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Unformatted text preview: Economics 102 Spring 2004 Practice Homework 7 . Concepts: Definition and calculation of the money supply A banks balance sheet The Federal Reserve system The money multiplier The relationship between the money market and the bond market Multiple Choice Questions: 1. Which of the following is NOT a function of money? (a) It facilitates the barter system. (b) It serves as a store of wealth. (c) It serves as a unit of value. (d) It serves as a medium of exchange. 2. The Required Reserve Ratio (RR) is a percentage set by the Federal Reserve System that requires banks to: (a) Lend the RR percent of the banks customer Demand Deposits (DD) to the public. (b) Hold the RR percent of the banks customer DD in the form of cash in their vault or in accounts at the Federal Reserve. (c) Pay RR percent of the banks customer DD to the Federal Reserve as an annual membership fee. (d) Hold the RRR percent of the banks customer DD in the forms of cash in their vault. 3. An open market operation (OMO) refers to: (a) The purchase of goods and services by the Fed. (b) An announcement about the level of the money supply in the economy. (c) The process of printing more money and distributing it to the public. (d) The purchase or sale of bonds to influence the level of the money supply in the economy. 4. Which of the following actions by the government is most likely to increase the money supply in an economy? (Hint: it is probably better to first answer Q3 of the problems) (a) Decreasing the RRR while selling bonds in the market....
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