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Chapter 10 and 11
TRUE/FALSE
1. High powered money is commodity money like gold and silver.
2. If households reduce money balances, then their transactions costs go up.
3. If the money supply grows faster than money demand, then the price level rises.
4. If the interest rate increases, then the real demand for money also increases.
5. The neutrality of money means that one time changes in the money supply do not affect real variables.
6. M1 includes a broader array of deposit accounts than M2 does.
7. In the Barro model, money and barter can both be used for exchanges.
8. In the Barro model, households hold money as a long-term store of value.
9. If the price level doubles, then a household’s nominal demand for money also doubles.
10. If the nominal quantity of money supplied does not vary, then the price level will be countercyclical.
MULTIPLE CHOICE
1. Fiat money is money that has value because of:
a. its intrinsic value. c. government decree.
b. it is a commodity. d. all of the above.
2. Commodity money is money that has value because:
a. of the intrinsic value of the commodity. c. the government says so.
b. it is legal tender. d. all of the above.
3. If a person holds one dollar and does not lose it, then as long as the person holds that dollar they will have:
a. the commodity value of the dollar. c. an interest bearing asset.
b. one dollar in currency. d. all of the above.
4. High powered money is:
a. money held by business for investment. c. total currency in circulation.
b. total currency in circulation plus depository institutions deposits at the Federal Reserve. d. government bonds held by the public and depository institutions.
5. A monetary aggregate is:
a. high powered money. c. money defined more broadly than currency.
b. commodity money. d. total currency in circulation plus depository institutions deposits at the Federal Reserve.
6. US M1 money includes:
a. currency held by the public. c. traveler’s checks.
b. checkable deposits. d. all of the above.
7. US M1 money includes:
a. savings deposits. c. time deposits.
b. checkable deposits. d. all of the above.
8. US M1 money includes:
a. currency, traveler’s checks and checkable deposits. c. currency, checkable deposits, savings deposits.
b. checkable deposits, traveler’s checks and savings deposits. d. currency, time deposits, checkable deposits.
9. US M2 money includes:
a. currency. c. small time deposits.
b. demand deposits d. all of the above.
10. US M2 money includes:
a. currency, time deposits government bonds. c. checkable deposits, savings deposits, small time deposits.
b. savings deposits, small time deposits, private bonds. d. retail money market mutual funds, small time deposits, government bonds.
11. Money is different from other assets like capital and bonds in that:
a. money does not pay interest. c. capital and bonds are better long term stores of value.
b. money can be spent for purchases. d. all of the above.
12. Money is different from other assets like capital and bonds in that:
a. money does not pay interest. c. money is a better long term store of value.
b. money has intrinsic value. d. all of the above.
13. Money is different from other assets like capital and bonds in that:
a. money pays a higher interest rate. c. money is a better long term store of value.
b. money can be spent for purchases. d. all of the above.
14. Money is different from other assets like capital and bonds in that:
a. money has intrinsic value. c. capital and bonds are better long term stores of value.
b. money pays a higher rate of interest. d. all of the above.
15. When households reduce their average money balances, they
a. purchase more goods. c. incur more opportunity costs.
b. they earn less interest. d. incur more transaction costs.
16. If a person’s income doubles we expect their cash holding to:
a. double. c. less than double.
b. more than double. d. decline.
17. Economies of scale in cash management means:
a. at a higher income household’s hold more money as a proportion of their income. c. the proportion of income held is not affected by household income.
b. at lower incomes household’s hold more money as a proportion of their income d. at lower income households hold less money as a proportion of their income.
18. Real money demand does not change when:
a. nominal GDP changes. c. the price level changes.
b. the interest rate changes. d. all of the above.
19. Among the source of transactions costs associated with reducing average money balances are:
a. brokerage fees. c. the time spent going to the ATM.
b. the time spent going to the bank. d. all of the above.
