ government bonds from the public and
the supply of bank reserves ______.
A. buys; increases
B. buys; decreases
C. sells; decreases
D. sells; increases
62. In an open-market sale the Federal Reserve ______ government bonds and the supply of bank
reserves ____.
A. buys; increases
B. buys; decreases
C. sells; increases
D. sells; decreases
63. When the Fed sells government securities, the banks':
A. reserves will increase and lending will expand, causing an increase in the money supply.
B. reserves will decrease and lending will contract, causing a decrease in the money supply.
C. reserve requirements will increase and lending will contract, causing a decrease in the money supply.
D. reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply.
64. An open-market purchase of government securities by the Fed will:
A. increase bank reserves, and the money supply will increase.
B. decrease bank reserves, and the money supply will increase.
C. increase bank reserves, and the money supply will decrease.
D. decrease bank reserves, and the money supply will decrease.
65. In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the
desired reserve/deposit ratio is 10%. If the Central Bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from ______ econs to ______ econs, assuming that the public does not wish to change the amount of currency it holds.
A. 20,000; 22,000
B. 5,000; 2,000
C. 3,000; 5,000
D. 5,000; 7,000
66. When the central bank buys $1,000,000 worth of government bonds from the public, the money
supply:
A. increases by more than $1,000,000.
B. increases by $1,000,000.
C. increases by less than $1,000,000.
D. decreases by $1,000,000.
67. When the central bank sells $1,000,000 worth of government bonds to the public, the money
supply:
A. decreases by more than $1,000,000.
B. decreases by $1,000,000.
C. decreases by less than $1,000,000.
D. increases by $1,000,000.
68. The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by
public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming 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 increase the money supply to 3,000, then it should conduct an open-market ______ government bonds.
A. purchase of 50
B. purchase of 250
C. sale of 500
D. sale of 50
69. The link between the money supply and prices is strongest in:
A. the long run.
B. the short run.
C. a recession.
D. a boom.
70. A rapidly growing supply of money will lead to:
A. rising real GDP.
B. rising velocity.
C. unemployment.
D. inflation.
71. The speed at which money circulates is called:
A. the multiplier
B. acceleration.
C. velocity.
D. the pace of money.
72. Nominal GDP divided by the money stock equals:
A. real GDP.
B. the value of transactions.
C. the price level.
D. velocity.
73. If M stands for the money stock, P for the price level, and Y for real GDP, then velocity, V,
equals:
A.
(P×Y) ÷ M.
B. (P ×M) ÷ Y.
C. (M ×Y) ÷ P.
D. (M ×P) ÷ Y.
74. If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2, then what is
velocity if the money stock equals 2,000? A. 2
B. 2.5
C. 5
D. 10
75. The introduction of credit cards and debit cards has ______ velocity.
A. increased
B. decreased
C. had no impact on
D. eliminated
76. Velocity is determined by:
A. the Federal Reserve.
B. the size of the government budget deficit.
C. average labor productivity times the population growth rate.
D. payments methods and technology.
77. Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in
Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ______ in Alpha than in Beta.
A. the rate of inflation is greater
B. the money stock is smaller
C. the price level is greater
D. the velocity is lower
78. The quantity equation states that:
A. money times velocity equals nominal GDP.
B. money times velocity equals real GDP.
C. money times the average price level equals nominal GDP.
D. money times the average price level equals real GDP.
79. If the money supply equals 1,000, velocity equals 5, and real GDP equals 2,500, then the price
level equals: A. 2.
B. 2.5.
C. 5.
D. 5,000.
80. If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price
level equals: A. 1.5.
B. 2.
C. 3.
D. 6,000.
81. The quantity equation is always true because it:
A. is the definition of velocity rewritten.
B. is a law of economics.
C. has been empirically tested.
D. has been historically verified.
82. According to the quantity equation, if velocity and real GDP are constant, and the Federal
Reserve increases the money supply by 5 percent, then the price level:
A. decreases by 5 percent.
B. decreases by more than 5 percent.
C. increases by more than 5 percent.
D. increases by 5 percent.
83. In the long run, countries with higher rates of money growth usually have:
A. higher rates of inflation.
B. lower rates of inflation.
C. faster growth rates of real output.
D. smaller budget deficits.
84. Extremely rapid rates of money growth are usually the result of:
A. rapid population growth.
B. excessively high interest rates.
C. large government budget deficits.
D. sharp increases in productivity.
85. According to the quantity equation, if velocity and output are constant, then an increase in the
money supply leads to ______ in inflation.
