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homework4 - HOMEWORK 4 INTRODUCTION TO MACROECONOMICS...

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Unformatted text preview: HOMEWORK 4 INTRODUCTION TO MACROECONOMICS SPRING 2010 Name DUE APRIL 22 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Any transaction that involves exchanging one good for another without using money is considered 1) a A) liquidity transaction. Bldeferred payment. C) token exchange. I Dl/barter transaction. 2) Which of the following factors causes the barter system to be inefficient? 2) A) Its cost of transaction is too high. B) The cost associated with information search is too high. C) It requires a double coincidence of wants. ,. 2w . ED) All] of the above 3) When you pay $12 for the pizza you ordered for dinner, you are using money as a(n) 3) A) unit of account. B) store of value. C) investment good. I D) ihedium of exchange. 4) When you keep your savings in a saving account, you are using money as aIn) 4) A) unit of account. B) investment good. C) medium of exchange. f’DYE‘tore of value. ”NW/r 5) When the manager of a department store attaches price tags on his/ her products, he / she is using 5) money as a A) unit of transfer. B) store of value. C) medium of exchange. {(D);Eunit of account. "a“; 6) Best Buy, a retailer of electronics, has 500 different products in inventory. Best Buy reports its 6) inventory is worth $1 million. This is an example of using money as a A) medium of exchange. B) store of value. C) standard of deferred payment. {Dfi‘anit of account. ' IN»; 7) A currency that is not backed by gold, silver, or any other precious commodity equal to the face 7) value of the money is known as A) commodity money. B) fake money. C) weak money. I'D) token money. / 8) Which of the following is an example of fiat money? 8) A) Cigarettes {BLA U.S. one—hundred dollar bill C) An ounce of gold D) A government bond 9) Money that a government has required to be accepted in settlement of debts is 9) _A),hficommodity money. B) barter money. <C)f;fiat money. D) None of the above 10) Currency debasement occurs when A) the government requires that a certain form of money must be accepted in settlement of debts. B) items are used as money that also have intrinsic value in some other use. C) items are designated as money that are intrinsically worthless. TM”- {Dythe value of money falls as a result of a rapid increase in its supply. kw! 11) Assume that in the country of Salmon, the government tripled the money supply overnight. As a result of this action, the price of a loaf of bread increased from 1 bill to 100 bills. This is an example offs. if ‘2 g i XXV currency debasement. B) a change in the legal tender. C) a change from commodity money to fiat money. 'D) deflation. 12) Currency held outside banks + demand deposits + travelers checks + other checkable deposits : A) M2 — M1. B) M3. C) M3 ~ M1. {QM/11- 13) Which of the following is included in M2, but not included in M1? A) travelers checks B).rsavings accounts Em" C) currency held outside banks D) automatic—transfer savings accounts 14) John transfers $1,000 from his checking account to his savings account. This transaction will A) increase both M1 and M2. B) not change M1 and decrease M2. ngtiecrease M1 and not change M2. D) decrease both M1 and M2. 15) Which of the following would NOT be counted as part of M1? @leloney market accounts B) Currency C)Fraveler's check D) Demand deposits 16) Among the assets of a commercial bank are ,, A) demand deposits. Q3) leans. C) savings deposits. D) All of the above 17) Among the liabilities of commercial banks are ‘A);demand deposits. B) reserves. Askwf C) loans. D) All of the above 18) First National Bank has liabilities of $1 million and net worth of $300,000. First National Bank's assets are A) $900,000. B) $100,000. C) $700,000. 1"” if . D) $1.3 million. 19) First National Trust has assets of $900,000 and liabilities of $600,000. First National Trust‘s net worth is A) $600,000. g\B} $300,000. C) 330. D) $900,000. 10) 11) 15) 16) 17) 18) 19) 20) A loan made by a bank is considered of that-thank. 20) A) net worth B) a liability {glen asset D) capital Refer to the information provided in Table 10.1 below to answer the questions that follow. Table 10.1 First Charter Bank Assets Liabilities Reserves — $700 Deposits Loans —- $200 Net Worth Total - $900 Total 21) Refer to Table 10.1. The required reserve ratio is 20%. If the First Charter Bank is meeting its reserve 21) requirement and has no excess reserves, its reserves equal A/M's 9);?140. B) 150. C) 100. D) 180. 22) Refer to Table 10.1. The required reserve ratio is 20%. if the First Charter Bank is meeting its reserve 22) requirement and has no excess reserves, its loans equal A) 460. {B) 760. c) 710. D) 550. 23) Re er to Table 10.1. First Charter Bank's total assets 23) ' re 900;~-417!”‘“ lare 700. c) are 500. D) Cannot be determined from this information. Refer to the information provided in Table 10.2 below to answer the questions that follow. Table 10.2 First Commercial Bank Assets Liabilities + Net Worth Reserves: $150,000 $1 million Deposits Required $100,000 $200,000 Net Worth Excess - Loans M Total $1.2 million $1.2 million Total 24) Refer to Table 10.2. First Commercial Bank's excess reserves equal 33 . 