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| 1.
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Based on the following information, compute the value of the money supply.
Currency held by public = €500 million,
Bank reserves = €1000 million,
Reserve-deposit ratio = 0.20 |
| | A) | €1,500 million |
| | B) | €3,500 million |
| | C) | €4,000 million |
| | D) | €5,500 million |
| | E) | €6,000 million |
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| 2.
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If a bank's actual reserve/deposit ratio equals 12% and its desired reserve/deposit ratio is 10%, the bank should: |
| | A) | Do nothing because this is a profitable situation. |
| | B) | Stop making loans. |
| | C) | Send the extra reserves to the central bank. |
| | D) | Request that customers withdraw deposits from the bank. |
| | E) | Make more loans in order to earn interest. |
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| 3.
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In Euroland, currency held by the public is €2000, bank reserves are €400, and the desired reserve/deposit ratio is 25%. If the Central Bank prints an additional €200 and uses this new currency to buy government bonds from the public, the money supply in Euroland will increase from ____ euros to _____ euros assuming that the public does not
wish to change the amount of currency it holds. |
| | A) | 1,600; 2,400 |
| | B) | 2,000; 2,200 |
| | C) | 2,400; 2,600 |
| | D) | 3,600; 4,400 |
| | E) | 4,000; 4,200 |
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| 4.
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If the public to reduce its currency holdings and to uses more chequesto finance transactions and the central bank takes no action, the money supply will: |
| | A) | Increase |
| | B) | Decrease |
| | C) | Not change |
| | D) | Either increase or decrease |
| | E) | Equal the quantity of currency that is still in use. |
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| 5.
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Which of the following is an example of the word "money" correctly used as an economic term? |
| | A) | Miguel made a lot of money in the stock market. |
| | B) | Francine takes a lot of money with her when she goes on business trips to purchase antiques for her store. |
| | C) | Katherine won the lottery and is in the money now. |
| | D) | The Big Time Corporation makes money selling clocks to businesses. |
| | E) | Albert made his money in the movies. |
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| 6.
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When the value of a bushel of corn and a ton of steel is expressed in euro terms, money is being used as a: |
| | A) | Medium of exchange. |
| | B) | Unit of account. |
| | C) | Store of wealth. |
| | D) | Means of barter. |
| | E) | Double coincidence of wants. |
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| 7.
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In the European System of Central Banks decisions on monetary policy are taken by the _____ and in the Federal Reserve by the ______ |
| | A) | Governing Council; Federal Open Markets Committee |
| | B) | Governing Council; Board of Governors |
| | C) | Executive Board; Monetary Policy Committee |
| | D) | Executive Board; Federal Open Markets Committee |
| | E) | General Council; Board of Governors |
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| 8.
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The European Central Bank’s primary mandate is to ensure ______ in the Eurosystem: |
| | A) | Low unemployment |
| | B) | Low interest rates |
| | C) | Stable exchange rates |
| | D) | Zero inflation |
| | E) | Price stability |
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| 9.
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If real GDP equals 50,000, nominal GDP equals 100,000, and the price level equals 2, what is velocity if the money stock equals 20,000? |
| | A) | 2 |
| | B) | 4 |
| | C) | 5 |
| | D) | 5.5 |
| | E) | 6 |
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| 10.
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In the European System of Central Banks, or ESCB, the main refinancing rate is the interest rate at which: |
| | A) | Commercial banks borrow from the ESCB |
| | B) | Commercial banks lend to each other |
| | C) | Householders refinance their mortgages |
| | D) | The ESCB lends to national governments |
| | E) | The ESCB lends to the public |
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