unit+four--financial+sector

Unit Four--Financial Sector

Answer Page--Unit Four

**Topics may include**: Productivity, Physical Capital, Human Capital, Natural Resources, Technological Knowledge, Diminishing Returns, Catch-Up Effect, Public Policy, Long-Run Economic Growth

Laura Goydich 1. All of the following are direct or indirect results of an increase in the money supply except: A) investment spending increases B) government spending increases C) interest rates decrease D) aggregate demand shifts right E) real GDP 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 B) II only C) II and III only D) I, II, and III E) I and III only

Laura Goydich 3. Which of the following is mismatched with the motive behind the demand for money? A) I need some money to go shopping at the mall this weekend; transaction motive B) I keep some money for medical bills or car repairs in the future; speculative motive C) I need some cash for lunch money; transaction motive D) I keep some money because I might want to use it to invest in something; speculative motive E) I want to have a safety net of 6 months of living expenses; precautionary motive

Laura Goydich 4. Which of the following are not included in the M2 money supply? A) currency B) small-time deposits C) checkable deposits D) large-time deposits E) travelers checks

Laura Goydich 5. All of the following are tools of monetary policy except: A) the required reserve ratio B) buying bonds C) the discount rate D) selling bonds E) taxes

Laura Goydich 6. Which of the following monetary policies should be undertaken when the economy is in a recession? A) buying bonds B) selling bonds C) lowering taxes D) increasing government spending E) increasing the required reserve ratio

Laura Goydich 7. Which of the following is a correct example of the catch-up effect? A) The USA has a higher GDP than Nigeria, so the USA will have a faster economic rate of growth. B) Nigeria has a lower GDP than the USA, so Nigeria will have a faster economic rate of growth. C) Country ABC and the USA have similar GDPs, so they will have the same economic growth rates. D) Country ABC and the USA have similar GDPs, so their economies will compete, resulting in a lower rate of growth for both economies. E) USA’s per capita GDP is directly proportional to its rate of economic 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) a) Checkable deposit b) Medium of exchange c) Unit of account d) Store of value e) Unit of depreciation

JoyEllen 9. All of the following are functions of the FED except a) Issuing currency b) Lending money to banks and thrifts c) Controlling the money supply d) Setting the reserve requirement 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 a) An asset to the FED b) An asset to Bank of America c) A liability to the customer d) A liability to Bank of America e) A liability to the FED

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 a) Increase by 100 million b) Increase by 200 million c) Decrease by 20 million d) Decrease by 100 million e) Increase by 400 million

JoyEllen 12. To combat a recession, the Federal Reserve could use monetary policy to a) Expand the money supply to raise interest rates b) Expand the money supply to lower interest rates c) Lower taxes in order to increase aggregate demand d) Contract the money supply to lower interest rates e) Contract the money supply to raise interest rates

JoyEllen 13. The term “legal tender” is most likely associated with a) The portability of money b) The uniformity of money c) The durability of money d) Commodity money e) The acceptability of money

Sarah Flanagan 14. Which of the following is NOT counted as a part of M2? a) coins b) money market mutual funds c) savings deposits d) deposits greater than $100,000 e) paper money

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

Sarah Flanagan 16. If you were to compare different prices for a sofa using money, you would be using the dollar as a(n): a) unit of account b) standard of value c) medium of exchange d) standard of deferred payment e) alternate income expenditure

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?  Sarah Flanagan 18. 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?  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. a) I only b) I and II only c) I, II, and III d) II and III only e) I and III only
 * =  ||= __Loans Out__ ||= __Total Change in Money Supply__ ||
 * = a) ||= $500 ||= $5,500 ||
 * = b) ||= $450 ||= $5,000 ||
 * = c) ||= $450 ||= $4,500 ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">d) ||= <span style="font-family: Arial,Helvetica,sans-serif;">$100 ||= <span style="font-family: Arial,Helvetica,sans-serif;">$4,500 ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">e) ||= <span style="font-family: Arial,Helvetica,sans-serif;">$50 ||= <span style="font-family: Arial,Helvetica,sans-serif;">$1,000 ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;"> ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Federal Reserve__ ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Interest Rates__ ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">a) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Sell bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">b) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Sell bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">c) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">No change ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">d) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">e) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||

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 b) $500 billion c) $600 billion d) $800 billion e) $900 billion

