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- 1. Open EndedWhich of the following best defines money?
- 2. Open EndedThis graph shows the effect of actions taken by the Central Bank of Hamsterville. Which of the following is a reason that a central bank would take actions that lead to the change shown in this graph?
- 3. Open EndedThe current balance sheet of the Iron Bank is given below. The reserve requirement is 10%. If Hodor deposits$100 in the Iron Bank, what will be the dollar value of new loans that the Iron Bank can make?
- 4. Open EndedWhich of the following best describes the opportunity cost of holding money?
- 5. Open EndedWhich of the following best describes why the money supply curve is vertical?
- 6. Open EndedThe current interest rate in Atlantis is 4% percent. At an interest rate of 4% percent, households want to hold $4 million in cash and $2 million in bonds. However, M1 is currently $3 million. Which of the following best describes what will happen in the money market in Atlantis?
- 7. Open EndedIf the reserve requirement is 5% and banks keep no excess reserves, what is the money multiplier?
- 8. Open EndedWhich of the following would be the FIRST change to occur when a central bank conducts open market purchases of bonds?
- 9. Open EndedWhich of the following best describes the difference between nominal interest rates and real interest rates?
- 10. Open EndedIf a new technology is invented that makes it easier to withdraw money from the bank, which of the following will occur in the money market?
- 11. Open EndedWhich of the following best defines the risk of a financial asset?
- 12. Open EndedWhich of the following best describes the result of a government moving from a budget deficit to a budget surplus?
- 13. Open EndedWhich of the following best describes the monetary aggregate M1?
- 14. Open EndedAssume that people keep all money in banks. What happens if banks decide to start keeping excess reserves instead of fully loaning out?
- 15. Open EndedWhat is the short-run effect of a decrease in the money supply on output and the price level?
- 16. Open EndedWhich of the following interest rates is a central bank MOST LIKELY to target directly when using monetary policy?
- 17. Open EndedThe current balance sheet for the Third Bank of Westeros is shown below. The reserve requirement in Westeros is 25%. If Ygritte deposits $1000 into her checking account in the Third Bank of Westeros, how much will the bank have in excess reserves?
- 18. Open EndedThe Bank of Narayana is one of many banks in the financial system in the nation of Kocherlakota. Rai deposits $1000 in the Bank of Narayana. The reserve requirement in Kocherlakota is 20% percent. How much in new loans can this bank make as a result of this deposit?
- 19. Open EndedWhich of the following is correct about capital inflows?
- 20. Open EndedThe interest rate that the bank paid you on your savings account last year was 18%. One year later you find that you can buy 12% more goods than you could last year. Based on this information, what was the nominal interest rate (n.i.r.), real interest rate (r.i.r.), and the rate of inflation (inf. rate)?
- 21. Open EndedThe government of Burginville currently has a balanced budget. Rampant consumer spending in Burginville has led to a decrease in national savings, which has affected real interest rates in Burginville. Which action could the government of Burginville take to offset the effect of a decrease in national savings on real interest rates?
- 22. Open EndedThe development of online banking has made it easier for people to move wealth to cash from other forms of assets. What change would counteract the effect of this on the nominal interest rate?
- 23. Open EndedThe central bank in Hamsterville has bought $100 in bonds from a bank. The reserve requirement is 25% percent. What is the maximum possible change in the money supply?
- 24. Open EndedThe nation of Kocherlakota has a money supply equal to $10000 and a monetary base equal to $2500. What is the money multiplier in Kocherlakota?
- 25. Open EndedWhich of the following statements is true when the money market is in equilibrium?
- 26. Open EndedThe values of several types of assets in Hamsterville are given in the table below. What is the value of M1 in Hamsterville?
- 27. Open EndedThe graph below shows the effect of a change in the market for loanable funds. Which of the following best describes an event that could cause the change shown in the graph?
- 28. Open EndedWhich of the following best describes an equilibrium in the money market?
- 29. Open EndedThe balance sheet for Chidi Bank is given below. Assume the reserve requirement is 20% If this bank sells all of the bonds it holds to the central bank, how much does this bank have in excess reserves?
- 30. Open EndedWhich of the following is a paper claim that entitles the buyer of that claim to future income from the seller?
- 31. Open EndedIf there is rapid inflation throughout the economy, which of the following is the most likely result?
- 32. Open EndedWhich of the following best describes the use of the money multiplier (1/rr)?
- 33. Open EndedWhen the Central Bank of Montoya increases the money supply, what is the impact?
- 34. Open EndedAn increase in real GDP has changed the demand for money, and the central bank wants to use open market operations to counter the effect of the change in demand on the nominal interest rate using open market operations. Which of the following is an open market operation that would have the desired effect on the nominal interest rate?