A. a less than proportional increase
B. a less than proportional decreases
C. the same percentage increase
D. a greater than proportional increase
86. In the past, some governments’ budget deficits became so large that they could not raise
sufficient taxes to finance the spending, so they ______, which led to ______.
A. reduced the amount of currency held by the public; a smaller money supply
B. increased bank reserves; a larger reserve/deposit ratio
C. printed large quantities of paper money; hyperinflation
D. ordered the central bank to sell government bonds; an increase in the money supply
87. Two examples of governments that printed large quantities of paper currency to finance massive
budget deficits, causing hyperinflation, are ______ and ______.
A. the Confederacy during the American Civil War; Japan after World War II
B. the Confederacy during the American Civil War; Germany after World War I
C. the United States during the Great Depression; Japan after World War II
D. the United States during the Great Depression; Germany after World War I
Chapter 9 Key
1.
In the United States saving is allocated to its most productive use by:
A. the Federal Reserve.
B. the federal, state, and local governments.
C. regulations and laws designed to improve productivity.
D. a decentralized, market-oriented financial system.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #1 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
2. Decentralized market-based financial systems improve the allocation of saving by:
A. ensuring capital gains exceed dividend payments.
B. eliminating the need for commercial banks or other financial intermediaries.
C. matching net capital inflows to net capital outflows.
D. providing information and risk-sharing services.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #2 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
3. The financial system consists of financial _____, such as commercial banks, and financial markets, such as the stock market.
A. corporations
B. allocations
C. intermediaries
D. brokers
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #3 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
4. Firms that extend credit to borrowers using funds from raised from savers are called:
A. bond dealers.
B. stock brokers.
C. central banks.
D. financial intermediaries.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #4 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
5. The specialized information-gathering activities that banks use to evaluate borrowers are an example of the:
A. cost-benefit principle.
B. principle of comparative advantage.
C. scarcity principle.
D. principle of increasing opportunity cost.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #5 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
6. Privately-owned firms that accept deposits from individuals and businesses and use those deposits to make loans are called:
A. mortgage banks.
B. brokerage firms.
C. commercial banks.
D. investment banks.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #6 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
7. Banks help savers find productive uses for their funds because banks are specialized in:
A. gathering information about and evaluating potential borrowers.
B. obtaining preferential tax treatment for savers.
C. securing government guarantees for loans.
D. evaluating the riskiness of stocks.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #7 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
8. Financial intermediaries, such as commercial banks, help borrowers, particularly small borrowers, by:
A. providing information to evaluate financial investments.
B. offering tax-preferred borrowing opportunities.
C. eliminating the risk of borrowing.
D. providing credit that might otherwise not be available.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Reflective Thinking
Difficulty: 01 Easy Frank - Chapter 09 #8 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
9. Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:
A. reduce the cost of gathering information about borrowers.
B. have a monopoly on lending.
C. increase the risk of lending.
D. offer higher rates of return than available elsewhere.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #9 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
10. Two reasons savers keep deposits at banks are to:
A. secure mortgages and to purchase stocks.
B. earn a return on their savings and to facilitate making payments.
C. lower interest rates and to increase the money supply.
D. equalize loan supply and demand and to earn interest.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #10 Learning Objective: 09-01
Topic: The Banking System and the Allocation of Saving to Productive Uses
11. Money is:
A. the same as income.
B. all financial assets.
C. any asset used to make purchases.
D. the sum of assets minus debts.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #11 Learning Objective: 09-02 Topic: Money and Its Uses
12. The direct trade of goods and services for other goods and services is called:
A. financial intermediation.
B. diversification.
C. barter.
D. using a medium of exchange.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #12 Learning Objective: 09-02 Topic: Money and Its Uses