Sarah Flanagan 21. If the country were facing a recession, what actions should the Federal Reserve take in order to combat the situation? <span style="font-family: Arial,Helvetica,sans-serif;"> Sarah Flanagan 22. The nominal interest rate is stated as the a) future price of stocks and bonds b) CPI minus the expected inflation rate c) CPI plus the expected inflation rate d) real interest rate minus the expected inflation rate e) real interest rate plus the expected inflation rate
 * = <span style="font-family: Arial,Helvetica,sans-serif;"> ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Bonds__ ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Discount Rate__ ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">a) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Sell bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase rate ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">b) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Sell bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease rate ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">c) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase rate ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">d) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease rate ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">e) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">No change ||

Sarah Flanagan 23. Refer to the graph above. What can the Federal reserve do to shift D1 to D2? a) buy bonds b) sell bonds c) decrease the discount rate d) increase taxes e) decrease taxes

Laura Goydich 24. When the velocity of money is constant, an increase in the supply of money will have what effect on nominal GDP? A) it will increase, but not as much as the money supply increased by B) it will decrease C) it will remain the same D) it will increase by the same factor that the money supply increased by E) it will decrease, then increase

<span style="font-family: Arial,Helvetica,sans-serif;">JoyEllen 25.

The shift in the supply/demand graph shown above could be a result of which monetary policy? a) Decrease in government spending b) Decrease in productivity c) Increase in the money supply d) Increase in the reserve requirement e) Decrease in the discount rate

JoyEllen 26. “Near-monies” are: a) Assets that can be readily converted into currency or checkable deposits b) Assets that serve as commodity money c) Large time deposits d) Small and large time deposits e) Checkable deposits

JoyEllen 27. When a commercial bank pays a reserve requirement to the Federal Reserve, the reserve requirement becomes: a) An asset to the commercial bank b) A liability to the bank customers c) A liability to the Federal Reserve d) Both a and c e) Both a, b, 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: a) Sell bonds to commercial banks b) Increase the reserve ratio c) Buy bonds from commercial banks d) Increase the discount rate e) Raise income taxes

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. A) I only B) II only C) I and II only D) I and III only E) II and III only

Anna Purugganan 30. What action does the Fed most frequently take to directly regulate the money supply? A) Adjustment of reserve requirements B) Open market operations C) Lending money to banks D) Adjusting the discount rate E) Regulates the banking system's check collection

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. B) It is linked to a commodity with a constant supply. C) The currency itself--paper and coin--has a set value. D) The government has decreed it legal tender. E) Money can be redeemed in exchange for checkable deposits and vice versa.

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 A) I only B) II only C) I and II only D) II and III only E) I, II, III, and IV

Anna Purugganan 33. The recent increase in the use of technology for transactions has affected which component of the monetary equation of exchange? A) The amount of money in circulation B) The average price level C) Demand for money D) Real GDP E) The velocity of money

Anna Purugganan 34. When someone is determining national GDP, they are using money as: A) Liquidity B) Store of value C) Unit of account D) Medium of exchange E) Legal tender

Anna Purugganan 35. What function of money is most directly linked to asset demand for money? A) Liquidity B) Store of value C) Unit of account D) Medium of exchange E) Legal tender

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? A) 2 times B) 8 times C) 16 times D) 4 times E) 12 times

Frank Buckman 37. If the legal reserve requirement is 20%, the value of the simple deposit expansion multiplier is: a) 4 b) 10 c) 2 d) 6 e) 5

Frank Buckman 38. You purchase a used Jeep Wrangler for $11,000 by writing a check. How have you used money? a) as a unit of account b) as a commodity c) as a medium of exchange d) as an economic investment e) as a store of value

Frank Buckman 39. What is money that is considered money because the government asserts that it is? a) fiat money b) commodity money c) checkable deposits d) M1 money e) M2 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: a) $2400 billion b) $1600 billion c) $200 billion d) $400 billion e) $800 billion <span style="font-family: Arial,Helvetica,sans-serif;"> Frank Buckman 41. Keeping wealth in ready supply to spend for future use is using money as: a) a medium of exchange b) a store of value c) a unit of account d) an economic investment e) a commodity

