Quizlet 8 - Summary

1. 1) Which of the following is a characteristic of bonds? A) pay zero nominal interest B) can be used for transactions C) are sold for a price that varies inversely with the interest rate D) all of the above E) none of the above C) are sold for a price that varies inversely with the interest rate 7. 7) The money demand curve will shift to the left when which of the following occurs? A) a reduction in the interest rate B) an increase in the interest rate C) an open market sale of bonds by the central bank D) an increase in income E) none of the above E) none of the above 2. 2) Which of the following is a flow variable? A) income B) money C) financial wealth D) all of the above E) none of the above A) income 8. 8) Which of the following is NOT included as a component of the M1 definition of money? A) bonds B) checkable deposits C) coins and bills held by the nonbank public D) all of the above E) none of the above A) bonds 3. 3) Which of the following is a component of money? A) bonds B) saving C) income D) stocks E) none of the above E) none of the above 9. D) $1600 4. 4) Which of the following is a component of money? A) coins held by the nonbank public B) bills held by banks C) checkable deposits D) all of the above D) all of the above 9) In 2006, the average U.S. household held approximately how much currency (dollar bills and coins)? A) $50 B) $100 C) $600 D) $1600 E) none of the above 10. A) Ecuador 5) Which of the following will cause an increase in the amount of money that one wishes to hold? A) an increase in the interest rate increase B) a reduction in the interest rate increase C) a reduction in income D) none of the above B) a reduction in the interest rate increase 10) Which of the following countries has adopted the U.S. dollar as its own currency? A) Ecuador B) Mexico C) Canada D) France E) Australia 11. B) the price of bonds will tend to fall. 6) The money demand curve will shift to the right when which of the following occurs? A) an increase in income B) a reduction in the interest rate C) an increase in the money supply D) all of the above E) none of the above A) an increase in income 11) At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that A) the price of bonds will tend increase. B) the price of bonds will tend to fall. C) production equals demand. D) the goods market is also in equilibrium. E) the supply of bonds also equals the demand for bonds 12. 12) The interest rate will increase as a result of which of the following events? A) an increase in income B) an open market purchase of bonds by the central bank C) a reduction in income D) all of the above E) none of the above A) an increase in income 5. 6. 13. 13) Which of the following is NOT an asset on a bank's balance sheet? A) reserves B) loans C) checkable deposits D) all of the above E) none of the above C) checkable deposits 14. 14) Which of the following is a liability on a bank's balance sheet? A) checkable deposits B) reserves C) loans D) all of the above E) none of the above A) checkable deposits 15. 15) Which of the following is a liability for the central bank? A) currency B) bonds C) savings accounts D) loans E) checkable deposits A) currency 16. 16) Suppose a one-year discount bond offers to pay $1000 in one year and currently sells for $950. Given this information, we know that the interest rate on the bond is A) 5.3%. B) 9.5%. C) 10%. D) 90%. E) 110%. A) 5.3% 17. 17) Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this information, we know that the bond's price must be A) $869.56. B) $1150. C) $850. D) $950. E) none of the above A) $869.56. 18. 18) Banks are different from other financial intermediaries because A) banks receive funds and make loans. B) some of a bank's deposits are money. C) banks can conduct open market operations on their own. D) banks do not need to hold reserves against their deposits. E) banks are open longer hours. B) some of a bank's deposits are money. 19. 19) Which of the following generally occurs when a central bank pursues expansionary monetary policy? A) the central bank purchases bonds and the interest rate increases. B) the central bank purchases bonds and the interest rate decreases. C) the central bank sells bonds and the interest rate increases. D) the central bank sells bonds and the interest rate decreases. B) the central bank purchases bonds and the interest rate decreases. 20. 20) Which of the following generally occurs when a central bank pursues contractionary monetary policy? A) the central bank purchases bonds and the interest rate increases. B) the central bank purchases bonds and the interest rate decreases. C) the central bank sells bonds and the interest rate increases. D) the central bank sells bonds and the interest rate decreases. C) the central bank sells bonds and the interest rate increases. 21. 21) Which of the following will occur when the central bank pursues expansionary monetary policy? A) a leftward shift in the money demand curve and a leftward shift in the money supply curve B) a rightward shift in the money demand curve and a leftward shift in the money supply curve. C) a leftward shift in the money demand curve and a rightward shift in the money supply curve. D) a rightward shift in the money demand curve and a rightward shift in the money supply curve. E) none of the above E) none of the above 22. 23. 24. 25. 26. 22) Which of the following is a component of high powered money? A) bonds held by banks, loans, and bank reserves B) currency in circulation plus bank reserves C) currency in circulation plus checkable deposits D) bonds held by banks plus checkable deposits E) the sum of currency in circulation, bank reserves, and checkable deposits B) currency in circulation plus bank reserves 23) For this question, assume that individuals do NOT hold currency (i.e., c = 0). If the ratio of reserves to deposits is .10, the money multiplier is A) .1. B) .9. C) 4. D) 5. E) 10. E) 10. 24) Which of the following will cause the money multiplier to become smaller? A) an increase in high powered money B) a decrease in the ratio of reserves to checkable deposits C) an increase in the public's preference for checking deposits as opposed to holding currency D) a reduction in high powered money E) none of the above E) none of the above 25) The money supply will tend to fall when which of the following occurs? A) a central bank sale of bonds B) a decrease in the ratio of reserves to deposits C) a shift in public preferences away from currency to checkable deposits D) all of the above E) none of the above B) a decrease in the ratio of reserves to deposits 26) Which of the following events will cause the interest rate to increase? A) an open market sale of bonds B) an increase in the reserve deposit ratio (i.e., θ) C) an increase in income D) all of the above D) all of the above 27. 