Question 1

Which of the following is NOT considered part of the M1 measure of money in the United States?

Accepted Answer

Savings deposits

Question 2

A commercial bank receives a $10,000 deposit. If the required reserve ratio is 10%, what is the maximum amount the bank can lend out from this deposit?

Accepted Answer

$9,000

Question 3

Which of the following best describes the main difference between M1 and M2?

Accepted Answer

M2 includes all assets in M1 plus savings deposits, small time deposits, and money market mutual funds.

Question 4

Suppose the velocity of money ($$V) is 5$$, the money supply ($$M) is$$ $$2$$ trillion, and real GDP ($$Y) is$$ $$8$$ trillion. According to the equation of exchange $$MV = PY$$, what is the price level ($$P$$)?

$$MV = PY$$

Accepted Answer

$$P = 3.125$$

Question 5

Which of the following is a liability of the Federal Reserve?

Accepted Answer

Federal Reserve notes in circulation

Question 6

If the Federal Reserve wants to decrease the money supply, which of the following actions would it most likely take?

Accepted Answer

Raise the discount rate

Question 7

A bank has $$100 million in deposits, a required reserve ratio of 10%, and holds 15 $$million in reserves. What are its unplanned reserves?

Accepted Answer

$5 million

Question 8

Which of the following would cause a movement along the money demand curve, rather than a shift of the curve?

Accepted Answer

A change in the interest rate

Question 9

According to the quantity theory of money, if the money supply grows at 6% per year, real GDP grows at 2% per year, and velocity is constant, what is the inflation rate?

$$	ext{Money growth rate} + 	ext{Velocity growth rate} = 	ext{Inflation rate} + 	ext{Real GDP growth rate}$$

Accepted Answer

4%

Question 10

Which of the following best describes cost-push inflation?

Accepted Answer

Inflation caused by an increase in the cost of production, such as higher wages or raw material prices

Question 11

If people expect higher inflation in the future, what is the likely effect on the short-run Phillips curve?

Accepted Answer

It shifts to the right

Question 12

Which of the following is NOT a function of money?

Accepted Answer

Source of government revenue

Question 13

Which of the following would increase the currency drain ratio?

Accepted Answer

People decide to hold more cash relative to deposits

Question 14

Which of the following is a problem associated with deflation?

Accepted Answer

It increases the real burden of debt

Question 15

Suppose the Fed conducts an open market purchase of government securities. What is the immediate effect on bank reserves and the monetary base?

Accepted Answer

Bank reserves increase and the monetary base increases

Question 16

Which of the following would shift the long-run Phillips curve?

Accepted Answer

A change in the natural rate of unemployment

Question 17

If the required reserve ratio is 20% and there are no currency drains, what is the simple money multiplier?

$$	ext{Money Multiplier} = \frac{1}{	ext{Required Reserve Ratio}}$$

Accepted Answer

5

Question 18

Which of the following is NOT a depository institution?

Accepted Answer

Insurance company

Question 19

A rise in real GDP will most likely have which effect on the demand for money?

Accepted Answer

Increase the demand for money

Question 20

Which of the following best describes the long-run Phillips curve?

Accepted Answer

It is vertical at the natural rate of unemployment

Ch. 8 & 12: Money, Price Level, and Inflation

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