ECO 9

QN=206 (17908) An increase in the money supply might indicate that the Fed had

• a. purchased bonds in an attempt to increase the federal funds rate.

• b. purchased bonds in an attempt to reduce the federal funds rate.

• c. sold bonds in an attempt to increase the federal funds rate.

• d. sold bonds in an attempt to reduce the federal funds rate.

QN=207 (17907) The banking system currently has $200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 4 percent. If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion of bonds, then by how much does the money supply change?

• a. (i) It rises by $600 billion

• b. (ii) It rises by $125 billion

• c. (iii) It falls by $2,500 billion.

• d. None of (i), (ii), and (iii) is correct.

QN=208 (17915) At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

• a. increased. The central bank could have reduced the size of this increase by buying bonds

• b. increased. The central bank could have reduced the size of this increase by selling bonds.

• c. decreased. The central bank could have reduced the size of this decrease by buying bonds.

• d. decreased. The central bank could have reduced the size of this decrease by selling bonds.

QN=209 (17924) The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be

• a. 50/255.

• b. 40/255

• c. 50/300

• d. 40/300.

QN=210 (17903) In a system of 100-percent-reserve banking, the purpose of a bank is to

• a. make loans to households

• b. influence the money supply

• c. give depositors a safe place to keep their money.

• d. buy and sell gold.

QN=211 (17928) During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits

• a. Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase

• b. Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.

• c. The decision to hold relatively more currency would make the money supply increase. The decision to hold relatively more excess reserves would make the money supply decrease.

• d. The decision to hold relatively more currency would make the money supply decrease. The decision to hold relatively more excess reserves would make the money supply increase.

QN=212 (17955) Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

• a. the value of money is lower than its equilibrium level.

• b. the price level is higher than its equilibrium level.

• c. the quantity of money demanded is greater than the quantity of money supplied.

• d. the quantity of money supplied is greater than the quantity of money demanded.

QN=213 (17957) The classical dichotomy argues that changes in the money supply..

• a. affect both nominal and real variables.

• b. affect neither nominal nor real variables

• c. affect nominal variables, but not real variables

• d. do not affect nominal variables, but do affect real variables.

QN=214 (17930) When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a.

• a. movement to the right along the money demand curve

• b. movement to the left along the money demand curve.

• c. shift to the right of the money supply curve.

• d. shift to the left of the money supply curve.

QN=215 (17956) Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?..

• a. $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.

• b. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars

• c. $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars

• d. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.