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QUESTION

Economics 201 (Principles of Macroeconomics)Fall 20111) The major shortcoming of a barter economy isA) the requirement of a double coincidence of wants.B) the requirement of specialization and exchang

Economics 201 (Principles of Macroeconomics)

Fall 2011

1) The major shortcoming of a barter economy is

A) the requirement of a double coincidence of wants.

B) the requirement of specialization and exchange.

C) that goods and services are not traded.

D) that money loses value from inflation.

2) Which of the following functions of money would be violated if inflation were high?

A) unit of account

B) store of value

C) certificate of gold

D) medium of exchange

3) The largest proportion of M1 is made up of

A) currency.

B) checking account deposits.

C) traveler's checks.

D) savings account deposits.

E) time deposits.

4) In 2007, the amount of seigniorage on a U.S. penny is ________ and on the total amount of U.S. fiat money is ________.

A) positive; negative

B) negative; zero

C) negative; positive

D) zero; positive

5) If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.  

A) increase; decrease

B) increase; not change

C) not change; increase

D) not change; decrease

E) not change; not change

6) If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.  

A) increase; increase

B) not change; increase

C) decrease; increase

D) decrease; not change

E) increase; decrease

Scenario 2-1

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

7) Refer to Scenario 2-1.  As a result of Kristy's deposit, Bank A's reserves immediately increase by

A) $2,000.

B) $8,000.

C) $10,000.

D) $50,000.

8) Refer to Scenario 2-1.  As a result of Kristy's deposit, Bank A's required reserves increase by

A) $2,000.

B) $8,000.

C) $10,000.

D) $50,000.

9) Refer to Scenario 2-1.  As a result of Kristy's deposit, Bank A's excess reserves increase by

A) $2,000.

B) $8,000.

C) $10,000.

D) $50,000.

10) Refer to Scenario 2-1.  As a result of Kristy's deposit, Bank A can make a maximum loan of

A) $2,000.

B) $8,000.

C) $10,000.

D) $50,000.

11) Refer to Scenario 2-1.  As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

A) $8,000.

B) $10,000.

C) $50,000.

D) $100,000.

12) If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

A) $100.

B) $1,000.

C) $10,000.

D) $100,000.

Table 2-2

Assets

Liabilities

Reserves        +$8,000

Deposits       + $8,000

13) Refer to Table 2-2.  Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent.  As a result of the transaction, the bank can make a maximum loan of

A) $0.

B) $800.

C) $7,200.

D) $8,000.

14) An increase in the interest rate

A) decreases the opportunity cost of holding money.

B) increases the opportunity cost of holding money.

C) decreases the percentage yield of holding money.

D) increases the percentage yield of holding money.

15) An increase in the price level causes

A) the money demand curve to shift to the left.

B) the money demand curve to shift to the right.

C) a movement up along the money demand curve.

D) a movement down along the money demand curve.

16) Which of the following would cause the money demand curve to shift to the left?

A) an open market purchase of Treasury securities by the Federal Reserve

B) an increase in the interest rate

C) an increase in the price level

D) a decrease in real GDP

17) Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

A) increase.

B) decrease.

C) not change.

D) increase if the economy is in a recession.

18) The interest rate that banks charge other banks for overnight loans is the

A) prime rate.

B) discount rate.

C) federal funds rate.

D) Treasury bill rate.

19) The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

A) tax rates.

B) real interest rates.

C) nominal interest rates.

D) foreign exchange rates.

20) A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

A) increase; more

B) decrease; less

C) decrease; more

D) increase; less

E) increase; similar

Monetary Policy in the Dynamic Aggregate Demand and Aggregate Supply Model

Figure 2-1

21) Refer to Figure 2-1.   In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely

A) increase interest rates.

B) decrease interest rates.

C) not change interest rates.

D) decrease the inflation rate.

22) Refer to Figure 2-1.   In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B

A) there is pressure on wages and prices to rise.

B) the unemployment rate is very, very low.

C) firms are operating above their normal capacity.

D) the economy is below full employment.

E) incomes and profits are rising.

23) Refer to Figure 2-1.   In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy.  This will result in

A) unemployment rates higher than what would occur if no policy had been pursued.

B) inflation higher than what would occur if no policy had been pursued.

C) real GDP lower than what would occur if no policy had been pursued.

D) short-term interest rates higher than what would occur if no policy had been pursued.

24) The statement, "My iPhone is worth $500" represents money's function as

A) a medium of exchange.

B) a unit of account.

C) a store of value.

D) a standard of deferred payment.

25) Which of the following functions of money would be violated if inflation were high?

A) unit of account

B) store of value

C) certificate of gold

D) medium of exchange

26) Fiat money has

A) little to no intrinsic value but is backed by the quantity of gold held by the central bank.

B) little to no intrinsic value and is authorized by the central bank or governmental body.

C) value, because it can be redeemed for gold by the central bank.

D) a great intrinsic value that is independent of its use as money.

27) Although gold is highly valued by most people, it is difficult to use as a medium of exchange. Explain.

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