Multiple choice

MULTIPLE CHOICE:

1. Money functions as:
a. store of value
b. unit of account
c. medium of exchange
d. all of the above

2. In the United States the M1 money supply is comprised of:
a. coins, paper currency, and checkable deposits.
b. currency, checkable deposits, and government bonds.
c. coins, paper currency, checkable deposits, and credit card balances.
d. paper currency, coins, gold certificates, and time deposits..

3. The largest component of the M1 money supply is:
a. gold certificates
b. checkable deposits
c. currency
d. time deposits

4. The purchasing power of money and the price level vary:

a. inversely
b. directly, but not proportionately
c. directly and proportionately

5. Checkable deposits are:

a. included in M1
b. not included in either M! or M2
c. considered to be a near money
d. also called time deposits

6. Coins held in commercial banks are:

a. included in M1, but not M2
b. included in both M1 and M2
c. included in M2, but not M1
d. not part of the nation's money supply

7. Assuming no other changes, if checkable deposits increase by $40 billion and currency and coins in circulation decrease by $40 billion, the:

a. M1 money supply will decline
b. M1 money supply will not change
c. M2 money supply will decline
8. The asset demand for money:

a. is unrelated to both the interest rate and the level of GDP
b. varies inversely with the rate of interest
c. varies inversely with the real level of GDP
d. varies directly with the level of nominal GDP

9. The total demand for money will shift to the left as a result of:

a. a decline in nominal GDP
b. an increase in the price level
c. a change in the interest rate
d. an increase in nominal gdp

10. If the quantity of money demanded exceeds the quantity supplied:

a. the supply of money curve will shift to the left
b. the demand for money curve will shift to the right
c. the interest rate will rise
d. the interest rate will fall

11. Which of the following statement is correct:

a. interest rates and bond prices vary directly
b. interest rates and bond prices vary inversely
c. interest rates and bond prices are unrelated
d. interest rates and bond prices vary directly during inflations and inversely during recessions

12. Other things equal, if there is an increase in nominal GDP:

a. the demand for money will decrease
b. the interest rate will rise
c. bond prices will rise
d. consumption spending will fall

13. In the U.S. economy the money supply is controlled by:

a. U. S. Treasury
b. Federal Reserve System
c. Congress
d. Senate Committee on Banking and Finance

14. The group that sets the Federal Reserves Systems policy on buying and selling government securities is:

a. Federal Deposit Insurance Corporation (FDIC)
b. Federal Bond sale Authority
c. Council of Economic Advisors
d. Federal Open Market Committee (FOMC)

15. Which of the following statements best describes the twelve Federal Reserve Banks:

a. they are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. treasury securities.
b. they are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.
c. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
d. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

16. The Federal Reserve System :

a. is basically an independent agency..
b. has the same status as the Supreme Court.
c. has the status of a Congressional Committee.
d. is an agency of the executive branch of the Federal government.

17. Credit card balances are:

a. a component of M1.
b. a component of M2, but not M1.
c. a component of M3, but not M2 or M1.
d. not a component of M1, M2, or M3.

18. The reserves of a commercial bank consist of:

a. the amount of money market funds it holds.
b. deposits at the federal reserve bank and vault cash.
c. government securities that the bank holds.
d. The bank's net worth.

19. Commercial banks monetize claims when they:

a. collect checks through the Federal Reserve System.
b. make loans to the public.
c. accept repayment of outstanding loans

20. Banks create money when they:

a. add to their reserves in the Federal Reserve Bank.
b. accept deposits of cash.
c. sell government bonds.
d. exchange checkable deposits for IOU's of businesses and individuals.

21. When a check is drawn and cleared:

a. reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction.
b. The bank against which the check is cleared losses reserves and deposits equal to the amount of the check.
c. The bank receiving the check losses reserves and deposits equal to the amount of the check.
d. The bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

22. Excess Reserves refer to the:

a. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank.
b. minimum amount of actual reserves a bank must keep on hand to back up its customer's deposits.
c. difference between actual reserves and loans.
d. difference between actual reserves and required reserves.

23. Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be:

a. 40 percent
b. 20 percent
c. 10 percent
d. 5 percent

24. When a bank loan is repaid the supply of money:

a. is constant, but its composition will have changed.
b. is decreased.
c. is increased
d. may either increase or decrease

25. If actual reserves in the banking system are $ 8,000, checkable deposits are $ 70,000, and the legal reserve ratio is 10 percent , then excess reserves are:

a. zero
b. $ 1,000
c. $ 2,000
d. $ 500

26. If the reserve ratio is 20%, the money multiplier is:

a. 2
b. 3
c. 4
d. 5

27. The main tools of monetary policy are:

a. tax rate changes, the discount rate, and open-market operations.
b. tax rate changes, changes in government expenditures, and open-market operations.
c. the discount rate, the reserve ratio, and open-market operations.
d. changes in government expenditures, the reserve ratio, and the discount rate.

28. The purchase of government securities from the public by the Fed will cause:

a. commercial bank reserves to decrease.
b. the money supply to increase.
c. demand deposits to decrease
d. the interest rate to increase

29. When the reserve requirement is increased:

a. required reserves are changed into excess reserves.
b. the excess reserves of member banks are increased.
c. a single commercial bank can no longer lend dollar-for-dollar with its excess reserves.
d. the excess reserves of member banks are reduced.

30. The purpose of a tight money policy is to:

a. alleviate recessions.
b. raise interest rates and restrict the availability of bank credit
c. increase aggregate demand and GDP.
d. increase investment spending.

31. If the economy were encountering a severe recession, proper monetary policy and fiscal policies would call for:

a. selling government securities, raising the reserve ratio, lowering the discount rate, and a budgetary surplus.
b. buying government securities, reducing the reserve ratio, reducing the discount rate, and a budgetary deficit.
c. buying government securities, raising the reserve ratio, raising the discount rate, and a budgetary surplus.
d. buying government securities, reducing the reserve ratio, raising the discount rate, and a budgetary deficit.

32. Which of the following explains why the aggregate demand schedule is downward sloping:

a. the real-balances effect.
b. the interest-rate effect.
c. the foreign purchases effect.
d. all of the above

33. Other things equal, a decrease in the real interest rate will:

a. expand investment and shift the AD curve to the left.
b. expand investment and shift the AD curve to the right.
c. reduce investment and shift the AD curve to the left.
d. Reduce investment and shift the AD curve to the right.

34. The economy's long-run aggregate supply curve:

a. slopes downward and to the right.
b. is vertical
c. is horizontal
d. slopes upward and to the right.

35. Which of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left:

a. a reduction in business taxes.
b. deregulation of industry
c. an increase in the price of imported resources.
d. all of the above

36. Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal the:

a. aggregate demand curve will shift leftward.
b. the aggregate supply curve will shift rightward.
c. the aggregate supply curve will shift leftward.
d. the aggregate expenditures curve will shift downward.
37. In the Employment Act of 1946, the Federal government:

a. applied unemployment compensation to intrastate workers.
b. agreed to subsidize unemployed workers to the extent of 50 percent of their average income.
c. committed it to accept some degree of responsibility for general levels of employment and prices.
d. agreed to hire, through public works programs, any employees who cannot find jobs with private industry.

38. An appropriate fiscal policy for a severe recession would be:

a. a decrease in government spending.
b. a decrease in tax rates.
c. appreciation of the dollar.
d. an increase in interest rates

39. The financing of the government deficit increase interest rates and, as a result reduces investment spending. This statement describes:

a. built-in-stability
b. wealth effect
c. crowding-out effect
d. net export effect

40. If the MPS (marginal propensity to save) in an economy is .1 (1/10), government could shift the aggregate demand curve rightward by $40 billion by:

a. increasing government spending by $4 billion.
b. Increasing government spending by $40 billion
c. decreasing taxes by $4 billion
d. increasing taxes by $4 billion.