test no.3 - NAME (LAST, FIRST) , ocxfielgi Sam ID# low 2 8...

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Unformatted text preview: NAME (LAST, FIRST) , ocxfielgi Sam ID# low 2 8 92 ECONOMICS 1110 EXAM III FALL 2010 VERSION B INSTRUCTIONS: Select the best response to each item and bubble in the corresponding letter on your scantron. Each correct response is worth 3.75 points out of 150 possible points. 1. Currency in the US. has value because: a the US. has no inflation. h. it is backed by goldin government vaults. ~. consumers can convert it to gold at Federal Reserve Banks. people have faith that it is generally accepted in payment for goods and services. 0 2. The “liquidity” of an asset refers to: \a, how well the asset serves as a store of value. b. the rate of return earned by the holder of the asset. @ the ease with which the asset may be converted into cash Without loss of value. (1. how well the asset serves as a hedge against inflation. 3. Fractional reserve banking is a tem used to describe a banking system in which: ‘9‘ individual banks share a fraction of the total funds deposited in the whole banking system. b. banks are required to quote interest rates in fractions. g) banks hold reserves equal to only a fiaction of their deposit liabilities. banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple. ° 4. Which of the following statements is false? a In a barter economy, a double coincidence of wants must be met before a trade can be made. ' (13) There are lower transaction costs of making exchanges in a barter economy than in a money economy. ‘8“ (1. Money functions as a medium of exchange, unit of account, and store of value. Money is a poor store of value during inflationary periods. . 5. If Mrs. Bates moves $1,000 from her checking account into her money market deposit account: ‘3. M1 increases and M2 decreases. 13, Ml increases and M2 stays the same. c. M1 decreases and M2 increases. M1 decreases and M2 stays the same. ° 6. Using money prices to compare relative values of goods and services represents money functioning as a: unit of account. ‘e store of value. 0. medium of exchange. d. none of the above. § 7. M2 includes M1 plus all of the following EXCEPT: a savings deposits. ‘13. money market deposit accounts. © short-term US. government securities. d. small denomination time deposits. 8. If currency held by the public is $200 billion, which of the following could be true so that the value of M1 is $810 billion? ‘8. Savings deposits are $200 billion and checkable deposits are $410 billion. h. Money market deposit accounts are $200 billion, checkable deposits are $400 billion, and traveler’s checks are $10 billion. c. Excess reserves are $200 billion and checkable deposits are $410 billion. Checkable deposits are $600 billion and traveler’s checks are $10 billion. 9. Which of the following is correct? 21‘ Total bank reserves = excess reserves/required reserves @ Total bank reserves = excess reserves + required reserves q. Excess reserves = total bank reserves + required reserves d. Required reserves = (excess reserves) x (total bank reserves) Use the following T-account for the Banking System to answer questions 10 - 12. Total Bank Reserves $30,000 Checkable Deposits $100,000 Loans 70,000 10. If the required reserve ratio is 10 percent, required reserves are equal to: a. $90,000. b. $20,000. $10,000. d. $100,000. 11. Ifthe required reserve ratio is 10 percent, excess reserves are equal to: {a} $20,000. . $10,000. c. $90,000. (1. $100,000. 12. If every bank in the system with a 10 percent required reserve ratio continues to make new loans until excess re‘serves in the entire system are zero and there are no currency leakages, then checkable deposits will potentially grow by a maximum of: a. $300,000. 59M (E $200,000. 0. $100,000. d. $20,000 13. In the US. banking system, required reserves must be held: a. as vault cash. b. on deposit at the Federal Reserve Bank. 1st as government bonds so they can be easily liquidated. either as vault cash or on deposit at the Federal Reserve Bank. 14. Bank C has deposits of $6000 and total reserves of $1800. If the required reserve ratio is 20 percent, the bank must keep as required reserves and can make a loan equal to . ‘a. $360; $1,440 ‘19.. $360; $4,200 0. $1,200; $4,800 @ $1,200; $600 15. The potential deposit creation process would be reduced if: consumers hold no cash. CID banks keep some of their excess reserves. ‘c:K the required reserve ratio is lowered. d. the Fed decreased the discount rate. 16. The is the rate of interest that one bank I r bank for an overnight loan of reserves. a. discount rate (1; federal funds rate c. prime rate d. refinance rate 17. Which of the following is not a responsibility of the Fed? @ Print paper money and mint coins ‘19,. Provide check—clearing services in Hold banks' reserves d. Serve as a lender of last resort to banks 18. The entire Federal Open Market Committee (F OMC) is composed of: ‘a. 7 members, elected by popular vote, who serve 4 year terms. , b. 12 members, appointed by the President of the U.S., who serve 14 year terms. c. 7 members, appointed by the President of the U.S., who serve 14 year terms. 7 members, appointed by the President of the U.S., plus 5 presidents of district reserve banks. . l9. Monetary policy refers to: ‘9‘. changes in government expenditures and taxation to achieve particular economic goals. changes in the money supply to achieve particular economic goals. Rx the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. d . the change in private expenditures that occurs as a consequence of changes in the money supply. 20. If the required reserve ratio is 25%, the banking system has W the amount of $60 billion, there are no currency leakages, and each bank makes loans until excess reserves equal zero, then total checkable deposits for the banking system will equal: a. $15 billion. b. $60 billion. 0. $300 billion. @ $240 billion. Use the following graph to answer question 21. 