Eco 203

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Question 1.1. The transactions demand for money depends on (Points : 1)

 the price level only.
 the interest rate only.
 real income only.
 both the price level and real income.
 both the interest rate and the price level.

Question 2.2. All but which one of the following are tools of monetary policy? (Points : 1)

 open market operations
 the discount window
 U.S. Treasury gold purchases
 reserve ratio changes
 selective credit controls

Question 3.3. The lender of last resort function refers to (Points : 1)

 controlling the money supply.
 regulating banks.
 loaning money to the public
 preventing bank panics.
 purchasing government bonds when no one else wishes to purchase them.

Question 4.4. When the Federal Open Market Committee buys a government bond from a bank, (Points : 1)

 reserves in the banking system increase.
 the deposit multiplier increases.
 the bank must call in existing loans.
 the money supply is unaffected, since a government bond is not part of the money supply.

Question 5.5. The monetary base is defined as (Points : 1)

 currency plus bank borrowings from the Fed.
 bank reserves.
 the public’s holding of currency.
 bank reserves plus currency in the hands of the public.
 bank reserves plus bank vault cash.

Question 6.6. Changes in the reserve ratio, open market operations, and changes in the discount rate are all tools used by the Fed to (Points : 1)

 protect the savings of bank depositors.
 manipulate the dollar price of gold.
 ensure that a dollar is worth as much in New Haven, Connecticut, as in Flagstaff, Arizona.
 implement monetary policy.
 implement fiscal policy.

Question 7.7. If the Fed sells government bonds on the open market, which of the following will NOT occur? (Points : 1)

 the money supply will contract.
 the yield on corporate bonds will increase.
 the yield on government bonds will increase.
 the interest rate will fall.
 the amount of investment spending will decrease.

Question 8.8. To keep the federal funds rate from rising above the target zone, the Fed must (Points : 1)

 sell government bonds in the open market.
 raise the discount rate.
 increase the reserve requirement.
 buy government bonds in the open market.
 increase the GDP.

Question 9.9. The M1 money supply includes (Points : 1)

 small-denomination time deposits.
 certificates of deposit.
 money market accounts.
 checkable deposit accounts.

Question 10.10. According to the M1 definition, the money supply consists of currency held by the public plus (Points : 1)

 time deposits.
 negotiable certificates of deposit.
 time deposits plus demand deposits.
 demand deposits, NOW accounts, credit union share drafts, and traveler’s checks.
 M2 minus money market mutual fund shares.

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