1) Betty won $500 in a poker
tournament. She deposits
her $500 winnings into a
money market fund so that
she can use the money next
year to help her pay for a
trip to Las Vegas. This is an
example of money serving as
a(n)
A) unit of account.
B) medium of exchange.
C) store of value.
D) investment good.
4)Currency held outside
banks + demand deposits +
travelers checks + other
checkable deposits =
A) M3.
B) M2 - M1.
C) M3 - M1.
D) M1.
2)When you pay $8 for salad
you ordered for lunch, you
are using money as a(n)
A) store of value.
B) investment good.
C) medium of exchange.
D) unit of account.
5)Which of the following is
included in M2, but not
included in M1?
A) currency held outside
banks
B) travelers checks
C) demand deposits
D) savings accounts
3)When the manager of a
department store attaches
price tags to his/her
products, he/she is using
money as a
A) medium of exchange.
B) store of value.
C) unit of transfer.
D) unit of account.
6)T/F: When you use money
to fill your car with gas every
week, you are using money
as a unit of account.
7)Which of the following is NOT
a tool available to the Fed to
change the supply of money?
A) open market operations
B) the required reserve ratio
C) the money multiplier
D) the discount rate
10) Assume that all commercial
banks are loaned up. Total
deposits in the banking system
are $200 million. The required
reserve ratio is increased. The
money supply will
A) decrease.
B) increase.
C) not change because there was
no change in deposits.
D) not change because the
required reserve ratio has no
impact on money supply.
8)The discount rate is 9) A decrease in the required
A) the interest rate commercial reserve ratio
banks charge each other for A) will increase the money
borrowing funds. supply.
B) the interest rate commercial B) will decrease the money supply.
banks charge their new C) will not change the money
customers. supply.
C) the interest rate the Fed D) will decrease the discount rate.
charges commercial banks for
borrowing funds.
D) the interest rate commercial
banks charge their most
creditworthy customers.
11)The interest rate banks pay to
borrow money from the Fed is the
A) federal funds rate.
B) discount rate.
C) prime lending rate.
D) reserve rate.
• Answer the next question(s) on the basis of the following table in which columns (1) and (2) indicate the
transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money:
Interest rate (%) Dt Da
12 $100 $0
10 100 20
8 100 40
6 100 60
4 100 80
2 100 100
12/ The above data suggest that the amount of money demanded for transactions:
a. varies directly with the interest rate.
b. varies inversely with nominal GDP.
c. varies inversely with the interest rate.
d. is independent of the interest rate.
13/ Refer to the above data. If the MS is 180 the equilibrium interest rate will be:
a. 10 percent.
b. 8 percent.
c. 6 percent.
d. 4 percent
14/If Dt increase 40, the new equilibrium interestrate will be
e. 10 percent.
f. 8 percent.
g. 6 percent.
h. 4 percent
15. True/False: An easy money policy is one that increase the supply of money.

16. If the required reserve ratio were 10%, the value of the monetary multiplier would
be
a. 15.8 b. 10 c. 17.7 d. 18.7
17. Which of the following will likely accompany an easy money policy?
a. a higher reserve ratio
b. a higher discount rate
c. a lower discount rate
d. higher income tax rates
18. Which of the following actions by the Central bank would cause the money supply
to decrease?
e. purchases of government bonds from banks.
f. an decrease in the discount rate.
g. an increase in the reserve requirement.
h. None of above
19. The value of the monetary multiplier is:
i. 1/MPS.
j. 1/Excess Reserves.
k. 1/MPC.
l. 1/Required Reserve Ratio.
20. When Central Bank uses open-market equilibrium GDP.
operations to reduce the interest rate several times k. increase interest rates and increase the
over a year it is pursuing equilibrium GDP.
a. An expansionary monetary policy l. increase interest rates and lower the
b. A restrictive monetary policy equilibrium GDP
c. A prime interest rate policy 23. The interest rate at which the Central Bank lend
d. A discretionary fiscal policy to commercial banks is called the:
21. The three main tools of monetary policy are: m. prime rate.
e. tax rate changes, the discount rate, and n. short-term rate.
open-market operations. o. discount rate.
f. tax rate changes, changes in p. Federal funds rate.
government expenditures, and open- 24. The asset demand for money:
market operations. q. is unrelated to both the interest rate
g. the discount rate, the reserve ratio, and the level of GDP.
and open-market operations. r. varies inversely with the rate of
h. changes in government expenditures, interest.
the reserve ratio, and the discount s. varies inversely with the level of real
rate. GDP.
22. A decrease in the money supply will: t. varies directly with the level of nominal
i. lower interest rates and lower the GDP
equilibrium GDP.
j. lower interest rates and increase the