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Final

ECON 1BB3 Study Guide - Final Guide: Aruban Florin, Fiat Money, Nominal Interest Rate


Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy
Study Guide
Final

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Additional Practice Questions:Chapters 11 to 13, 15 and 16
DO NOT FORGET TO REVIEW THE PRACTICE EXAMS FOR TERM TESTS TO PREPARE FOR THE
FINAL EXAM.
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. Money
a. is more efficient than barter.
b. makes trades easier.
c. allows greater specialization.
d. All of the above are correct.
2. When Arnold use dollars to record his income and expenses, he is using money as a
a. unit of account.
b. means of payment.
c. store of value.
d. medium of exchange.
3. Which of the following best illustrates the medium of exchange function of money?
a. You keep some money hidden in your shoe.
b. You keep track of the value of your assets in terms of currency.
c. You pay for your double latte using currency.
d. None of the above is correct.
4. Which list ranks assets from most to least liquid?
a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency
5. Which type of currency has intrinsic value?
a. commodity money
b. fiat money
c. both commodity money and fiat money
d. neither commodity money nor fiat money
6. Which of the following is included in M2 but not in M1?
a. currency
b. demand deposits
c. savings deposits
d. All of the above are included in both M1 and M2
7. Demand deposits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.

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d. neither M1 nor M2.
Type of Money Amount
Large time deposits $80 billion
Small time deposits $75 billion
Demand deposits $75 billion
Other checkable deposits $40 billion
Savings deposits $10 billion
Travelers' checks $1 billion
Money market mutual funds $15 billion
Currency $100 billion
SDRs $10 billion
Miscellaneous categories of M2 $25 billion
8. Use the table above. What is the M2 money supply?
a. $125 billion
b. $341 billion
c. $421 billion
d. $431 billion
9. When Bank of Canada conducts open market purchases,
a. it buys Treasury securities, which increases the money supply.
b. it buys Treasury securities, which decreases the money supply.
c. it borrows from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.
10. In a 100-percent-reserve banking system,
a. banks can create money by issuing currency.
b. banks can create money by lending out reserves.
c. Bank of Canada can increase the money supply with open market sales.
d. banks hold as many reserves as they hold deposits.
11. If you deposit $3,000 into First Hawkeye Bank, the
a. bank's required reserves increase by the reserve ratio times $3,000.
b. bank will be able to lend out $3,000 times the reserve ratio.
c. bank initially sees reserves increase by $0.
d. All of the above are correct.
Use the balance sheet for the following 3 questions.
First Bank of Mason City
Assets Liabilities
Required Reserves $20.00 Deposits $100.00
Loans $80.00
12. The reserve ratio is
a. 0 percent.

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b. 20 percent.
c. 80 percent.
d. 100 percent.
13. If $1,000 is deposited into the First Bank of Mason City,
a. total reserves will initially increase by $200.
b. liabilities will decrease by $1,000.
c. assets will increase by $1,000.
d. required reserves will increase by $800.
14. If $400 is deposited into the First Bank of Mason City,
a. the bank will be able to make additional loans totaling $320.
b. excess reserves initially increase by $320.
c. required reserves initially increase by $80.
d. All of the above are true.
15. If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would
a. rise from10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.
16. Which list contains only actions that increase the money supply?
a. make open market purchases, raise the reserve requirement ratio
b. make open market purchases, lower the reserve requirement ratio
c. make open market sales, raise the reserve requirement ratio
d. make open market sales, lower the reserve requirement ratio
17. If reserve requirements are increased, the reserve ratio
a. increases, the money multiplier increases, and the money supply increases.
b. increases, the money multiplier decreases, and the money supply decreases.
c. decreases, the money multiplier increases, and the money supply increases.
d. decreases, the money multiplier decreases, and the money supply increases.
18. If the reserve ratio is 10 percent, banks do not hold excess reserves, and people do not hold currency, then
when Bank of Canada purchases $20 million of government bonds, bank reserves
a. increase by $20 million and the money supply eventually increases by $200 million.
b. decrease by $20 million and the money supply eventually increases by $200 million.
c. increase by $20 million and the money supply eventually decreases by $200 million.
d. decrease by $20 million and the money supply eventually decreases by $200 million.
19. During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action
a. increases the money multiplier and increases the money supply.
b. decreases the money multiplier and decreases the money supply.
c. does not change the money multiplier, but increases the money supply.
d. does not change the money multiplier, but decreases the money supply.
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