# sp04-4 - University of Colorado at Denver Spring 2004 Econ...

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University of Colorado at Denver, Spring 2004 Econ 2012 Principles of Economics: Macroeconomics Instructor: Vijaya Sharma, Ph.D. Exam 4 Answer all 40 multiple choice questions. 1. What is the function of money? a. medium of exchange b. measure of value of goods, services, and assets c. a form of asset d. all of the above 2. Fiat money is a. the Italian currency. b. the paper money. c. the money made of metal coins. d. the Euro, the currency of the European Union. 3. What is the size of money multiplier when reserve required ratio is 0.20? a. 20 b. 80 c. 4 d. 5 4. What would be the change in money supply with a new deposit of \$2,500 in the banking system when the size of money multiplier is 4? a. Decrease in money supply of \$2,500 b. Increase in money supply of \$2,500 c. Decrease in money supply of \$10,000 d. Increase in money supply of \$10,000 5. What is the cost of holding money balances? a. zero b. nominal interest rate forgone c. the value of money multiplier d. the value of income multiplier 6. Which, M1 or M2, is a more liquid measure of money supply? a. M1 b. M2 c. Both M1 and M2 are equally liquid measure. d. Neither M1 nor M2 is a liquid measure. 7. What is the formula for money multiplier? a. 1/(1-MPC) b. 1/RRR c. 1/(1-RRR) d. 1/MPC

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8. Suppose money multiplier is 5 and the Fed buys securities worth \$2 million. This action of the Fed ___________ money supply by ____________. a. increases, \$10 million b. increases, \$2 million c. decreases, \$10 million d. decreases, \$2 million 9. An increase in required reserve ratio a. will increase money supply. b. will decrease money supply. c. will have no effect on money supply. d. can increase or decrease money supply. 10. According to the quantity theory of money, an increase in money supply a. increases real GDP and employment. b. increases real GDP and prices of goods and services. c. increases only prices of goods and services. d. has ambiguous effect on inflation and unemployment. 11. Which predicts that a change in money supply has no effect on real GDP? a. Monetarism b. Quantity theory of money c. Modern View d. None of the above 12. Who sets the monetary policy in the United States? a. The President b. The U.S. Congress c. Both a and b d. Federal Reserve System 13. Which correctly represents the Keynesian view on monetary policy? a. Monetary policy is not effective during recession, because interest rate is already low and an increase in money supply may not further decrease interest rate. b.
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sp04-4 - University of Colorado at Denver Spring 2004 Econ...

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