Question

1.)The ____________ is the sum of currency and reserve deposits, the monetary _________ of the central bank

A.)money stock; assets

B.)money stock; liabilities

C.)monetary base; liabilities

D.)monetary base; assets

2.)Time deposits are ______ liquid than savings deposits and typically earn a _________ interest rate than savings deposits.

A.)less; higher

B.)more; higher

C.)more; lower

D.)less; lower

3.)If banks must hold $2 in reserves for each $10 in deposits, and the public decides to hold $3 in currency for each $10 in deposits, then the money multiplier has a value of ______.

A.)4.0

B.)2.5

C.)2.6

D.)2.0

4.)Currency held by the public is __________ of households and __________ nonbank firms.

A.)a liability; a liability

B.)an asset; an asset

C.)an asset; an asset

D.)a liability; an asset

5.)Currency in the hands of the public is __________ of households and non-bank firms, and _________ of the Fed

A.)an asset; a liability

B.)a liability; a liability

C.)a liability; an asset

D.)an asset; an asset

6.)If Angela deposits $5,000 cash into her savings account, then what will happen?

A.)M1 decreases and M2 does not change.

B.)M1 decreases and M2 increases.

C.)M1 does not change and M2 increases.

D.)M1 increases and M2 decreases.

7.)M2 ________ include large time deposits (typically held by ____________)

A.)does; consumers

B.)does; businesses

C.)does not; consumers

D.)does not; businesses

8.)Jemima uses some of her saving account funds to buy travelers checks. The value of M1 will ________ and the value of M2 will __________.

A.)increase; increase

B.)not increase; increase

C.)not increase; not increase

D.)increase; not increase

9.)What does M1 include?

A.)Transaction deposits but not traveler’s checks

B.)Transaction deposits and travelers checks

C.)Savings deposit and currency

D.)Transaction deposits and savings deposits

10.)When the overall price level increases, the nominal value of money ________ and the real value of money ________

A.)does not change; does not change

B.)changes; changes

C.)changes; does not change

D.)does not change; changes

11.)In the modern economy, _____________ typically serve for small transactions, whereas ____________ are useed for larger transactions.

A.)debit cards; electronic transfers

B.)electronic transfers; paper checks

C.)paper currency; debit cards

D.)coin; paper currency

12.)When members of the public deposit currency into their bank accounts, what happens to the monetary base?

A.)It does not change.

B.)It decreases.

C.)It may increase, decrease, or not change, depending on how banks adjust their assets.

D.)It increases.

13.)When are bank deposits created?

A.)When consumers write checks to pay for purchases

B.)When commercial banks make loans

C.)When the government printing office receives an order for new paper currency or coins from the Treasury

D.)When businesses pay wages and salaries to employees

14.)Which of the following represents a part of the U.S. money stock (M2)?

A.)A quarter received by a child for doing the dishes

B.)One trillion dollars worth of U.S. government securities held by the Fed

C.)Both A and B

D.)A corporation’s deposit of $1 billion in Bank of America

15.)Which of the following items is included in M2, but not in M1?

A.)Travelers checks

B.)Treasury bills (T-bills)

C.)Savings deposits

D.)Currency

Answer 1

Q1 optionvoptionvC)

Monetary base = C + R

Money supply = C + D,

R reserves, D : deposits

& These are bank liabilities

2) option A)

Fixed time deposits are less liquid & provide higher interest rate

3) option C)

RRR = 2/10 = .2,

C/D = 3/10 = .3

Money Multiplier = (1+ C/D ) / ( C/D + RRR)

= 1.3/.5 = 2.6

4) option B)

Currency is asset for household & non bank firms

5) option A)

Currency is liability of Fed

6) option B)

Saving deposit is part of M2, so MR rises & M1 falls

It's mandatory to answer only first 4 MCQ