Question 1

Which of the following are included in the M3 definition of money?

Accepted Answer

A)  Currency outside of banks and credit lines on credit cards
B)  Currency inside of banks and banks' reserves
C)  Currency both inside and outside of banks
D)  Currency outside of banks,current account deposits and other deposits
E)  Government bondsF) A) and C)
G) B) and D)

Question 2

A currency drain is

Accepted Answer

A)  an increase in currency held outside banks.
B)  when excess reserves are greater than desired reserves.
C)  when the bank either buys or sells securities.
D)  when excess reserves are loaned to individuals.
E)  when the bank raises the excess reserve ratio.F) All of the above
G) A) and B)

Question 3

C/D is the currency drain ratio and R/D is the desired reserve ratio.The money multiplier equals

Accepted Answer

A)   R/D−C/D1+R/D \frac{R / D-C / D}{1+R / D} 1+R/DR/D−C/D​ 
B)   R/D+C/D1+C/D \frac{R / D+C / D}{1+C / D} 1+C/DR/D+C/D​ 
C)   1+C/DR/D+C/D \frac{1+C / D}{R / D+C / D} R/D+C/D1+C/D​ 
D)   1+R/D1+C/D \frac{1+R / D}{1+C / D} 1+C/D1+R/D​ 
E)   1+R/DR/D+C/D \frac{1+R / D}{R / D+C / D} R/D+C/D1+R/D​F) A) and B)
G) D) and E)

Question 4

Cheques are not money because they

Accepted Answer

A)  are not always accepted when trying to purchase goods or services.
B)  are just instruments to transfer money between banks.
C)  are not issued by the government.
D)  are not guaranteed by banks.
E)  can bounce when there are not enough funds to cash them.F) B) and D)
G) A) and B)

Question 5

The demand for money increases and the demand for money curve shifts rightward if

Accepted Answer

A)  the inflation rate increases.
B)  the nominal interest rate increases.
C)  real GDP decreases.
D)  the price level increases.
E)  the real interest rate increases.F) A) and E)
G) None of the above

Question 6

Banks create money by

Accepted Answer

A)  printing money up to their required reserve limit.
B)  printing dollar bills.
C)  buying government securities with cash.
D)  making loans and creating deposits.
E)  creating securities.F) C) and D)
G) B) and C)

Question 7

If a bank has $25,000 in excess reserves and the desired reserve ratio is 20 per cent,what is the maximum this bank can loan?

Accepted Answer

A)  $25,000
B)  $20,000
C)  $5,000
D)  $125,000
E)  $30,000F) A) and C)
G) B) and C)

Question 8

In the money market,in the short run in order to decrease the nominal interest rate,the Reserve Bank must

Accepted Answer

A)  decrease the demand for money.
B)  directly lower the interest rate and not change either the demand for money or the supply of money.
C)  increase the discount rate.
D)  increase the quantity of money.
E)  decrease the quantity of money.F) A) and B)
G) B) and C)

Question 9

-The above table has the demand and supply schedules for money.Real GDP increases and,as a result,the demand for money increases by $0.1 trillion at each level of the nominal interest rate.The new equilibrium interest rate is

Accepted Answer

A)  3 per cent.
B)  2 per cent.
C)  5 per cent.
D)  7 per cent.
E)  10 per cent.F) B) and C)
G) A) and E)

Question 10

-In the above figure,if the interest rate is 2 per cent per year,the ________ because ________.

Accepted Answer

A)  demand for money curve will shift;the quantity of money demanded is greater than the quantity of money supplied
B)  interest rate will change;the quantity of money demanded is less than the quantity of money supplied
C)  demand for money curve will shift;the quantity of money demanded is less than the quantity of money supplied
D)  supply of money curve will shift;the quantity of money demanded is greater than the quantity of money supplied
E)  interest rate will change;the quantity of money demanded is greater than the quantity of money suppliedF) B) and E)
G) A) and E)

Question 11

When the Reserve Bank ________,the quantity of banks' reserves decreases.

Accepted Answer

A)  raises the required reserve ratio
B)  buys government securities
C)  increases taxes
D)  sells government securities
E)  lowers the required reserve ratioF) None of the above
G) B) and C)

Question 12

Banks create money by

Accepted Answer

A)  lending to the Reserve Bank.
B)  asking the Reserve Bank to print more currency.
C)  making loans.
D)  buying government securities.
E)  printing currency.F) B) and D)
G) A) and B)

Question 13

If Reserve Bank notes are $65 billion and banks' deposits at the Reserve Bank are $22 billion,the stock of gold and foreign exchange is $74 billion,and the Reserve Bank owns $13 billion of government securities,what does the monetary base equal?

