Answer Page--Unit Four

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Laura Goydich
1. All of the following are direct or indirect results of an increase in the money supply except:
B) government spending increases

Laura Goydich
2. Which of the following are assumptions of the money multiplier?
I. Banks will hold no excess reserves.
II. Customers will keep some money as cash instead of in the bank.
III. Banks must keep some money for transactions.
A) I only

Laura Goydich
3. Which of the following is mismatched with the motive behind the demand for money?
B) I keep some money for medical bills or car repairs in the future; speculative motive

Laura Goydich
4. Which of the following are not included in the M2 money supply?
D) large-time deposits

Laura Goydich
5. All of the following are tools of monetary policy except:
E) taxes

Laura Goydich
6. Which of the following monetary policies should be undertaken when the economy is in a recession?
A) buying bonds

Laura Goydich
7. Which of the following is a correct example of the catch-up effect?
B) Nigeria has a lower GDP than the USA, so Nigeria will have a faster economic rate of growth.

JoyEllen
8. When a customer compares the price of a Honda Civic vs. a Toyota Camry, the customer is using money as a(n)
c) Unit of account

JoyEllen
9. All of the following are functions of the FED except
e) Lending money to common citizens

JoyEllen
10. When a customer makes a checkable deposit worth 2,000 dollars into Bank of America, the 2,000 dollars becomes
d) A liability to Bank of America

JoyEllen
11. If the reserve requirement is 20% and the Federal Reserve sells 20 million dollars worth of bonds in an open market operation, the money supply can potentially
d) Decrease by 100 million

JoyEllen
12. To combat a recession, the Federal Reserve could use monetary policy to
b) Expand the money supply to lower interest rates

JoyEllen
13. The term “legal tender” is most likely associated with
e) The acceptability of money


Sarah Flanagan
14. Which of the following is NOT counted as a part of M2?
d) deposits greater than $100,000

Sarah Flanagan
15. Which of the following could be considered fiat money?
I) U.S. dollar
II) Gold
III) Beaver pelts
a) I only

Sarah Flanagan
16. If you were to compare different prices for a sofa using money, you would be using the dollar as a(n):
b) standard of value

Sarah Flanagan
17. A bank receives a deposit of $500. If the reserve requirement is 10%, how much could this bank loan out and how much will the total money supply eventually increase by?


Loans Out
Total Change in Money Supply
c)
$450
$4,500

Sarah Flanagan
18.
external image 10p91km.jpg
external image 10p91km.jpg

If the economy pictured above was operating at MD' rather than at MD, what steps should the Federal Reserve take to alleviate the situation and how would this affect interest rates?


Federal Reserve
Interest Rates
e)
Buy bonds
Decrease

Sarah Flanagan
19. A contractionary monetary policy would lead to which of the following options in the short run?
I) Bond prices would decrease.
II) The money supply would decrease.
III) The nominal interest rate would increase.
c) I, II, and III

Sarah Flanagan
20. If each dollar is spent 3 times per year and nominal GDP for this year is $900 billion, then how much money will be demanded for transaction purposes?
a) $300 billion

Sarah Flanagan
21. If the country were facing a recession, what actions should the Federal Reserve take in order to combat the situation?


Bonds
Discount Rate
d)
Buy bonds
Decrease rate

Sarah Flanagan
22. The nominal interest rate is stated as the
e) real interest rate plus the expected inflation rate

Sarah Flanagan
23.
external image rebecca-graph01.gif
external image rebecca-graph01.gif

Refer to the graph above. What can the Federal reserve do to shift D1 to D2?
b) sell bonds

Laura Goydich
24. When the velocity of money is constant, an increase in the supply of money will have what effect on nominal GDP?
D) It will increase by the same factor as the increase in the money supply.


JoyEllen
25. The shift in the supply/demand graph shown above could be a result of which monetary policy?
d) Increase in the reserve requirement

JoyEllen
26. “Near-monies” are:
a) Assets that can be readily converted into currency or checkable deposits

JoyEllen
27. When a commercial bank pays a reserve requirement to the Federal Reserve, the reserve requirement becomes:
d) Both a and c

JoyEllen
28. Due to an increase in money demanded, the interest rate increased. To lessen the effects of a higher interest rate, the Federal Reserve should:
c) Buy bonds from commercial banks

Anna Purugganan
29. Which is a true statement about the M3 definition of money?
I. It consists of large-time deposits owned primarily by the government.
II. The certificates of deposit in the M3 money supply can be liquidated at any time.
III. As it includes M1 and M2, the M3 definition of money includes assets of basically all degrees of liquidity.
B) II only

Anna Purugganan
30. What action does the Fed most frequently take to directly regulate the money supply?
B) Open market operations

Anna Purugganan
31. What is the most important determining factor in the value of money?
A) It is generally accepted and constantly demanded as a figure of exchange.