13. Double coincidence of wants is avoided if money is used as a:
A. medium of exchange.
B. measure of value.
C. standard of deferred payment.
D. store of value
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #13 Learning Objective: 09-02 Topic: Money and Its Uses
14. Finding both parties to a trade who have something the other party wishes to trade for is called a:
A. unit of account.
B. store of value.
C. medium of exchange.
D. double coincidence of wants.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #14 Learning Objective: 09-02 Topic: Money and Its Uses
15. Money serves as a medium of exchange when:
A. it is used to purchase goods and services.
B. there is direct trade of goods and services.
C. it is a basic measure of economic value.
D. it is a means of holding wealth.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #15 Learning Objective: 09-02 Topic: Money and Its Uses
16. When a baker exchanges a pie for dollars, this is an example of dollars serving as:
A. barter.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #16 Learning Objective: 09-02 Topic: Money and Its Uses
17. When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #17 Learning Objective: 09-02 Topic: Money and Its Uses
18. If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #18 Learning Objective: 09-02 Topic: Money and Its Uses
19. If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #19 Learning Objective: 09-02 Topic: Money and Its Uses
20. If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #20 Learning Objective: 09-02 Topic: Money and Its Uses
21. The main disadvantage of using money as a store of value is that:
A. other assets provide greater anonymity than cash.
B. barter is a more efficient way to conduct transactions than using money.
C. unlike other assets, money serves as a medium of exchange.
D. other assets pay relatively higher rates of interest than money.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #21 Learning Objective: 09-02 Topic: Money and Its Uses
22. The three functions of money are:
A. spending for consumption, investment, and government purchases.
B. measuring balance of payments, exchange rates, and interest rates.
C. implementing monetary policy, fiscal policy, and structural policy.
D. serving as a medium of exchange, unit of account, and store of value.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #22 Learning Objective: 09-02 Topic: Money and Its Uses
23. Money serves as a basic yardstick for measuring economic value (a unit of account), allowing:
A. people to hold their wealth in a liquid form.
B. governments to restrict the issuance of private monies.
C. easy comparison of the relative prices of goods and services.
D. goods and services to be exchanged with a double coincidence of wants.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #23 Learning Objective: 09-02 Topic: Money and Its Uses
24. The M1 measure of money consists of the sum of:
A. currency, checking deposits, and travelers' checks.
B. currency and travelers' checks.
C. currency, checking deposits, and savings deposits.
D. checking deposits and travelers' checks.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #24 Learning Objective: 09-02 Topic: Money and Its Uses
25. The M2 measure of money consists of the sum of:
A. savings deposits, small time deposits, and money market mutual funds.
B. currency, checking and savings deposits, and small time deposits.
C. currency, checking and savings deposits.
D. M1, savings deposits, small time deposits, and money market mutual funds.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #25 Learning Objective: 09-02 Topic: Money and Its Uses
26. The components of M2 that are not also in M1:
A. sum to an amount that is smaller than the sum of the components of M1.
B. pay lower rates of interest than do the components of M1.
C. are not usable for making payments.
D. are usable for making payments, but at a greater cost or inconvenience than currency or checks.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #26 Learning Objective: 09-02 Topic: Money and Its Uses
27. M1 differs from M2 in that:
A. M1 includes currency and balances held in checking accounts, which are not included in M2.
B. M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1.
C. M1 is a broader measure of the money supply than M2.
D. the assets in M2 are more liquid than the assets in M1.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #27 Learning Objective: 09-02 Topic: Money and Its Uses
28. Savings deposits are ______ the M1 measure of money and ______ the M2 measure of money.
A. included in; excluded from
B. included in; included in
C. excluded from; excluded from
D. excluded from; included in
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #28 Learning Objective: 09-02 Topic: Money and Its Uses
29. Money market mutual funds are ______ the M1 measure of money and ______ the M2 measure of money.
A. included in; excluded from
B. included in; included in
C. excluded from; excluded from
D. excluded from; included in
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #29 Learning Objective: 09-02 Topic: Money and Its Uses
30. Credit card balances are not considered to be money primarily because they:
A. are rarely used to make purchases.
B. are not part of people's wealth.
C. are an asset used in making transactions.
D. do not represent an obligation to pay someone else.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #30 Learning Objective: 09-02 Topic: Money and Its Uses
31. Based on the following information, the value of the M1 measure of the money supply is ______ and the value of the M2 measure of the money supply is ______.
