Econ+310+Fall+2011+exam+1+version+1+-+answers

Econ+310+Fall+2011+exam+1+version+1+-+answers - Form...

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Form version number: 1 Name: UMID: Econ 310 Money and Banking First Examination Fall 2011 The exam contains 25 multiple-choice questions. Each correct answer is worth 4 points. Each question left unanswered is worth 1 point. Each incorrect answer is worth 0 points. Please mark your answers with #2 pencil on the scantron provided. Please fill in your name, UMID number and the form version number for your exam on the scantron. You will find the form version number on the top, right- hand corner of this page. Also put your name and UMID number on the front page of the exam. No calculators, cell phones, personal digital media players, laptop computers or other electronic devices are to be used during the exam. Please ensure that all cell phones are switched off, and put away before the exam begins. You will have 90 minutes to complete your exam. Please check to ensure your exam has 25 questions. Do not begin the exam until you are told to do so. Please put pencils down when informed the exam is finished. You will not be allowed to copy answers onto your scantron after this time. When you have finished the exam, please hand your completed scantron and the front page of your exam to the proctor
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1. ___Imagine the Fed engages in the following asset transactions on a single day: $20 million worth of Treasury securities are sold to various parties ($19 million is received in payments by check, while the remaining $1 million is paid in cash), and $10 million worth of securities denominated in foreign currencies are purchased from various local banks (all of these purchases are paid for by crediting the various banks’ reserve accounts). What is the net effect on the money base? (a) The money base increases by $30 million. (b) The money base decreases by $10 million. (c) The money base increases by $9 million. (d) The money base decreases by $20 million. 2. ___“Gresham’s Law” is associated with which of the following observations? (a) Prices are positively related to the money supply. (b) Fiat money will be replaced by commodity money. (c) Good money drives out the bad. (d) Agents prefer to consume money with high commodity value and transact with money with low commodity value. 3. ___Which of the following is NOT included when measuring the M1 money supply? (a) Travelers’ checks (b) Checking accounts (c) Bank reserves (d) None of the above (i.e. all the answers above are included in M1). 4. ___The recent crisis facing US credit markets could be modeled as a reduction in the propensity of the banking system to lend funds. Rather than lending all of their available funds, suppose that the banks all decide to divert more of those funds into their reserve accounts. Specifically, suppose that the banking sector plans to increase reserves so that total reserve holdings account for 15% of deposits at the banks. Which of the following actions from the Fed is most likely to mitigate the effects of this on the M1 money supply? (a) The Fed reduces the required reserve ratio from 10% to 5%.
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This note was uploaded on 10/28/2011 for the course ECON 310 taught by Professor Hogan during the Fall '08 term at University of Michigan.

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Econ+310+Fall+2011+exam+1+version+1+-+answers - Form...

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