Exam

Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Which of the following is NOT included as a component of money?

1)

_______
A)
income
B)
reserves
C)
saving
D)
bonds
E)
all of the above

2)
Suppose a one-year discount bond offers to pay $1000 in one year and currently sells for $950. Given this information, we
know that the interest rate on the bond is

2)

_______
A)
5.3%.

B)

9.5%.

C)

10%.

D)

90%.

E)

110%.

3)
Which of the following events will cause the interest rate to increase?

3)

_______
A)
an increase in the reserve deposit ratio (i.e., q)
B)
an increase in income
C)
an open market sale of bonds
D)
all of the above

4)
We would expect which of the following to occur when the central bank pursues expansionary monetary policy?

4)

_______
A)
an increase in bond prices and an increase in the interest rate (i)
B)
a reduction in bond prices and an increase in i
C)
an increase in bond prices and a reduction in i
D)
a reduction in bond prices and a reduction in i
E)
none of the above

5)
For this question, assume that individuals hold both currency and checkable deposits. The money multiplier is equal to

5)

_______
A)
1/c.
B)
[c + q(1-c)].
C)
1/(1-c).
D)
1/[c + q(1-c)].
E)
1/q.
 6)
An increase in the parameter c, the proportion of money individuals wish to hold as currency, will tend to cause which of
the following?

6)

_______
A)
an increase in the money multiplier

B)

a reduction in the money multiplier

C)
an increase in the monetary base (H)

D)

a reduction in H

7)
Which of the following is NOT included as a component of the M1 definition of money?

7)

_______
A)
coins and bills held by the nonbank public
B)
bonds
C)
checkable deposits
D)
all of the above
E)
none of the above

8)
For this question, assume that individuals do NOT hold currency (i.e., c = 0). The money multiplier is equal to

8)

_______
A)
1/(1-c).
B)
[c + q(1-c)].
C)
1/[c + q(1-c)].
D)
1/q.
E)
none of the above

9)
If individuals do not hold checkable deposits, we know that

9)

_______
A)
H = CU.

B)

M = CU.
C)
the money multiplier is 1.

D)

all of the above

10)
We would expect which of the following to occur when the central bank pursues contractionary monetary policy?

10)

______
A)
an increase in bond prices and an increase in the interest rate (i)
B)
a reduction in bond prices and an increase in i
C)
an increase in bond prices and a reduction in i
D)
a reduction in bond prices and a reduction in i
E)
none of the above
 11)
We would expect which of the following to occur when the central bank conducts an open market sale of bonds?

11)

______
A)
an increase in H
B)
an increase in the money multiplier
C)
a reduction in the monetary base (H)
D)
a reduction in the money multiplier
E)
both C and D

12)
An increase in income will cause

12)

______
A)
a reduction in the demand for currency.
B)
a reduction in the demand for reserves.
C)
a reduction in the supply of central bank money.
D)
none of the above
E)
both B and C

13)
Which of the following events will most likely cause an increase in the money supply?

13)

______
A)
a shift in public preferences away from checkable deposits toward currency
B)
a decrease in the ratio of reserves to deposits
C)
a central bank sale of bonds
 D)
all of the above
E)
none of the above

14)
Which of the following is a component of high powered money?

14)

______
A)
the sum of currency in circulation, bank reserves, and checkable deposits
B)
currency in circulation plus bank reserves
C)
bonds held by banks, loans, and bank reserves
D)
currency in circulation plus checkable deposits
E)
bonds held by banks plus checkable deposits

15)
For this question, recall that Y is real GDP, $Y is nominal GDP, and M is the money supply. Which of the following ratios
represents the velocity of money?

15)

______
A)
M/$Y
B)
the ratio of M to high powered money (M/H)
C)
Y/M
D)
M/Y
E)
$Y/M

16)
Based on our understanding of the determinants of the interest rate and bond prices, we know that a reduction in income
will cause

16)
______
A)
an increase in bond prices and an increase in the interest rate (i)
B)
a reduction in bond prices and an increase in i
C)
an increase in bond prices and a reduction in i
D)
a reduction in bond prices and a reduction in i
E)
none of the above

17)
Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this
information, we know that the bond's price must be

17)

______
A)
$869.56.
B)
$950.
C)
$850.
D)
$1150.
E)
none of the above

18)
An increase in income will tend to cause which of the following?

18)

______
A)
an increase in the monetary base (H)
B)
a reduction in the money multiplier
C)
a reduction in H
D)
an increase in the interest rate
E)
none of the above
 19)
The interest rate will decrease as a result of which of the following events?

19)

______
A)
an increase in income
B)
an decrease in income
C)
an open market purchase of bonds by the central bank
D)
all of the above
E)
none of the above

20)
Which of the following is NOT a characteristic of bonds?

20)

______
A)
are sold for a price that varies inversely with the interest rate
B)
pay zero interest
C)
cannot be used for transactions
D)
all of the above
E)
none of the above

21)
Which of the following will cause a leftward shift in the money demand curve?

21)

______
A)
an increase in the interest rate
B)
a reduction in income
 C)
a reduction in the interest rate
D)
an open market sale of bonds by the central bank
E)
none of the above

22)
At the current interest rate, suppose the supply of money is greater than the demand for money. Given this information,
we know that

22)

______
A)
the goods market is also in equilibrium.
B)
the supply of bonds also equals the demand for bonds.
C)
the price of bonds will tend to fall.
D)
the price of bonds will tend increase.
E)
production equals demand.

23)
The federal funds rate is determined in which of the following markets?

23)

______
A)
the market for reserves

B)

the market for central bank money

C)
the bond market

D)

the money market

24)
We would expect which of the following to occur when the central bank conducts an open market purchase of bonds?

24)

______
A)
an increase in the money multiplier

B)

a reduction in the monetary base (H)

C)
a reduction in the money multiplier

D)

an increase in the money supply

25)
Which of the following generally occurs when a central bank pursues contractionary monetary policy?

25)

______
A)
the central bank sells bonds and the interest rate increases
B)
the central bank sells bonds and the interest rate decreases
C)
the central bank purchases bonds and the interest rate increases
D)
the central bank purchases bonds and the interest rate decreases

26)
A reduction in the parameter c, the proportion of money individuals wish to hold as currency, will tend to cause which of
the following?

26)

______
A)
a reduction in H

B)

an increase in the money multiplier

C)
an increase in the monetary base (H)

D)

a reduction in the money multiplier

27)
Which of the following is a NOT component of money?

27)

______
A)
checkable deposits
B)
coins and bills held by the nonbank public
C)
coins and bills held by banks
D)
none of the above

28)
Which of the following is a liability on a bank's balance sheet?

28)

______
A)
Checkable deposits
B)
Loans
C)
Reserves
D)
all of the above
E)
none of the above

29)
An increase in the interest rate will cause

29)

______
A)
a reduction in the supply of central bank money.
B)
a reduction in the demand for reserves.
C)
a reduction in the demand for currency.
D)
all of the above
E)
both B and C

30)
We know that the amount of money that individuals want to hold will

30)

______
A)
increase as the interest rate increases.

B)

increase as income decreases.

C)
decrease as the interest rate increases.

D)

none of the above

1)

2)
A

3)
D

4)
C

5)
D

6)
B

7)
E

8)
E

9)
D

10)
B

11)
C

12)
D

13)
B

14)
B

15)
E

16)
C

17)
A
 18)
D

19)
C

20)
B

21)
B

22)
D

23)
A

24)
D

25)
A

26)
B

27)
C

28)
A

29)
E

30)
C