A. $530 billion; $3,700 billion
B. $330 billion; $4,230 billion
C. $520 billion; $4,320 billion
D. $530 billion; $4,230 billion
AACSB: Analytic Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #31 Learning Objective: 09-02 Topic: Money and Its Uses
32. The amount of money in the United States is determined by:
A. the Federal Reserve.
B. the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.
C. the public
D. the combined behavior of commercial banks and the public.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #32 Learning Objective: 09-03
33. Assets of the commercial banking system include:
A. reserves and loans.
B. deposits.
C. reserves and deposits.
D. loans and deposits.
34. Liabilities of the commercial banking system include:
A. reserves and loans.
B. deposits.
C. reserves and deposits.
D. loans and deposits.
Topic: Commercial Banks and the Creation of Money
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #33 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #34 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
35. Bank reserves are:
A. currency and customer checking deposits.
B. currency, customer checking and savings deposits.
C. any asset used to purchase goods and services.
D. cash and similar assets held to meet depositor withdrawals or payments.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #35 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
36. One hundred percent reserve banking refers to a situation in which banks' reserves equal 100 percent of their: A. loans.
B. deposits.
C. profits.
D. income.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #36 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
37. Banks hold reserves:
A. to earn interest.
B. to increase profits.
C. only because the government requires them to hold reserves.
D. to meet depositor withdrawals and payments.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #37 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
38. In a fractional-reserve banking system the reserve/deposit ratio equals:
A. more than 100 percent.
B. currency held by the public divided by deposits.
C. 100 percent.
D. less than 100 percent.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #38 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
39. Commercial banks create new money:
A. when they increase their desired reserve/deposit ratio.
B. by issuing checks.
C. through multiple rounds of lending.
D. when they buy government bonds from the Federal Reserve.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #39 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
40. When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:
A. money is created.
B. the bank gains new reserves.
C. the bank immediately loses reserves.
D. the Fed has made an open-market purchase.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #40 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
41. When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:
A. do nothing because this is a profitable situation.
B. stop making loans.
C. send the extra reserves to the central bank.
D. make more loans.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #41 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
42.
There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:
A. $5,000,000
B. $6,250,000
C. $10,000,000
D. $20,000,000
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #42 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
43. If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.
A. $1,000; $1,000
B. $9,000; $9,000
C. $9,000; $10,000
D. $1,000; $9,000
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #43 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
44. When an individual deposits currency into a checking account:
A. bank reserves increase, which allows banks to lend more and increases the money supply.
B. bank reserves decrease, which reduces the amount banks can lend and reduces the growth of the money supply.
C. bank reserves are unchanged.
D. bank liabilities increase, which reduces the amount banks can lend and reduces the growth of the money supply.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #44 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
45. The money supply will increase by a multiple of the increase in bank reserves created by the central bank unless:
A. there is fractional reserve banking.
B. there is 100 percent reserve banking.
C. the public holds no currency.
D. banks' desired reserve/deposit ratio is 0.20.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #45 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
46. After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the:
A. Federal Reserve requires them to stop.
B. deposit insurance limit is reached.
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.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #46 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
47. In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10%, deposits in Macroland equal ______ and the money supply equals _______.
A. $50,000,000; $60,000,000
B. $55,000,000; $55,000,000
C. $50,000,000; $55,000,000
D. $100,000,000; $100,000,000
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #47 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
48. In Macroland there is $12,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ______ and the money supply equals _______.
A. $48,000,000; $75,000,000
B. $54,000,000; $54,000,000
C. $48,000,000; $54,000,000
D. $96,000,000; $96,000,000
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #48 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
49. In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______.
A. increase.
B. decrease.
C. remain the same.
D. either increase or decrease.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #49 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
50. If the public switches from using cash for most transactions to using checks instead, then all else equal, the money supply will:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #50 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
51. If the desired reserve/deposit ratio equals 0.10, then every dollar of currency in bank reserves supports ______ of deposits and the money supply, while every dollar of currency held by the public contributes ______ to the money supply.
