1. Which of the following will tend to decrease the excess reservesof the commer
ID: 1228552 • Letter: 1
Question
1. Which of the following will tend to decrease the excess reservesof the commercial banking system?a. The central bank buys bonds from the public.
b. The central bank sells bonds to a commercial bank.
c. The central bank reduces its discount rate.
d. The central bank decreases the required reserve ratio.
e. The central bank does any of the above except b.
2. Which of the following is true about the equation ofexchange?
a. The equation of exchange can be presented as: M × V = P× Q.
b. Velocity represents the average number of times that a dollar isused in purchasing final
goods or services in a one-year period.
c. If M increases, and V remains constant, then P must rise,Q mustrise, or P and Q must
each rise.
d. An increase in the interest rates will cause people to hold lessmoney, which, in turn,
means that the velocity of money increases.
e. All of the above are true about the equation of exchange.
3. If the money supply grew by 6 percent and velocity fell by 2percent, nominal GDP would:
a. fall by 4 percent.
b. rise by 4 percent.
c. rise by 8 percent.
d. rise by 12 percent.
4. If nominal GDP is $954 billion and velocity is 9, then the moneysupply:
a. is $106 billion.
b. is $122 billion.
c. is $98 billion.
d. is greater than $8 trillion.
e. cannot be determined from that information.
5. When the Fed buys bonds, it:
a. lowers the price of bonds
b. raises interest rates
c. reduces aggregate demand
d. reduces real GDP in the short run.
e. does none of the above.
6. Which of the following is true?
a. The quantity of money demanded varies inversely with the rate ofinterest.
b. Money market equilibrium occurs at that nominal interest ratewhere the quantity of
money demanded equals the quantity of money supplied.
c. Rising national income will shift the demand for money to theright, leading to a new
higher equilibrium nominal interest rate.
d. An increase in the money supply will lead to lower interestrates and an increase in
aggregate demand.
e. All of the above are true.
7. Federal funds market rate is:
a. the rate at which central bank provides funds to commercialbanks.
b. the rate charged by banks on loans to the public.
c. the rate charged on loans provided to meet reserverequirement.
d. lower than the discount rate.
8. When interest rates are higher:
a. the opportunity cost of holding monetary assets is higher, andthe quantity of money
demanded, but not the demand for money, is lower.
b. the opportunity cost of holding monetary assets is higher, andthe demand for money
increases.
c. the opportunity cost of holding monetary assets is lower, andthe quantity of money
demanded, but not the demand for money, is greater.
d. the opportunity cost of holding monetary assets is lower, andthe demand for money
increases.
Explanation / Answer
1. Which of the following will tend to decrease the excess reservesof the commercial banking system? a. The central bank buys bonds from the public. b. The central bank sells bonds to a commercialbank.- contractionary policy which fed take up money and bank getsbonds c. The central bank reduces its discount rate. d. The central bank decreases the required reserve ratio. e. The central bank does any of the above except b. 2. Which of the following is true about the equation ofexchange? a. The equation of exchange can be presented as:M × V = P × Q. b. Velocity represents the average number of times that a dollar isused in purchasing final goods or services in a one-year period. c. If M increases, and V remains constant, then P must rise,Q mustrise, or P and Q must each rise. d. An increase in the interest rates will cause people to hold lessmoney, which, in turn, means that the velocity of money increases. e. All of the above are true about the equation of exchange. 3. If the money supply grew by 6 percent and velocity fell by 2percent, nominal GDP would: a. fall by 4 percent. b. rise by 4 percent.(roughly two percentdifference, use M*V=P*Q (P*Q=GDP) c. rise by 8percent. d. rise by 12 percent. 4. If nominal GDP is $954 billion and velocity is 9, then the moneysupply: a. is $106 billion. M*9=954 M=106 b. is $122 billion. c. is $98 billion. d. is greater than $8 trillion. e. cannot be determined from that information. 5. When the Fed buys bonds, it: a. lowers the price of bonds b. raises interest rates c. reduces aggregate demand d. reduces real GDP in the short run. e. does none of the above. 6. Which of the following is true? a. The quantity of money demanded varies inversely with the rate ofinterest.-true b. Money market equilibrium occurs at that nominal interest ratewhere the quantity of money demanded equals the quantity of money supplied. c. Rising national income will shift the demand for money to theright, leading to a new higher equilibrium nominal interest rate. d. An increase in the money supply will lead to lower interestrates and an increase in aggregate demand.-true e. All of the above are true. 7. Federal funds market rate is: a. the rate at which central bank provides fundsto commercial banks. b. the rate charged by banks on loans to the public. c. the rate charged on loans provided to meet reserverequirement. d. lower than the discount rate. 8. When interest rates are higher: a. the opportunity cost of holding monetary assets is higher, andthe quantity of money demanded, but not the demand for money, is lower. b. the opportunity cost of holding monetary assets is higher, andthe demand for money increases. c. the opportunity cost of holding monetaryassets is lower, and the quantity of money demanded, but not the demand for money, is greater. d. the opportunity cost of holding monetary assets is lower, andthe demand for money increases.
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