21. ngza 24. Price LRAS Level QE QN Real GDP A Wlicy solution to this problem might include: in increasing taxes. ‘11. increasing government spending. c. increasing the discount rate. a Federal Reserve open market purchase of government bonds. “CW6 ratio, the: a less of each deposit banks may lend out, and the larger the deposit multiplier. & (9 d. less of each deposit banks may lend out, and the smaller the deposit multiplier. more of each deposit banks may lend out, and the larger the deposit multiplier. more of each deposit banks may lend out, and the smaller the deposit multiplier. If the required reserve ratio is 12.5 percent and the Fed sells $10 million of government securities, then the maximum potential change- in the money supply Will be a(n): Svmfi 5‘ decrease by $12.5 million. ‘19. increase by $12.5 million. 63/) decrease by $80 million. ‘ (1. increase by $80 million. Which of the following could decrease the money supply? — a. An increase in the discount rate - b. An increase in the required reserve ratio ‘8. An open market purchase of bonds by the Fed d. All of the above (a) and (b) only 25. The most important and most frequently used tool of the Fed for controlling the money supply is: @ open market operations. b. the federal funds rate target. 0. the required reserve ratio. d. the discount rate. Use the information in the following T-Account for the Banking System to answer questions 26 and 27. Assets Liabilities Total Reserves $50 billion Checkable Deposits $250 billion Loans $196 billion Securities $4 billion 26. The banking system is fi111y loaned up (in equilibrium) if the required reserve ratio is: a. 5 percent. b. 10 percent. (6) 20 percent. (1. 30 percent. 27. Using the required reserve ratio in the previous question, if the Fed buys $4 billion worth of government securities from banks, total bank reserves will equal billion, and excess reserves will equal billion. a. $54 $54 ’ 50 b. $4; $3.2 5” 2 ‘61, $46; $54 (c9 $54; $4 28. Suppose in late 2011 the Fed expresses concern over signs that inflation is on the rise. In response, the Fed would likely pursue lending within the banking system. a. expansionary; increase 19‘ expansionary; decrease c. contractionary; increase contractionary; decrease 29. If the nominal rate of interest is 8% and the inflation rate is 5%, then the actual real rate of monetary policy as a way to interest is: a. 13%. b. 1.6%. @ 3%. d. -3%. 30. is the current chairman of the Federal Reserve Board of Governors. Alan Greenspan a. ([3) Ben Bemanke c Paul Volcker (1 Tim Geithner ‘ 3_1. Ceteris paribus, a decrease in money demand will cause: a, an increase in the interest rate and a decrease in investment spending. '8‘ h. an increase in both the interest rate and in investment spending. @ a decrease in the interest rate and an increase in investment spending. d. a decrease in both the interest rate and in investment spending. 32. The most likely way the Egg would pursue an expansionary monetary policy is to: ‘a; lower the required reserve ratio. ‘13. lower the prime rate. (a buy government securities. d. sell government securities. Use the information below to answer the next question. Money supply (M) = $5 billion Real GDP (Q) = $20 billion Price Level (P) = 1.5 NW = 9Q 33. The velocity of money is @ ‘ 6 b. 2 c. 4 d. 30 a 34. T. ' . believe that increasin the growth rate of the money supply will: cause real output to rise substantially in the long run. ' "M ultimately increase the price level in the long run and have no effect on real output. cause nominal output to decrease in the long run because velocity is so erratic and unstable. )1, substantially increase the effectiveness of discretionary fiscal policy. . ‘13. 0 35. Suppose the money market is initially in equilibrium. If the Fed raises the discount rate and sells bonds on the open market, then: @ the money supply will decrease and the interest rate will rise. “i b. the money supply will decrease and the interest rate will fall. ‘8. the money supply will increase and the interest rate will rise. H. the money supply will increase and the interest rate will fall. 36. All other things equal, as the price of a bond decreases, its yield: rises. falls. stays the same. none of the above. 9.0.01») 37. Which of the following statements is true? ‘a. Monetarists believe that Congress should be very actively involved in managing and directing the economy. to There is very little difference between Monetarist and Keynesian schools of thought. @ Monetarists believe that predictable and stable expansion of the money supply adds stability to the economy. \d,‘ Monetarist theory was founded by John M. Keynes. 38. The portion of the money demand curve is called “a. vertical; long-run aggregate supply b. vertical; the liquidity trap (3 horizontal; the liquidity trap ‘61. horizontal; long-run aggregate supply 6 39. The Keynesian perspective of the impact of money on the economy suggests that an increase in the money supply will result in a(n) in interest rates, a(n) in investment spending, and a(n) in aggregate demand. a. increase; increase; increase b. increase; decrease; decrease c. decrease; decrease; decrease decrease; increase; increase ~ 40. Monetary policy may be ineffective if: there is no liquidity trap. 385*; investment and consumer spending are not sensitive to changes in a \3\ “R560 ‘ short-term interest rates. 0 investment spending increases when the interest rate decreases. d. interest rates are very sensitive to changes in the money supply. Don’t forget to bubble in #41 and #42 before turning in your exam and scantron!! 41. Bubble in ‘C’ on your scantron; this denotes exam 3. 42. Bubble in ‘B’ on your scantron; this denotes version B. Be sure you have printed your last name, first name and student ID number on the first page of this exam. Turn in your scantron and this exam to the proctor when you are finished. You must also present your photo ID to the proctor. 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test no.3 - NAME (LAST, FIRST) , ocxfielgi Sam ID# low 2 8...

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