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The demand for money is a relationship between _

ECO105 Macroeconomics

Module 6 Quiz   

Question 1The demand for money is a relationship between _____.

   the interest rate and how much money people earn during a certain time period.

 

 the price level and the actual output produced in an economy.

 

 the interest rate and how much money people choose to hold.

 

 the price level and the amount of cyclical unemployment.

 

 Question 2If a bank sells a $1,000 security to the Fed and the required reserve ratio is 10 percent, _____.

 

the bank has $1,000 in additional reserves, of which it can lend $900.

 

 the bank has lost an asset and must reduce its loans.

 

 the bank has lost a liability.

 

the bank has $1,000 in additional reserves, of which it can lend $800.

 

 Question 3If each bank in the United States had to keep 100 percent of checkable deposits as reserves, each $1 the Fed injected into new reserves could increase the money supply by _____.

 

   $100.

 

 $1.

 

 $5.

 

 $2.

 

 Question 4Which of these changes is likely to follow when the Fed sells U.S. government securiti

 

The demand for financial securities will decrease.

 

 Aggregate demand will increase.

 

 Rate of interest will decrease.

 

 Planned investment spending will decrease.

 

 Question 5Identify the correct statement about changes in money supply.

 

   A decrease in money supply causes gross domestic product to increase.

 

  A decrease in money supply causes investment spending to decrease.

 

A decrease in money supply causes investment spending to increase.

 

 A decrease in money supply causes interest rates to fall.

 

 Question 6If the Fed decreases the money supply, gross domestic product _____.

 

increases by the same amount as the increase in the interest rate.

 

decreases by a greater amount than the increase in the interest rate because of the multiplier.

 

 decreases by the same amount as the decrease in investment.

 

 decreases by a greater amount than the decrease in investment because of the multiplier.

 

 Question 7The demand for money will be high in an economy experiencing _____.

 

hyperinflation.

 

 deflation.

 

 a depression.

 

 a recession.

 

 Question 8Which of the following is not money?

 

debit cards

 

 coins

 

 federal reserve notes

 

 credit cards

 

 Question 9If an increase of $5 million in excess reserves increases checkable deposits in the banking system by a maximum of $50 million, the required reserve ratio would be _____.

 

10 percent.

 

 0 percent.

 

 5 percent.

 

 20 percent.

 

 Question 10If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves, the Fed is _____.

 

making it possible for banks to decrease the money supply but not forcing them to do so.

 

 forcing banks to decrease the money supply.

 

 forcing banks to increase the money supply.

 

 making it possible for banks to increase the money supply but not forcing them to do so.

 

 Question 11 The equilibrium interest rate in a money market is determined by _____.

 

money demand and money supply.

 

 aggregate demand and aggregate supply.

 

 the rate of inflation.

 

 the Congress.

 

 Question 12 If the money supply is $600, the price level is $2, and real GDP is $300, the velocity of money is _____.

 

300.

 

 150.

 

1.

 

600.

 

 Question 13According to the equation of exchange, if the amount of money in an economy multiplied by the velocity of money equals 800 million dollars, then this economy’s _____.

 

   real GDP equals $800 million times the price level.

 

nominal GDP equals $800 million.

 

 real GDP equals $800 million.

 

 nominal GDP equals $800 million times the price level.

 

 Question 14If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its _____.

 

assets are $500,000.

 

 required reserves are $20,000.

 

 liabilities are $500,000.

 

required reserves are $500,000.

 

 Question 15On a bank’s balance sheet, the value of its assets must equal the value of its _

 

   net worth only.

 

 its revenues plus costs.

 

 its liabilities plus net worth.

 

 liabilities only.

 

 Question 16If the required reserve ratio is 20 percent, the simple money multiplier must be equal to _____.

 

20.

 

 10.

 

5.

 

 40.

 

 Question 17Table 14.1

 

EUBANK

 

Assets  

 

Liabilities and Net Worth             

 

Deposits at the Fed         $40,000 Checkable Deposits        $500,000

 

Cash      $10,000 Net Worth          $20,000

 

Loans    $300,000             

 

 

 

Securities            $150,000             

 

Fed Stock            $20,000

 

 

 

Refer to Table 14.1 for the balance sheet of Eubank. If Eubank is holding no excess reserves, its required reserve ratio must be _____.

 

4 percent.

 

8 percent.

 

 5 percent.

 

 20 percent.

 

 Question 18A situation in which one side of the market has more reliable information than the other side is called _____.

 

adverse selection.

 

 free-riding.

 

 asymmetric information.

 

 moral hazard.

 

 Question 19Which of these changes is likely to follow when the Fed purchases U.S. government securities?

 

The demand for financial securities will increase.

 

 Rate of interest will increase.

 

 Aggregate demand will decrease.

 

 Planned investment spending will increase.

 

 Question 20 The M1 money supply consists of _____.

 

   money market mutual fund accounts, savings accounts, and other miscellaneous near-monies.

 

 coins and currency held by the nonbank public, checkable deposits, and traveler’s checks.

 

 certificates of deposit only.

 

 only coins and currency held by the nonbank public.

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