ECN 204 Chapter Notes - Chapter 14: Reserve Requirement, Securitization, Money Supply
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Question 1. Which of the following is not included in M1?
a- currency
b- demand deposits
c- traveller's checks
d- credit cards
b- exactly $200. c- less than $200. d- None of the above are correct. |
b- M2 but not M1. c- M1 and M2. d- neither M1 nor M2. |
b- are a store of value. c- have led to wider use of currency. d- are part of the money supply. |
b- 20 percent. c- 80 per cent. d- 100 per cent. |
b- serves as a medium of exchange but not as a unit of account. c- is commodity money. d- has no intrinsic value. |
b- $125; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency. c- $3,700; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange. d- $3,700; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency. |
b- it is a medium of exchange. c- it is a unit of account. d- it has intrinsic value. |
b- government bonds are conducted at the New York Fed's trading desk. c- real estate and other real assets are conducted by the Federal Open Market Committee. d- All of the above are correct. |
b- inflation in the long run and employment and production in the long run. c- inflation in the short run and employment and production in the short run. d- inflation in the short run and employment and production in the long run. |
Question 1
The higher the capital utilization rate, the greater the depreciation rate.
True |
False |
Question 2
Higher capital utilization rates may raise the user costs of capital because higher utilization rates imply
operating at inconvenient times. |
paying overtime to employees operating the machines. |
operating when complementary services like transporters are unavailable or more expensive. |
All of the above. |
Question 3
If the rental price of capital increase, the capital utilization rate
increases. |
decreases. |
remains the same. |
depends on whether the substitution rate is greater than the income effect |
Question 4
The vacancy rate in the labor market is
the number of job openings divided by the number of unemployed people in the labor force. |
the number of job openings divided by the number of workers in the labor force. |
the ratio of open jobs to filled jobs. |
the ratio of open jobs to the total number of jobs that employers want occupied. |
Question 5
Unemployment can exist in a market clearing model if it takes some search time for workers to find jobs.
True |
False |
Question 6
A decrease in workersĆ¢ĀĀ effective real incomes while they are unemployed will
lower the job finding rate and raise the expected duration of unemployment. |
lower the job finding rate and the expected duration of unemployment. |
raise the job finding rate and lower the expected duration of unemployment. |
raise the job finding rate and the expected duration of unemployment. |
Question 7
In the Barro model, the natural rate of unemployment is
positively related to the job separations rate. |
zero. |
fixed. |
positively related to the job finding rate. |
Question 8
If the interest rate increases, the real demand for money also increases
True |
False |
Question 9
Commodity money is money that has value because
of the intrinsic value of the commodity. |
it is legal tender. |
the government says so. |
All of the above. |
Question 10
High-powered money is
money held by business for investment. |
total currency in circulation plus depository institution deposits at the Fed. |
total currency in circulation. |
government bonds held by the public and depository institutions. |
Question 11
U.S. M1 money includes
currency held by the public. |
checkable deposits. |
travelerĆ¢ĀĀs checks. |
All of the above. |
Question 12
U.S. M2 money includes
currency, time deposits, and government bonds. |
savings deposits, small time deposits, and private bonds. |
checkable deposits, savings deposits, and small time deposits. |
retail money market mutual funds, small time deposits, and government bonds. |
Question
Money is different from other assets like capital and bonds in that
money does not pay interest. |
money has intrinsic value. |
money is a better long term store of value. |
All of the above. |
Question
If a personĆ¢ĀĀs income doubles, we expect their cash holdings to
double |
more than double. |
less than double. |
decrease. |
Question 15
Real money demand does not change when
nominal GDP changes. |
the interest rate changes. |
the price level changes. |
All of the above. |
Question 16
All else constant, the price level rises when the supply of money increases.
True |
False |
Question 17
If the nominal interest rate were to increase, then
money demand decreases and the price level increases. |
money demand increases and the price level decreases. |
the money supply and the price level would increase. |
the money supply and the price level would decrease. |
Question 18
Real money demand is a function of real GDP and the nominal interest rate.
True |
False |
Question 19
The real return on money is zero.
True |
False |
Question 20
If the expected inflation rate is 5% and the unexpected inflation rate is 4%, the actual inflation is
1% |
9% |
-1% |
1.25% |
Question 21
When the rate of growth of money is constant
the inflation rate equals the growth rate of money. |
the nominal interest rate rises. |
real money balances are declining. |
All of the above. |
Question 22
A decrease in the money growth rate in the market clearing model causes
a decrease in the nominal interest rate. |
an increase in money demand. |
a decrease in the price level. |
All of the above. |
Question 23
A decrease in the money growth rate in the market clearing model causes
an increase in the nominal interest rate. |
an increase in money demand. |
an increase in the price level. |
All of the above. |
Question 24
Under price level targeting the money supply becomes
neutral |
endogenous |
exogenous |
predetermined |
Q 25 During a recession, the interest rate falls tending to cause money demand to rise, but is at least partly offset by real GDP falling tending to cause money demand to fall.
True |
False |
1. The market in which loans are bought and sold is called the:
Ā | Ā |
loan market. |
Ā | Ā |
money market. |
Ā | Ā |
secondary loan market. |
Ā | Ā |
primary loan market. |
2. Which of the following is omitted in a barter transaction?
Ā | Ā |
trade |
Ā | Ā |
medium of exchange |
Ā | Ā |
store of value |
Ā | Ā |
money |
3. If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
Ā | Ā |
balance of trade |
Ā | Ā |
double coincidence of wants |
Ā | Ā |
convenience of exchange |
Ā | Ā |
division of labour |
4. If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.
Ā | Ā |
depend on borrowed money |
Ā | Ā |
typically generate extraordinary gains |
Ā | Ā |
make loans to financial capital markets |
Ā | Ā |
failed to diversify risk |
5. Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at the market value of $400 million, what will its total assets equal?
Ā | Ā |
$110 million |
Ā | Ā |
$710 million |
Ā | Ā |
$480 million |
Ā | Ā |
$510 million |
6. Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?
Ā | Ā |
medium of exchange |
Ā | Ā |
unit of account |
Ā | Ā |
store of value |
Ā | Ā |
unit of exchange |
7.Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
Ā | Ā |
savings |
Ā | Ā |
money |
Ā | Ā |
M2 |
Ā | Ā |
M1 |
8. Which of the following institutions determines the quantity of money in the economy as its most important task?
Ā | Ā |
U.S. Department of the Treasury |
Ā | Ā |
Federal Open Market Committee |
Ā | Ā |
Central Bank |
Ā | Ā |
Federal Reserve Board of Governors |
9. How are the specific interest rates for the lending and borrowing markets determined?
Ā | Ā |
U.S. Treasury Department Board policy |
Ā | Ā |
by the forces of supply and demand |
Ā | Ā |
through open market operations |
Ā | Ā |
by altering the discount rate |
10.When the central bank lowers the reserve requirement on deposits:
Ā | Ā |
the money supply increases and interest rates decrease. |
Ā | Ā |
the money supply and interest rates decrease. |
Ā | Ā |
the money supply and interest rates increase. |
Ā | Ā |
the money supply decreases and interest rates increase. |