- 35. Open EndedHodor borrowed $ 1000. The bank charges him 5% percent interest per year. At the end of one year, he paid $ 50 in interest. During that year, there was a 2% percent increase in the GDP deflator. What was the nominal interest rate?
- 36. Open EndedMesa Verde Bank has $80000 in demand deposits, $20000 in bonds, and no owner's equity. It has a reserve requirement of 5% percent. How much does Mesa Verde need to keep in required reserves?
- 37. Open EndedAll of the following decrease nominal interest rates EXCEPT:
- 38. Open EndedThe central bank in Hamsterville has bought $100 in bonds from a bank. The reserve requirement is 25% percent. What is the maximum possible change in the money supply?
- 39. Open EndedWhich of the following financial assets is the most liquid?
- 40. Open EndedThe central bank of Ile conducted open market operations that changed the money market as shown in this graph. What open market operation did they conduct, and what problem would they be trying to correct?
- 41. Open EndedThe government of Hamsterville has engaged in expansionary fiscal policy, and the central bank has engaged in expansionary monetary policy. Assume that there is not complete crowding out. What will be the effect of these policies on real gross domestic product (GDP) and interest rates in Hamsterville?
- 42. Open EndedFelipe deposits $100 in the bank. The bank stores $20 of his deposit in a vault and will loan out other $80. The $20 stored in the bank vault is part of which of the following?
- 43. Open EndedWhich of the following leads to an increase in the money supply?
- 44. Open EndedWhich of the following best describes why the quantity of loanable funds supplied increases when the real interest rate increases?
- 45. Open EndedWhich of the following scenarios would cause the money multiplier to be smaller than predicted by the calculation below? 1/(reserve ratio)
- 46. Open EndedWhich of the following is the rate that banks in the United States charge each other for overnight loans?
- 47. Open EndedThe reserve requirement in Westeros is 25%. Assume that banks keep no excess reserves and there are no other monetary leakages. What is the increase in the money supply from a new $500 deposit?
- 48. Open EndedWhich of the following is a function of money that is most immediately impacted by hyperinflation?
- 49. Open EndedAll of the following lead to an increase in nominal interest rates EXCEPT
- 50. Open EndedAssume that an economy has an upward-sloping short-run aggregate supply (SRAS) curve. Which of the following would occur as a result of contractionary monetary policy?
- 51. Open EndedWhich of the following best describes how banks determine what interest rate to charge?
- 52. Open EndedIf the interest rate on bonds increases, which of the following is the most likely result?
- 53. Open EndedThe market for loanable funds in Oceania is in equilibrium. Based on this statement, which of the following is true?
- 54. Open EndedThe economy of Marthaland had a balanced budget, but an economic boom increased tax revenues. Which of the following should be used to show the effect of the increase in tax revenues on interest rates in Marthaland?
- 55. Open EndedNominal interest rates increased in Hamsterville, and there is less money available. Which of the following could have caused this change?
- 56. Open EndedIf banks decide to keep fewer excess reserves and instead lend more, which of the following is the most likely effect?
- 57. Open EndedMitoocents Bank's balance sheet is shown below. The central bank currently has a reserve requirement of 50%. If the central bank lowers the reserve requirement to 25%, which of the following is the most likely outcome?
- 58. Open EndedFirst Bank is one of many banks in the banking system in Hamsetrville. The central bank of Hamsterville sells bonds to First Bank. What is the immediate impact of the central bank's action?
- 59. Open EndedWhich of the following would be the appropriate model to use to describe the behavior of borrowers and savers?
- 60. Open EndedAddy deposits $500 in the bank. The reserve requirement is 20%. Assume banks keep no excess reserves. What is the maximum change in the money supply that occurs as a result of her deposit?
- 61. Open EndedSeveral years ago the Golden Company issued bonds to raise funds so that it could buy equipment. Those bonds were purchased by the Bank of Westeros. However, now the Bank of Westeros has decided that it doesn't want to have any assets in the form of bonds, so it is selling off all the bonds that it owns. Which of the following is most likely to be the result of this action?
- 62. Open EndedThe interest rate that the bank charged you on your loan last year was 9%. One year later you find that it costs you 2% more to buy goods and services this year as it did last year. Based on this information, what was the nominal interest rate (n.i.r.), real interest rate (r.i.r.), and the rate of inflation (inf. rate)?
- 63. Open EndedWhat relationship is illustrated using the demand for loanable funds?
- 64. Open EndedThe current interest rate in Atlantis is 4%. At an interest rate of 4%, households want to hold $4 million in cash and $ 2 million in bonds. However, M1 is currently $3 million. Which of the following best describes what will happen in the money market in Atlantis?