Frank Buckman 42. Which of the following combinations of monetary policy would cause an increase in aggregate demand? <span style="font-family: Arial,Helvetica,sans-serif;"> Frank Buckman 43. As the interest rate decreases, a) investment decreases, but aggregate demand remains constant b) investment decreases and aggregate demand decreases c) investment increases and aggregate demand increases d) investment and aggregate demand both remain constant e) investment increases, but aggregate demand remains constant
 * <span style="font-family: Arial,Helvetica,sans-serif;"> ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Discount Rate__ ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Open Market Operations__ ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Reserve Rate__ ||
 * <span style="font-family: Arial,Helvetica,sans-serif;">a) ||= <span style="font-family: Arial,Helvetica,sans-serif;">increase ||= <span style="font-family: Arial,Helvetica,sans-serif;">buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">decrease ||
 * <span style="font-family: Arial,Helvetica,sans-serif;">b) ||= <span style="font-family: Arial,Helvetica,sans-serif;">decrease ||= <span style="font-family: Arial,Helvetica,sans-serif;">sell bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">decrease ||
 * <span style="font-family: Arial,Helvetica,sans-serif;">c) ||= <span style="font-family: Arial,Helvetica,sans-serif;">decrease ||= <span style="font-family: Arial,Helvetica,sans-serif;">buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">decrease ||
 * <span style="font-family: Arial,Helvetica,sans-serif;">d) ||= <span style="font-family: Arial,Helvetica,sans-serif;">increase ||= <span style="font-family: Arial,Helvetica,sans-serif;">sell bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">increase ||
 * <span style="font-family: Arial,Helvetica,sans-serif;">e) ||= <span style="font-family: Arial,Helvetica,sans-serif;">decrease ||= <span style="font-family: Arial,Helvetica,sans-serif;">buy bonds ||= <span style="font-family: Arial,Helvetica,sans-serif;">increase ||

Frank Buckman 44. If bond prices rise, the a) interest rate will increase b) interest rate will remain constant c) interest rate will fall d) transaction demand for money will increase e) transaction demand for money will decrease

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 b) I and II c) II and III d) II and IV e) I, III, and IV

Frank Buckman 46. Which of the following would **NOT** happen if the Fed enacted the tight monetary policy pictured above? a) interest-sensitive consumption would decrease b) investment would be discouraged c) price level falls d) GDP decreases 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 b) the amount of money in the economy c) the price level d) the GDP or output level e) nominal interest rate

Josh Coons 48. If the Fed buys bonds on the open market and all other factors remain constant, price level will: a) decrease b) increase c) remain constant d) fluctuate erratically e) impossible to know

Josh Coons 49. In an economic recession, the Fed should _ to increase the money supply. a) increase interest rates b) decrease interest rates c) sell bonds d) buy bonds e) do nothing

Josh Coons 50. In the long run, an expansionary monetary policy during a non-recessionary period will cause: a) a reduction in employment b) high inflation c) a reduction in price level d) a recession e) nothing will happen

Josh Coons 51.

Given the graph of the economy above, what action should the Fed take? a) decrease interest rates b) increase the discount rate c) sell bonds d) buy bonds e) decrease the reserve requirement

Josh Coons 52. In the equation MV=PQ, what does M stand for? a) rate at which money circulates through the economy b) nominal interest rate c) money demand d) price level e) amount of money in circulation

Josh Coons 53.

In the graph above, what action has the Fed taken? a) sold bonds b) bought bonds c) increased interest rates d) decreased interest rates e) printed money

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 b) discount rate c) price level requirement d) tax multiplier requirement e) Keynesian flow requirement

Josh Coons 55. In the equation MV=PQ, P stands for: a) GDP b) rate at which money circulaes through the economy c) amount of money in circulation d) price level e) real interest rate

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

I. M1 II. M2 III. M3

a) I only b) II only c) III only d) I and II only e) I, II, and III

Laura Goydich 57. <span style="font-family: Arial,Helvetica,sans-serif;"> i=NOMINAL INTEREST RATE Q=QUANTITY OF MONEY
 * <span style="font-family: Arial,Helvetica,sans-serif;">Quantity of Money ||

If the Fed undertakes the monetary policy shown in the graph, which of the following could most directly be a result? a) inflation b) decline in real GDP c) increase in real interest rates d) decrease in nominal GDP e) recession

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? a) decreasing the required reserve ratio b) lowering the discount rate c) buying bonds d) increasing government spending 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? A) Selling bonds B) Raising the discount rate C) Reducing taxes D) Increasing the reserve ratio E) None of the above

Anna Purugganan 60. Refer to the graph above. What action did the Federal Reserve most likely take?
 * = <span style="font-family: Arial,Helvetica,sans-serif;"> ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Reserve ratio__ ||= <span style="font-family: Arial,Helvetica,sans-serif;">__Discount rate__ ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">A) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">B) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">C) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||= <span style="font-family: Arial,Helvetica,sans-serif;">Increase ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">D) ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||
 * = <span style="font-family: Arial,Helvetica,sans-serif;">E) ||= <span style="font-family: Arial,Helvetica,sans-serif;">No change ||= <span style="font-family: Arial,Helvetica,sans-serif;">Decrease ||