27) The federal funds rate is determined in which of the following markets? A) the market for U.S. treasury securities B) the money market C) the bond market D) the market for central bank money E) none of the above E) none of the above 28. 28) For this question, assume that individuals do NOT hold currency (i.e., c = 0). The money multiplier is equal to A) 1. B) 1/(1 - c). C) θ. D) 1/(1- θ). E) none of the above E) none of the above 29. 29) For this question, assume that individuals do NOT hold currency (i.e., c = 0). The money multiplier is equal to A) 1/(1-c). B) 1/[c + θ(1-c)]. C) [c + θ(1-c)]. D) 1/θ. E) none of the above D) 1/θ. 30. 30) For this question, assume that individuals hold both currency and checkable deposits. The money multiplier is equal to A) 1/c. B) 1/[c + θ(1-c)]. C) [c + θ(1-c)]. D) 1/θ. E) 1/(1-c) B) 1/[c + θ(1-c)]. 31. 31) We would expect which of the following to occur when the central bank pursues expansionary monetary policy? A) an increase in bond prices and an increase in the interest rate (i) B) a reduction in bond prices and an increase in i C) an increase in bond prices and a reduction in i D) a reduction in bond prices and a reduction in i E) none of the above C) an increase in bond prices and a reduction in i 32. 33. 34. 35. 36. 32) We would expect which of the following to occur when the central bank pursues contractionary monetary policy? A) an increase in bond prices and an increase in the interest rate (i) B) a reduction in bond prices and an increase in i C) an increase in bond prices and a reduction in i D) a reduction in bond prices and a reduction in i E) none of the above B) a reduction in bond prices and an increase in i 33) Based on our understanding of the determinants of the interest rate and bond prices, we know that a reduction in income will cause A) an increase in bond prices and an increase in the interest rate (i). B) a reduction in bond prices and an increase in i. C) an increase in bond prices and a reduction in i. D) a reduction in bond prices and a reduction in i. E) none of the above C) an increase in bond prices and a reduction in i. 34) We would expect which of the following to occur when the central bank conducts an open market sale of bonds? A) a reduction in the monetary base (H) B) a reduction in the money multiplier C) an increase in H D) an increase in the money multiplier E) both C and D A) a reduction in the monetary base (H) 35) We would expect which of the following to occur when the central bank conducts an open market purchase of bonds? A) a reduction in the monetary base (H) B) a reduction in the money multiplier C) an increase in the money multiplier D) an increase in the money supply D) an increase in the money supply 36) The FDIC currently insures each bank account up to what level? A) $10,000 B) $50,000 C) $250,000 D) $150,000 C) $250,000 37. 37) An increase in the reserve ratio, θ, will cause A) an increase in the monetary base (H). B) a reduction in H. C) an increase in the money multiplier. D) a reduction in the money multiplier. E) none of the above D) a reduction in the money multiplier. 38. 38) A reduction in the reserve ratio, θ, will cause A) an increase in the monetary base (H). B) a reduction in H and a reduction in the money multiplier. C) an increase in the money multiplier. D) a reduction in the money multiplier. C) an increase in the money multiplier. 39. 39) An increase in the parameter c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following? A) an increase in the monetary base (H) B) a reduction in H C) an increase in the money multiplier D) a reduction in the money multiplier D) a reduction in the money multiplier 40. 40) A reduction in the parameter c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following? A) an increase in the monetary base (H) B) a reduction in H C) an increase in the money multiplier D) a reduction in the money multiplier C) an increase in the money multiplier 41. 41) An increase in income will tend to cause which of the following? A) an increase in the monetary base (H) B) a reduction in H C) an increase in the interest rate D) a reduction in the money multiplier E) none of the above C) an increase in the interest rate 42. 42) If individuals do not hold currency, we know that A) M = D. B) H = R. C) the money multiplier is 1/θ. D) all of the above D) all of the above 43. 43) If individuals do not hold checkable deposits, we know that A) M = CU. B) H = CU. C) the money multiplier is 1. D) all of the above D) all of the above 44) An increase in the interest rate will cause A) a reduction in the supply of central bank money. B) a reduction in the demand for currency. C) a reduction in the demand for reserves. D) all of the above E) both B and C E) both B and C 45. 45) An increase in income will cause A) a reduction in the supply of central bank money. B) a reduction in the demand for currency. C) a reduction in the demand for reserves. D) none of the above E) both B and C D) none of the above 46. 46) An increase in income will cause A) a reduction in the supply of central bank money. B) a reduction in the demand for currency. C) an increase in the demand for reserves. D) none of the above C) an increase in the demand for reserves. 47. 47) An open market sale of securities will tend to cause A) a reduction in the supply of central bank money. B) a reduction in the demand for currency. C) a reduction in the demand for reserves. D) none of the above A) a reduction in the supply of central bank money. 48. 48) Suppose a one-year discount bond offers to pay $100 in one year and currently sells for $99. Given this information, we know that the interest rate on the bond is A) 11.1%. B) 10%. C) 5.3%. D) 9.9%. A) 11.1%. 49. 49) Which of the following is an asset of a central bank? A) currency B) bonds C) reserves D) none of the above B) bonds 44. 50. 50) Which of the following is an asset for both a bank and a central bank? A) currency B) deposits C) bonds D) all of the above E) none of the above C) bonds 51. 51) Which of the following affects demand for money? A) prices B) nominal income C) interest rate D) all of the above E) none of the above D) all of the above