- 65. Open EndedWestley is a citizen of Florin. He believes that the investment conditions in the neighboring country of Guilder are much better. Assume both countries have an open economy. If other investors share Westley's opinion, what will happen to net capital inflows and the supply of loanable funds in Guilder?
- 66. Open EndedThe values of several types of assets in Hamsterville are given in the table below. What is the value of M2 in Hamsterville?
- 67. Open EndedWhich of the following is a contractionary monetary policy tool that is NOT an open market operation?
- 68. Open EndedWhich of the following increases the demand for money?
- 69. Open EndedWhich of the following leads to a decrease in the demand for money?
- 70. Open EndedThe reserve requirement is 20%. Excellence Bank's balance sheet is shown below. If this bank sells all of the bonds it holds to the central bank, how much does this bank have in excess reserves?
- 71. Open EndedThe size of the expansion of the money supply depends on which of the following?
- 72. Open EndedA banking innovation has made it easier for people in Hamsterville to convert their assets into money. As a result, the demand for money has decreased, and this has changed the nominal interest rate. If the central bank wants to counteract this change, which of the following is an appropriate open market operation to achieve that?
- 73. Open EndedInterest rates in Hamsterville have fallen and, as a result, the net return to investment projects are higher than before interest rates fell and now firms are more willing to take out loans. Which of the following changes would reflect what is described in the statement above?
- 74. Open EndedFirst National Bank is one of many banks in a banking system. It has no excess reserves, and the reserve requirement is 50%. It has $20000 in bonds. How much in new loans can the bank make if the central bank buys the bank's bonds?
- 75. Open EndedThe Iron Bank wants to make sure that the purchasing power of the interest that they get paid on loans is at least 11%. Real GDP is increasing at 5% per year, and the expected rate of inflation is 7% per year. If all banks in Westeros want to earn the same real return as the Iron Bank, what is the nominal interest rate (n.i.r)?
- 76. Open EndedBurgin National Bank operates under a fractional reserve system and the required reserve ratio is 10%. The bank has $4000 in owner's equity, $20000 in demand deposits, $10000 in business loans, and $7000 in consumer loans. Based on this information, how much does Burgin National Bank need to keep in required reserves?
- 77. Open EndedWhich of the following best defines liquidity?
- 78. Open EndedWhich of the following are included in the monetary base (MB), but NOT in the money supply (M1)?
- 79. Open EndedThe amount of money that people want to hold is greater than the money supply at the current interest rate. Which of the following describes the process that returns the money market to equilibrium when the quantity of money demanded is greater than the money supply?
- 80. Open EndedThe Iron Bank of Westeros charges the Lannister family 12% interest on their loans. The director of finance at the bank collected information about the economy in Westeros over the past year as shown in the table below. What was the real interest rate that the Iron bank earned on these loans?
- 81. Open EndedEliza buried money in the backyard to use in an emergency. Which of the three functions of money is described here?
- 82. Open EndedIf there is an increase in aggregate demand, what happens in the money market?
- 83. Open EndedThe reserve requirement in Florin is 20%. The Central Bank of Florin buys $2000 worth of bonds using open market operations. Which of the following describes the impact of the open market purchase of bonds on the monetary base and the money supply?
- 84. Open EndedWhich of the following leads to a lower real interest rate?
- 85. Open EndedWhich of the following best describes an equilibrium in the loanable funds market?
- 86. Open EndedThe current balance sheet of the Iron Bank is given below. The reserve requirement is 20% If Cersei deposits $100 in the Iron Bank, what will be the dollar value of new loans that the Iron Bank can make?
- 87. Open EndedWhich of the following would most likely limit the ability of monetary policy to quickly correct an output gap?
- 88. Open EndedBread Bank is one of many banks in Fredland and there is a currently a 10% reserve requirement. Its balance sheet is shown below. What happens to required reserves and excess reserves if the reserve requirement is increased to 20%
- 89. Open EndedWhich of the following best describes the impact of a decrease in the demand for capital on the interest rate and the quantity of loans made?
- 90. Open EndedThe economy of Maxistan is in a recession caused by a decrease in consumer confidence, as shown in the model here. How will the change in the price level impact the money market and nominal interest rates?
- 91. Open EndedWhich of the following best explains why a $20 bill is money but a share of stock is not money?
- 92. Open EndedThe nominal interest rate in Maxistan decreased, but there is no change in people's liquidity preferences. Which of the following could have caused this change?
- 93. Open EndedMaxistan's central bank lowered interest rates last month. All else equal, what would we expect to happen to previously issued bonds in Maxistan?