A. $1; $10
B. $0.10; $1
C. $1; $0.10
D. $10; $1
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #51 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
52. If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #52 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
53. If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____.
A. 200; 600
B. 400; 800
C. 600; 1,000
D. 800; 1,200
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #53 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
54. If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it:
A. has too few reserves and will reduce its lending.
B. has too many reserves and will increase its lending.
C. has the correct amount of reserves and outstanding loans.
D. should increase the amount of its reserves.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #54 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
55. If the desired reserve/deposit ratio is 0.25 and the banking system receives an additional $10 million in reserves, bank deposits will increase by:
A. $10 million.
B. $250 million.
C. $40 million.
D. $4 million.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #55 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
56. The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____. A. 200
B. 250
C. 500
D. 800
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #56 Learning Objective: 09-03
Topic: Commercial Banks and the Creation of Money
57. The central bank of the United States is:
A. Bank of America.
B. Bank of the United States.
C. the U.S. Treasury.
D. the Federal Reserve System.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #57 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
58. The two main responsibilities of the Federal Reserve System are to ______ and to ______.
A. apprehend counterfeiters; regulate the stock market
B. enable banks to make affordable mortgages; control the exchange rate of the U.S. dollar
C. insure bank deposits; print currency
D. conduct monetary policy; oversee financial markets
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #58 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
59. The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:
A. conducting open-market operations.
B. changing the Federal Reserve discount rate.
C. changing bank reserve requirement ratios.
D. changing interest rates.
60. The most important tool of monetary policy is:
A. reserve requirement ratios.
B. the discount rate.
C. open-market operations.
D. market interest rates.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #59 Learning Objective: 09-04
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #60 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and PricesTopic: Central Banks, the Money Supply, and Prices61. In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.
A. buys; increases
B. buys; decreases
C. sells; decreases
D. sells; increases
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #61 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
62. In an open-market sale the Federal Reserve ______ government bonds and the supply of bank reserves ____.
A. buys; increases
B. buys; decreases
C. sells; increases
D. sells; decreases
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #62 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
63. When the Fed sells government securities, the banks':
A. reserves will increase and lending will expand, causing an increase in the money supply.
B. reserves will decrease and lending will contract, causing a decrease in the money supply.
C. reserve requirements will increase and lending will contract, causing a decrease in the money supply.
D. reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #63 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
64. An open-market purchase of government securities by the Fed will:
A. increase bank reserves, and the money supply will increase.
B. decrease bank reserves, and the money supply will increase.
C. increase bank reserves, and the money supply will decrease.
D. decrease bank reserves, and the money supply will decrease.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #64 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
65. In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 10%. If the Central Bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from ______ econs to ______ econs, assuming that the public does not wish to change the amount of currency it holds.
A. 20,000; 22,000
B. 5,000; 2,000
C. 3,000; 5,000
D. 5,000; 7,000
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #65 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
66. When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:
A. increases by more than $1,000,000.
B. increases by $1,000,000.
C. increases by less than $1,000,000.
D. decreases by $1,000,000.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #66 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
67. When the central bank sells $1,000,000 worth of government bonds to the public, the money supply:
A. decreases by more than $1,000,000.
B. decreases by $1,000,000.
C. decreases by less than $1,000,000.
D. increases by $1,000,000.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #67 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
68. The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming 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 increase the money supply to 3,000, then it should conduct an open-market ______ government bonds.
A. purchase of 50
B. purchase of 250
C. sale of 500
D. sale of 50
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #68 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
69. The link between the money supply and prices is strongest in:
A. the long run.
B. the short run.
C. a recession.
D. a boom.
70. A rapidly growing supply of money will lead to:
A. rising real GDP.
B. rising velocity.
C. unemployment.
D. inflation.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #69 Learning Objective: 09-04
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #70 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices Topic: Central Banks, the Money Supply, and Prices71. The speed at which money circulates is called:
A. the multiplier
B. acceleration.
C. velocity.
D. the pace of money.
72. Nominal GDP divided by the money stock equals:
A. real GDP.
B. the value of transactions.
C. the price level.
D. velocity.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #71 Learning Objective: 09-04
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #72 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices Topic: Central Banks, the Money Supply, and Prices73. If M stands for the money stock, P for the price level, and Y for real GDP, then velocity, V, equals:
A.