20. Among the sources of transactions costs associated with reducing average money balances are:
a. brokerage fees. c. foregone interest payments.
b. opportunity costs. d. all of the above.
21. Among the source of transactions costs associated with reducing average money balances are:
a. foregone interest payments. c. opportunity costs.
b. the time spent going to the bank or ATM. d. all of the above.
22. The demand for money is:
a. negatively related to the price level. c. positively related to real GDP.
b. positively related to the interest rate. d. all of the above.
23. The demand for money is:
a. negatively related to the price level. c. negatively related to real GDP.
b. negatively related to the interest rate. d. all of the above.
24. The demand for money is:
a. positively related to the price level. c. negatively related to real GDP.
b. positively related to the interest rate. d. all of the above.
25. The demand for money is:
a. positively related to the price level. c. positively related to real GDP.
b. negatively related to the interest rate. d. all of the above.
26. When the supply of money increases, then
a. the price level rises. c. money demand increases.
b. the price level falls. d. money demand decreases.
27. When the demand of money increases, then
a. the price level rises. c. the money supply increases.
b. the price level falls. d. the money supply decreases.
Figure 10.1
28. In Figure 10.1, if money demand decreases then:
a. the equilibrium price level rises. c. the money supply rises.
b. the equilibrium prices level falls. d. the money supply falls.
29. In Figure 10.1, if the money supply decreases then:
a. the equilibrium price level rises. c. money demand increases.
b. the equilibrium price level falls. d. money demand decreases.
30. In Figure 10.1 if the interest rate, i, were to increase, then
a. money demand decreases and the price level increases. c. the money supply and the price level would increase.
b. money demand increases and the price level decreases. d. the money supply and the price level would decrease.
31. In Figure 10.1 if real GDP, Y, were to increase, then
a. money demand decreases and the price level increases. c. the money supply and the price level would increase.
b. money demand increases and the price level decreases. d. the money supply and the price level would decrease.
32. In Figure 10.1 the interaction of the money supply and money demand determines:
a. real GDP. c. growth rate of the economy.
b. the price level. d. all of the above.
33. In Figure 10.1 if money demand increases faster than the money supply then:
a. the price level will rise over time. c. GDP will rise over time.
b. the price level will fall over time. d. GDP will fall over time.
34. In Figure 10.1 if the money supply increases faster than money demand then:
a. the price level will rise over time. c. GDP will rise over time.
b. the price level will fall over time. d. GDP will fall over time.
35. In Figure 10.1, if money demand increases then:
a. the equilibrium price level rises. c. the money supply rises.
b. the equilibrium price level falls. d. the money supply falls.
36. In Figure 10.1, if the money supply increases then:
a. the equilibrium price level rises. c. the money supply rises.
b. the equilibrium price level falls. d. the money supply falls.
37. Real money demand is:
a. Md/P. c. the purchasing power of money balances.
b. a function of real GDP and the interest rate. d. all of the above.
38. Real money demand is:
a. money demand after taxes. c. determined by the central bank.
b. a function of real GDP and the interest rate. d. all of the above.
39. Real money demand is:
a. determined by the central bank. c. the purchasing power of money balances.
b. money demand after taxes. d. all of the above.
40. If the money supply doubles, then
a. real GDP doubles. c. the interest rate, i, doubles.
b. real money demand doubles. d. none of the above.
41. If the money supply doubles, then
a. GDP doubles. c. the interest rate, i, doubles.
b. the price level doubles. d. none of the above.
42. Under price level targeting the money supply becomes:
a. neutral. c. exogenous.
b. endogenous. d. predetermined.
43. During a recession,
a. the interest rate and real GDP fall tending to cause money demand to fall. c. the interest rate falls tending to cause money demand to rise, but is at least partly offset by real GDP falling tending to cause money demand to fall.
b. the interest rate and real GDP rise tending to cause money demand to rise. d. the interest rate rising and real GDP falling tend to cause money demand to rise.
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