- 94. Open EndedThe Bank of Dodge had several large withdrawals and its reserves have fallen below its required reserves. Other banks are unwilling to lend it money, so it has turned to the emergency lending division of the Federal Reserve for an overnight loan. What is the name of the interest rate this bank will be charged for an overnight loan from the Federal Reserve?
- 95. Open EndedYgritte loaned Mans $100. Mans paid her back $110 one year later. The annual rate of inflation was 3%. What was the nominal interest rate that Ygritte earned on this loan?
- 96. Open EndedThe figure below shows the result of a change in the market for loanable funds. Which of the following is the most likely to have caused the shift shown here?
- 97. Open EndedThe reserve requirement is 20%. Excellence Bank's balance sheet is shown below. If Jianyu withdraws $5000 from his bank account, which of the following is true?
- 98. Open EndedWhich of the following financial assets carries the most risk?
- 99. Open EndedWhich of the following best describes why the expansion of the money supply might be different than is predicted by the simple money multiplier?
- 100. Open EndedWhat is included in the monetary base?
- 101. Open EndedMance wants to borrow money, but he doesn't want to pay more than 11% real interest per year. He expects the annual rate of inflation to be 3% each year during the life of the loan. Based on this information, what is the highest nominal interest that he will be willing to pay?
- 102. Open EndedEconomic conditions in Fredland have caused the demand for money to increase which has changed the nominal interest rate. If the central bank wants to counteract this change, which of the following is an appropriate open market operation to achieve that?
- 103. Open EndedThe economy of Burginville prohibits the exchange of goods, services, or capital flows between itself and other countries. Which of the following best describes national savings in Burginville?
- 104. Open EndedThe current balance sheet of the Iron Bank is given below. The reserve requirement is 10%. If Hodor deposits $100 in the Iron Bank, what is the maximum change in the money supply that can occur as a result of his deposit?
- 105. Open EndedThe central bank of Hamsterville decided to decrease the money supply. Which of the following is the most likely reason that the central bank decreased the money supply?
- 106. Open EndedThe reserve requirement in Westeros is 25% percent. Assume that banks keep no excess reserves and there are no other monetary leakages. What is the maximum possible increase in the money supply if an additional $500 is added to the monetary base?
- 107. Open EndedTahani Bank is one of many banks in a banking system. The required reserve ratio is 25%, and the balance sheet for Tahani Bank is shown here: Michael deposits $4000 in the bank. How much in new loans can this bank make if it decides to fully loan out?
- 108. Open EndedWhich of following best describes national savings in a closed economy?
- 109. Open EndedWhich of the following best describes the federal funds rate?
- 110. Open EndedWhat happens to the price and interest rate of a bond if the demand for that bond increases?
- 111. Open EndedThe Third Bank of Chidi is one of many privately owned banks in Anagonye. It sells $200 worth of government securities that it had previously been holding Which of the following best describes the initial effect of this sale on the bank's balance sheet ?
- 112. Open EndedIn response to a particularly exciting speech by the president of Hamsterville, business optimism is at an all time high, and the demand for capital has increased. What will be the impact of this increase in the demand for capital on the market for loanable funds and the stock of capital in Hamsterville?
- 113. Open EndedWhich of the following decreases the money supply?
- 114. Open EndedYgritte loaned Mans $100. Mans paid her back $110 one year later. The annual rate of inflation was 3%. What was the real interest rate that Ygritte earned on this loan?
- 115. Open EndedAssume all banks in Susanland fully loan out, all money is redeposited in banks, and there are no other monetary leakages. If the monetary base increases by $200 and this leads to an increase in the money supply of $1000, what is the reserve requirement in Susanland?
- 116. Open EndedThe Central Bank of Hamsterville and the government of Hamsterville are trying to control inflation by engaging in contractionary monetary policy and contractionary fiscal policy, respectively. Assume that the budget of Hamsterville was balanced prior to engaging in contractionary fiscal policy. What will be the impact of contractionary fiscal policy and contractionary monetary policy on real gross domestic product(GDP) and the interest rate of Hamsterville?
- 117. Open EndedThe values of several types of assets in Hamsterville are given in the table below. What is the value of the monetary base in Hamsterville?
- 118. Open EndedGrey Worm borrowed $20 from Daenerys and promised to pay her back $25 a year later. What is the nominal interest rate that Daenerys expects to earn if the rate of inflation is 10%?
- 119. Open EndedWhich of the following best describes how the money supply responds to changes in the nominal interest rate?
- 120. Open EndedThe economy of Burginville had a balanced budget, but a recession decreased tax revenues. Which of the following should be used to show the effect of the decrease in tax revenues on interest rates in Burginville?
- 121. Open EndedWhat is the dollar value of new loans that this bank can make?
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