(P×Y) ÷ M.
B. (P ×M) ÷ Y.
C. (M ×Y) ÷ P.
D. (M ×P) ÷ Y.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #73 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
74. If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2, then what is velocity if the money stock equals 2,000? A. 2
B. 2.5
C. 5
D. 10
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #74 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
75. The introduction of credit cards and debit cards has ______ velocity.
A. increased
B. decreased
C. had no impact on
D. eliminated
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #75 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
76. Velocity is determined by:
A. the Federal Reserve.
B. the size of the government budget deficit.
C. average labor productivity times the population growth rate.
D. payments methods and technology.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #76 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
77. Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ______ in Alpha than in Beta.
A. the rate of inflation is greater
B. the money stock is smaller
C. the price level is greater
D. the velocity is lower
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Blooms: Analyze Difficulty: 03 Hard Frank - Chapter 09 #77 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
78. The quantity equation states that:
A. money times velocity equals nominal GDP.
B. money times velocity equals real GDP.
C. money times the average price level equals nominal GDP.
D. money times the average price level equals real GDP.
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Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #78 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
79. If the money supply equals 1,000, velocity equals 5, and real GDP equals 2,500, then the price level equals: A. 2.
B. 2.5.
C. 5.
D. 5,000.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #79 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
80. If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals: A. 1.5.
B. 2.
C. 3.
D. 6,000.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #80 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
81. The quantity equation is always true because it:
A. is the definition of velocity rewritten.
B. is a law of economics.
C. has been empirically tested.
D. has been historically verified.
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Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #81 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
82. According to the quantity equation, if velocity and real GDP are constant, and the Federal Reserve increases the money supply by 5 percent, then the price level:
A. decreases by 5 percent.
B. decreases by more than 5 percent.
C. increases by more than 5 percent.
D. increases by 5 percent.
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Blooms: Apply Difficulty: 03 Hard Frank - Chapter 09 #82 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
83. In the long run, countries with higher rates of money growth usually have:
A. higher rates of inflation.
B. lower rates of inflation.
C. faster growth rates of real output.
D. smaller budget deficits.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #83 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
84. Extremely rapid rates of money growth are usually the result of:
A. rapid population growth.
B. excessively high interest rates.
C. large government budget deficits.
D. sharp increases in productivity.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #84 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
85. According to the quantity equation, if velocity and output are constant, then an increase in the money supply leads to ______ in inflation.
A. a less than proportional increase
B. a less than proportional decreases
C. the same percentage increase
D. a greater than proportional increase
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 09 #85 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
86. In the past, some governments’ budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ______, which led to ______.
A. reduced the amount of currency held by the public; a smaller money supply
B. increased bank reserves; a larger reserve/deposit ratio
C. printed large quantities of paper money; hyperinflation
D. ordered the central bank to sell government bonds; an increase in the money supply
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #86 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
87. Two examples of governments that printed large quantities of paper currency to finance massive budget deficits, causing hyperinflation, are ______ and ______.
A. the Confederacy during the American Civil War; Japan after World War II
B. the Confederacy during the American Civil War; Germany after World War I
C. the United States during the Great Depression; Japan after World War II
D. the United States during the Great Depression; Germany after World War I
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 09 #87 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices
Chapter 9 Summary
Category
AACSB: Analytic AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Analyze Blooms: Apply
Blooms: Reflective Thinking Blooms: Remember Blooms: Understand Difficulty: 01 Easy Difficulty: 02 Medium Difficulty: 03 Hard Frank - Chapter 09 Learning Objective: 09-01 Learning Objective: 09-02 Learning Objective: 09-03 Learning Objective: 09-04
Topic: Central Banks, the Money Supply, and Prices Topic: Commercial Banks and the Creation of Money Topic: Money and Its Uses
Topic: The Banking System and the Allocation of Saving to Productive Uses# of Questions
21 66 86 1 19 1 39 27 40 27 20 87 10 21 25 31 31 25 21 10
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