Accepted Answer

A)  $76 billion
B)  $87 billion
C)  $65 billion
D)  $88 billion
E)  $74 billionF) All of the above
G) A) and D)

Question 14

The monetary base consists of

Accepted Answer

A)  gold and Reserve Bank notes.
B)  Australian dollar securities and foreign exchange.
C)  Australian dollar reserves and banks' reserve deposits.
D)  Reserve Bank notes and banks' reserve deposits.
E)  gold and foreign exchange.F) B) and E)
G) A) and E)

Question 15

A bank's desired reserve ratio is

Accepted Answer

A)  the ratio of currency to deposits.
B)  the ratio of deposits to currency.
C)  the ratio of deposits to reserves that a bank wants to hold to meet daily business requirements.
D)  the ratio of reserves to deposits that a bank wants to hold to meet daily business requirements.
E)  determined by actual reserves less desired reserves.F) A) and E)
G) C) and D)

Question 16

Which of the following is an example of money?

Accepted Answer

A)  A debit card.
B)  Currency inside the banks.
C)  Cheques written as payment for a good or service.
D)  A credit card used as a payment for a good or service.
E)  Currency in your wallet.F) A) and B)
G) C) and D)

Question 17

Banks earn a profit by

Accepted Answer

A)  making loans at a higher interest rate than the rates they offer on their deposits.
B)  keeping as many reserves on hand as possible.
C)  making loans at a lower interest rate than the rate they offer on their deposits.
D)  not paying interest on their reserves.
E)  charging an interest rate on their depositors' accounts.F) A) and C)
G) D) and E)

Question 18

Which of the following describes the "invention" of banking?

Accepted Answer

A)  The United States government founded the Federal Reserve in 1913.
B)  Members of the New York Stock Exchange founded the Bank of America in the 1700s.
C)  Clergy in the Renaissance created the banking system to help further the growth of the church.
D)  The British Empire created a banking system to fund its exploration of the New World.
E)  Goldsmiths in the sixteenth century issued gold receipts which entitled their owners to reclaim their gold on demand.F) A) and E)
G) B) and E)

Question 19

When the Reserve Bank purchases government securities,

Accepted Answer

A)  required reserves in the banking system increase,leading to more loans being made.
B)  the monetary base does not change.
C)  required reserves in the banking system decrease,leading to fewer loans being made.
D)  excess reserves in the banking system increase,leading to more loans being made.
E)  excess reserves in the banking system decrease,leading to fewer loans being made.F) B) and E)
G) A) and B)

Question 20

The demand for money is

Accepted Answer

A)  positively related to the nominal interest rate.
B)  positively related to the real interest rate.
C)  negatively related to the price level.
D)  positively related to the price level.
E)  negatively related to real GDP.F) C) and E)
G) A) and E)

Exam 10: Money,the Price Level and Inflation

When the Reserve Bank purchases government securities,

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Which of the following are included in the M3 definition of money?

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If a bank has $25,000 in excess reserves and the desired reserve ratio is 20 per cent,what is the maximum this bank can loan?

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C/D is the currency drain ratio and R/D is the desired reserve ratio.The money multiplier equals

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-The above table has the demand and supply schedules for money.Real GDP increases and,as a result,the demand for money increases by $0.1 trillion at each level of the nominal interest rate.The new equilibrium interest rate is

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In the money market,in the short run in order to decrease the nominal interest rate,the Reserve Bank must

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If Reserve Bank notes are $65 billion and banks' deposits at the Reserve Bank are $22 billion,the stock of gold and foreign exchange is $74 billion,and the Reserve Bank owns $13 billion of government securities,what does the monetary base equal?

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Banks earn a profit by

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Banks create money by

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The demand for money is

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The demand for money increases and the demand for money curve shifts rightward if

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Cheques are not money because they

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Banks create money by

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-In the above figure,if the interest rate is 2 per cent per year,the ________ because ________.

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A bank's desired reserve ratio is

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Which of the following describes the "invention" of banking?

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The monetary base consists of

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A currency drain is

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When the Reserve Bank ________,the quantity of banks' reserves decreases.

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Which of the following is an example of money?

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-In the above figure,if the interest rate is 2 per cent per year,the because .

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