1
2
3
4
5
100
Which of the following is true for bonds but not for stocks? Bonds are the least liquid form of assets; bonds represent partial ownership in a company; bonds earn variable rates of return; bonds are interest bearing assets; bonds have zero opportunity cost
Bonds are interest-bearing assets
100
Which of the following will most likely result in a lower real interest rate in a nation? The nation provides an investment tax credit to new businesses; The citizens of the nation increase their savings for retirement; The nation is experiencing political instability and economic risk; The nation’s central bank sells government bonds in the open market; The nation’s government increases its borrowing to finance spending on capital projects.
The citizens of the nation increase their savings for retirement
100
The amount of money that the public wants to hold is 10 billion. With a monetary base of 2 billion and a money multiplier of 4, the nominal interest rate will _________
Increase
100
Which of the following changes in the loanable funds market will decrease the equilibrium real interest rate?
A decrease in private savings; A decrease in the expected inflation rate; An increase in government spending on highways financed by borrowing; An increase in foreign financial capital inflows; An investment tax credit for plant and equipment
An increase in foreign financial capital inflows
100
Which of the follwing changes will necessarily occur as a result of an increase in the nominal interest rate? The money demand curve will shift to the left; the money demand curve will shift to the right; the money supply curve will shift to the left; the quantity of money supplies will decrease; the quantity of money demanded will decrease
An increase in nominal interest rates causes a movement up and to the left along the money demand curve—a decrease in the quantity demanded of money.
200
If the interest rate on loans before adjusting for inflation is 9%, and the expected inflation rate is 4%, then which of the following must be true? Lenders are expected to receive an additional 4% on their loaned funds; borrowers are expected to pay an additional 4% on their borrowed funds; the expected real interest rate is 9%; the expected real interest rate is 13%; the nominal interest rate is 9%
The nominal interest rate is 9%
200
Which of the following is considered the most liquid asset? Stocks, bonds, currency, real estate, or commodities?
Currency
200
An increase in the equilibrium nominal interest rate could be caused by which of the following changes? An increase in the monetary base; an increase in the money supply; an increase in real income; a decrease in the amount of cash the public wants to hold; a decrease in the price level
An increase in real income
200
What is the money multiplier?
ASSETS
Required Reserves: 20k
Excess Reserves: 10k
Loans: 70k
LIABILITIES
Demand Deposits: 100k
The money multiplier is the inverse of the required reserve ratio, which is the ratio of required reserves to demand deposits. The required reserve ratio= 20k/100k= 0.2. 1/.2 = 5 . The money multiplier is 5 .
200
Assuming a banking system with limited reserves, which of the following is a monetary policy action a central bank would implement to control inflation? Target a lower overnight interbank lending rate; Sell government bonds to the public; Lower the discount rate; Lower the required reserve ratio; Increase the monetary base
Sell government bonds to the public
300
If the loanable funds market is in equilibrium, then which of the following must be true? Government spending equals tax revenues; Investment spending equals national savings; Investment spending equals private savings; Borrowing equals lending; Foreign inflows of financial capital equal investment spending.
Borrowing equals lending
300
Sam pays monthly installment on a five-year fixed interest rate auto loan. If the expected inflation rate increases, which of the following will happen? Sam will pay a lower nominal interest rate; Sam will pay a higher nominal interest rate; Sam will pay a lower real interest rate; Sam will pay a higher real interest rate; Sam will pay higher monthly installments
Sam will pay a lower real interest rate.
300
Which of the following will happen when interest rates increase in an economy? The cost of borrowing will decrease; The spending multiplier will decrease; Investment Spending will decrease; The price of previously issued bonds will increase; Opportunity cost of holding money will increase
The opportunity cost of holding money will increase
300
Which of the following transactions will keep M1 unchanged? Sam transferred money from his certificate of deposit to his checking account; Mike purchased government bonds and paid with a check; Leila deposited coins from her piggy bank into her checking account; Sandy converted a small-denomination time deposit into cash; Patty increased her monthly cash deposits to her retirement funds.
Leila deposited coins from her piggy bank into her checking account
300
Which of the following explains why the amount predicited by the value of the simple money multiplier may be overstated?
It does not take into account the amount of bank loans; It does not take into account the marginal propensity to consume; It does not take into account a bank’s desire to hold excess reserves; It does not take into account changes in expected inflation; It does not take into account changes in savings.
It does not take into account a bank’s desire to hold excess reserves
400
Which of the following is true for both stocks and bonds? They are interest-bearing assets; They are financial assets; They are risk-free assets; They are equity; They are ownership in a company.
They are financial assets
400
What is the maximum amount of new loans the bank could lend with the given amounts of reserves?
Required Reserves: 20k
Excess Reserves: 10k
Loans: 70k
The maximum amount of new loans the bank could lend with the given amounts of reserves is the amount of excess reserves, which is $10,000.
400
Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer? It is the real interest rate divided by the price level; It is the real interest rate minus the expected inflation rate; It is the interest rate charged by the bank; It is the interest rate charged by the bank minus the expected inflation rate; it is the interest rate charged by the bank minus the interest rate the bank pays to its depostiors.
It is the interest rate charged by the bank
400
Which of the following will happen when interest rates increase in an economy? The cost of borrowing will decrease; the spending multiplier will decrease; investment spending will increase; the price of previously issued bonds will increase; the opportunity cost of holding money will increase
The opportunity cost of holding money will increase
400
What is the value of the monetary base, based on the following:
Cash in Circulation: 100
Certificates of Deposit: 2
Bank Reserves: 10
Demand Deposits: 1000
Savings Deposits: 20
110
500
ABC Bank in a commercial bank in Country X. Assume the required reserve ratio is 25% and banks in Country X keep no excess reserves. If Maria deposits 1,000 in cash at ABC Bank, what will happen to the money supply after all adjustments are made in the banking system?
The money supply will increase by a maximum of... ?
$3,000
500
In a banking system with ______ reserves, open market operations are used to indirectly influence the nominal interst rate by changing the money supply, wheras in a banking system with ______ reserves, open market operations are used to maintain sufficient reserves.
Limited; Ample
500
A diagram shows the effect of a monetary policy action on AD. What will happen to the policy rate?
A decrease in the policy rate
500
What is the value of M1?
Cash in Circulation: 100
Certificates of Deposit: 2
Bank Reserves: 10
Demand Deposits: 1000
Savings Deposits: 20
1,120
500
On Monkey island the local money is called "bananas." The price of every good is expressed as the number of bananas needed to buy the good. The use of bananas to express the price of goods describes which function of money?
Unit of Account