Anna Purugganan
32. Currency and deposits owned by which of the following are included in the M1 measure of the money supply?
I. Firms
II. Households
III. Commercial banks
IV. Federal Reserve Banks
C) I and II only

Anna Purugganan
33. The recent increase in the use of technology for transactions has affected which component of the monetary equation of exchange?
E) The velocity of money

Anna Purugganan
34. When someone is determining national GDP, they are using money as:
C) Unit of account

Anna Purugganan
35. What function of money is most directly linked to asset demand for money?
B) Store of value

Anna Purugganan
36. If in a given year the money supply is $200 billion and nominal GDP is $800 billion, how many times must each dollar be spent?
D) 4 times


Frank Buckman
37. If the legal reserve requirement is 20%, the value of the simple deposit expansion multiplier is:
e) 5

Frank Buckman
38. You purchase a used Jeep Wrangler for $11,000 by writing a check. How have you used money?

c) as a medium of exchange

Frank Buckman
39. What is money that is considered money because the government asserts that it is?
a) fiat money

Frank Buckman
40. If nominal GDP is $800 billion and, on the average, each dollar is spent 4 times per year, then the amount of money demanded for transactions purposes will be:
c) $200 billion

Frank Buckman
41. Keeping wealth in ready supply to spend for future use is using money as:
b) a store of value


Frank Buckman
42. Which of the following combinations of monetary policy would cause an increase in aggregate demand?


Discount Rate
Open Market Operations
Reserve Rate
c)
decrease
buy bonds
decrease

Frank Buckman
43. As the interest rate decreases,
c) investment increases and aggregate demand increases

Frank Buckman
44. If bond prices rise, the
c) interest rate will fall

Frank Buckman
45. Which of the following would occur if the money supply increased in the money market graph depicted above?
I. interest rates would fall
II. interest rates would rise
III. the Fed would be enacting an expansionary monetary policy
IV. aggregate demand would decrease
a) I and III

Frank Buckman
46. Which of the following would NOT happen if the Fed enacted the tight monetary policy pictured above?
e) interest rates would decrease


Josh Coons
47. In the equation MV=PQ, V stands for:
a) the rate at which money cycles through the economy

Josh Coons
48. If the Fed buys bonds on the open market and all other factors remain constant, price level will:
b) increase

Josh Coons
49. In an economic recession, the Fed should _ to increase the money supply.
d) buy bonds

Josh Coons
50. In the long run, an expansionary monetary policy during a non-recessionary period will cause:
b) high inflation

Josh Coons
51.[[image:file/view/econgraph1.png width="341" height="267" align="left" caption="econgraph1.png"]]















Given the graph of the economy above, what action should the Fed take?
c) sell bonds

Josh Coons
52. In the equation MV=PQ, what does M stand for?
e) amount of money in circulation

Josh Coons
53.
[[image:file/view/econgraph.png align="left" caption="econgraph.png"]]
















In the graph above, what action has the Fed taken?
a) sold bonds

Josh Coons
54. What does the Fed require of banks to ensure enough money is in the bank at a given time?
a) reserve requirement

Josh Coons
55. In the equation MV=PQ, P stands for:
d) price level

Josh Coons
56. Federal Reserve notes and checkable deposits are considered:

I. M1
II. M2
III. M3

e) I, II, and III

Laura Goydich
57. If the Fed undertakes the monetary policy shown in the graph, which of the following could most directly be a result?
a) inflation

Laura Goydich
58. Suppose the intersection point of the SRAS and AD curves occurs at a real GDP value of 100 billion dollars. When the economy is operating on its production possibilities curve, its real GDP is 150 billion dollars. Which of the following would not help increase the real GDP to 150 billion dollars?
e) increasing the federal funds rate

Anna Purugganan
59. In the graph above, the Fed has taken action to combat economic troubles. Which of the following actions the Fed could have taken would NOT have caused the marked shift in the graph?
C) Reducing taxes

Anna Purugganan
60. Refer to the graph above. What action did the Federal Reserve most likely take?


Reserve ratio
Discount rate
D)
Decrease
Decrease