practicequestions8fall2004

practicequestions8fall2004 - Econ 102 Fall 2004 Practice...

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Econ 102 Fall 2004 Practice Questions 8 Readings: Chapter 11, 12, 13, 14, and 15 Chapter 11 and 12 1. The distinction between M 1 and M 2 is based on a. portability—the ease with which an asset can be moved. b. divisibility—the ease with which an asset can be used to make smaller payments. c. liquidity—the ease with which an asset can be converted into cash. d. storability—how long an asset will retain its value. 2. When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions a. decreases the money supply by $1,000. b. decreases the money supply by $200. c. increases the money supply by $200. d. increases the money supply by $800. 3. If the Federal Open Market Committee decides to expand the money supply, then it will a. raise the discount rate to member banks. b. issue directions to purchase government securities, thus putting more reserves in member banks. c. issue directions to sell government securities, thus taking reserves from member banks. d. order new Federal Reserve notes delivered to member banks. 1
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4. The Fed conducts an open market purchase of Treasury bills of $10 million. If the required reserve ratio is .10, what change in the money supply can be expected using the demand deposit multiplier? a. $100 million b. $10 million c. –$10 million d. –$100 million 5. How are Treasury bond prices affected when the interest rate falls? a. The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. b. The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. c. The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. d. The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 6. Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities from member banks. If the demand deposit multiplier is assumed, then the money supply will a. increase by $500 million. b. increase by $100 million. c. decrease by $100 million. d. decrease by $500 million. 7. If the Fed wants to reduce banks’ reserves, it can a. buy securities in the open market. b. lower the reserve ratio. c. lower the federal funds rate. d. raise the discount rate. 2
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8. If the Fed raises the discount rate, what will be the effect on the money supply? a. It will decrease the money supply. b.
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practicequestions8fall2004 - Econ 102 Fall 2004 Practice...

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