1. Chapter 8: Money, the Price Level, and Inflation Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

2. Which of the following is an example of money functioning as a store of value? A.Comcast charging $99 for internet, phone and cable service. B.McDonalds charging 99 cents for a burger. C.Your saving your spare change in a jar in order to afford an end -of-term party. D.Amazon.com charging $9.95 for shipping. Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

3. Bank reserves include I. the cash in the bank’s vault II. the bank’s deposits at the Federal Reserve A.only I B.only II C.both I and II D.neither I nor II Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

4. Which of the following allow banks to minimize the cost to a business of borrowing? I. Borrowing long and lending short. II. Raising funds from a large number of depositors. III. Creating money by lending all their reserves. A.I only B.II only C.I and III D.II and III Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

5. As a “central bank,” which of the following is true regarding the Fed? I. The Fed is a public authority that regulates the nation’s banks. II. The Fed is not allowed to provide services to commercial banks like Citibank. III. The Fed is required to provide banking services to private citizens. A.I only B.II only C.I and II D.I and III Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

6. In August 2007, Sun Trust Bank has $83 million in loans and $114 million in M1 deposits. If Sun Trust is holding $4 million in reserves, the bank’s reserve ratio is A.$31 million. B.4.8 percent C.3.5 percent. D.72.8 percent. Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

7. If a customer deposits $10,000 in currency into a checking account, the bank’s total reserves________. A.Increase B.do not change C.are greater than 100 percent D.decrease Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

8. Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will A.increase by $3 million. B.increase by $300,000. C.decrease by $3 million. D.decrease by $300,000. Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

9. The quantity of money that people choose to hold depends on which of the following? I. The price level. II. Financial innovation. III. The exchange rate. A.I only B.I and II C.I and III D.I, II, and III Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

10. Between 2006 and 2007, personal income in the U.S. increased from $11 billion to $11.6 billion. As a result, the real demand for money ________ and the demand for money curve ________. A.increased; shifted rightward B.did not change; did not shift C.increased; shifted leftward D.decreased; shifted rightward Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition

11. The inflation rate in Venezuela has increased between 2005 and 2008, rising from 14 percent per year to 37 percent per year. At the same time, the growth rate of real GDP fell from 10 percent per year to 5 percent per year. The quantity theory of money A.states that the inflation rate over the period would average 4 percent. B.predicts that the velocity of money will decrease over the period. C.states that the growth rate of money must have increased over the period. D.predicts that nominal GDP will decrease over the period. Parkin© 2010 Pearson Addison-Wesley. All rights reserved. Macroeconomics, Ninth Edition