Question 1

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 2

If the reserve requirement is 10%, what is the simple money multiplier?

Accepted Answer

$$\frac{1}{0.1} = 10$$

Question 3

Which of the following best describes fiat money?

Accepted Answer

Money with value because the government says so

Question 4

Suppose the Federal Reserve wants to decrease the money supply. Which action would it most likely take?

Accepted Answer

Increase the reserve requirement

Question 5

Which of the following is a liability for a commercial bank?

Accepted Answer

Deposits from customers

Question 6

If the Fed conducts an open market sale of government securities, what is the likely short-term effect?

Accepted Answer

Decrease in the money supply

Question 7

Which equation correctly represents the quantity theory of money?

Accepted Answer

$$MV = PY$$

Question 8

A bank has $$\100$$,000$$ in deposits and the reserve requirement is 10$$\%$. What is the required reserve amount?

Accepted Answer

$$\10$$,000$

Question 9

Which of the following is an example of commodity money?

Accepted Answer

Gold coins

Question 10

If the velocity of money ($$V) is $$constant and the money supply ($$M) $$increases, what happens to nominal GDP ($$PY) $$according to the quantity theory of money?

Accepted Answer

Nominal GDP increases

Question 11

Which of the following is a tool of monetary policy used by the Federal Reserve?

Accepted Answer

Open market operations

Question 12

What is the main goal of contractionary monetary policy?

Accepted Answer

Reduce the money supply to lower inflation

Question 13

Which of the following best describes the Federal Funds Rate?

Accepted Answer

The interest rate banks charge each other for overnight loans

Question 14

If the Fed lowers the discount rate, what is the likely effect on the money supply?

Accepted Answer

Money supply increases

Question 15

Which of the following is NOT a component of M1?

Accepted Answer

Savings deposits

Question 16

A bank receives a $$\1$$,000$$ deposit. The reserve requirement is 20$$\%$. What is the maximum amount the bank can lend out?

Accepted Answer

$$\800$

Question 17

Which of the following would shift the money demand curve to the right?

Accepted Answer

An increase in the price level

Question 18

Which of the following is a likely consequence of the Fed increasing the reserve requirement?

Accepted Answer

The money supply contracts

Question 19

If the Fed wants to stimulate the economy during a recession, which policy is most appropriate?

Accepted Answer

Buy government securities

Question 20

Which of the following best explains why banks hold excess reserves?

Accepted Answer

To meet unexpected withdrawals and regulatory requirements

Comprehensive Study Notes: Money, Banking, and Macroeconomic Policy

Study Guide - Practice Questions

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