24) A) 100,000 513))50000 C) 250,000 D) 150,000 Kf’m‘f 25) Refer to Table 10.2. The required reserve ratio 25) A) is 15%. as); is 10%. VKLMV/I C) is 12.5%. D) cannot be determined from the given information. Refer to the information provided in Table 10.3 below to answer the questions that follow. Table 10.3 People's Bank Assets Liabilities + Net Worth Reserves: $60,000 $500,000 Deposits Required $40,000 — Net Worth Excess m Loans — Total $700 000 $700 000 Total 26) Refer to Table 10.3 3.The net worth of People's Bank is $ A) 500,000 g: B) 200, 000 C) 560,000 D) 700,000 “1/ 27) Refer to Table 10.3. The required reserve ratio is A) 5%. B) 7%. ’0" C ,8/0 D) 6% 28) Bank of Sim City has $250 million in deposits. Bank of Sim City is meeting its reserve requirement and has no excess reserves. It has $50 million in reserves. Bank of Sim City faces a required reserve ratio of fl“ A) 37.5%. { B}i20%_ C) 4%. D) 1.25%. 29) The Republic Bank has $2 million in deposits and $250,000 in reserves. If the required reserve ratio is 10%, excess reserves are equal to RA] $50, 000. B) zero. C) $450,000. D) $200,000. 30) The required reserve ratio is 15%. The money multiplier is A) 8.12. B) 5.67. C) 5.54. gill/DI) 6.67. 31) The Federal Reserve System consists of Federal Reserve Banks. A) 8 B) 10 C) 14 ( 13))“12 ”mm/3 32) The Federal Open Market Committee (FOMC) directs the Open Market Desk to A) determine the federal funds rate. B) determine the required reserve ratio. IxC) :buy or sell government securities. D) determine the discount rate. 3) Which of the following is NOT a tool av ailable to the Fed to change the supply of money? AXThe money multiplier B) The open market operations C) The discount rate D) The required reserve ratio 34) The discount rate is A) the interest rate commercial banks charge their new customers. 1 :B} the interest rate the Fed charges commercial banks for borrowing funds. C) the interest rate commercial banks charge each other for borrowing funds. D) DNone of the above 26) 27) 28) 29) 30) 31) 32) 33) 34) 35) A decrease in the required reserve ratio A) will decrease money supply. B) will decrease the discount rate. C) iii/ill increase money supply. D) will not change money supply. Km»! 36) Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? AgmAn increase in the required reserve ratio {Bflhfiuying government securities in the open market C) An increase in the discount rate D) A decrease in federal spending 37) If the FED sells government securities, then there is /,..-»C; .e‘ ' AK A) a decrease in the discount rate. (Jim decrease in banks' reserves. C) an increase in the required reserve ratio. D) an increase in the supply of money. 38) When the Fed lowers the required reserve ratio, the money supply and banks’ excess reserves A) decreases; decrease B) increases; remain constant 16;.“ . . a ) gmcreases; increase D) remains constant; decrease 3. W 39) Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? A) A decrease in federal tax rates B) Selling government securities in the open market C) An increase in the discount rate «”‘I‘W’t . . . i I?) A decrease in the required reserve ratio a- 40) An open—market purchase of securities by the Fed results in in reserves and in the supply of money. A) a decrease; a decrease LB Ean increase; an increase C) a decrease; an increase D) an increase; a decrease 41) Assume that all commercial banks are loaned up. Total deposits in the banking system are $200 million. The required reserve ratio is increased. The money supply will A) increase. B) not change because there was no change in deposits. C) not change because the required reserve ratio has no impact on money supply. (D) decrease. NJ 42) The speculative demand for money is A) positively related to interest rate. B) negatively related to income. ifiglnegatively related to interest rate. D) positively related to income. 35) 36) 37) 38) 40) 41) 42) 43) If the Fed sets the money supply independent of the interest rate, then the money supply curve is 43) A) downward sloping. (giggertical. C) horizontal. D) upward sloping. 44) The transaction demand for money depends on 44) A) the dollar value of transactions. 5) the price level. C) aggregate income. {fifiAll of the above Refer to the information provided in Figure 11.1 below to answer the questions that follow. Interest rate (96) Money Figure 11.1 45) Refer to Figure 11.1. A movement from Point A to Point D can be caused by 45) A) a decrease in the price level. {13)}an increase in income. C) an increase in the interest rate. D) a decrease in the interest rate. Refer to the information provided in Figure 11.4 below to answer the questions that follow. m ‘ \ Ms 5.. 10 a, , _. .. __ 1‘,\\\ % 1 l \ j: 6 ....... ' \w \ a ‘ ‘ 1 \‘m a 4 . . _ “me, \x E , g i \u ...... Md I l i 500 800 1,000 M Money Figure 11.4 46) Refer to Figure 11.4. At an interest rate of 10%, there is 46) A) an excess demand for money of 500. B) an excess supply of money of 500. g C)‘an excess supply of money of 300. D) an excess demand for money of 300. 47) Refer to Figure 11.4. At an interest rate of 4%, there is 47) A) an excess demand for money of 600. I?) an excess supply of money of 200. C) an excess supply of money of 600. {Dyan excess demand for money of 200. 48) Refer to Figure 11.4. The money market will be in equilibrium at an interest rate of 48) .2 we“. A) 3%. B) 0%. C) 8%. ( £570. 49) The link between. the money market and the goods and services market exists through the impact 49) of A) tax revenue on the government budget. B) income on government spending. C) money supply on money demand. {ID/fitneome on money demand. 50) The money market and the goods market are linked through the impact of interest rate on 50) i: Ayplanned investment. B) government spending. WC) money supply. D) unplanned spending. Answer Key Testname: HOMEWORK4_SPRING2010.TST 1) D 2) D 3) D 4) D 5) D 6) D 7) D 8) B 9) C 10) D 11) A 12) D 13) B 14) C 15) A 16) B 17) A 18) D 19) B 20) C 21) A 22) B 23) A 24) B 25) B 26) B 27) C 28) B 29) A 30) D 31) D 32) C 33) A 34) B 35) C 36) B 37) B 38) C 39) D 40) B 41) DM 42) C “ 43) B 44) D 45) B 46) C 47) D 48) D 49) D 50) A ...
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