1.

(04.01 LC) The benefit of ________ is interest, while the benefit of ________ is a portion of a company's profit. (2 points)

	a bond; stock or equity
	cash; a bond
	cash; a demand deposit
	stock; a bond
	business investment; a bond

2.

(04.01 MC) How does an increase in interest rates affect the opportunity cost of holding money and the repayment to creditors? (2 points)

Opportunity cost of holding money	Repayment to creditors
Increase	Increase

Opportunity cost of holding money	Repayment to creditors
Remain unaffected	Increase

Opportunity cost of holding money	Repayment to creditors
Decrease	Remain unaffected

Opportunity cost of holding money	Repayment to creditors
Increase	Remain unaffected

Opportunity cost of holding money	Repayment to creditors
Decrease	Increase

3.

(04.02 MC) A bank is currently giving out loans at an interest rate of 17% for an expected inflation rate of 3%. What is the current real interest rate in the economy? (2 points)

	20%
	14%
	5%
	17%
	3%

4.

(04.02 LC) Which of the following is true for the real rate of interest? (2 points)

	The real rate of interest is the product of the nominal rate and expected inflation.
	The real rate of interest can be negative.
	The real rate of interest is the interest charged by banks on loans.
	The real rate of interest does not adjust for inflation.
	The real rate of interest is equal to the nominal interest.

5.

(04.03 MC) If a household consumer withdraws $5,000 from their savings account, initially, M1 will ________ and M2 will ________. (2 points)

	decrease; decrease
	decrease; increase
	increase; be constant
	increase; decrease
	increase; increase

6.

(04.03 MC) The function of money as a store of value is explained by which of the following statements? (2 points)

	Money can be stored as an asset because it has an intrinsic value.
	Money can be saved and used in the future because of its purchasing power.
	Money has a store of value because it offers protection against high rates of inflation.
	Money allows comparison of the value of different commodities.
	Money is used by individuals to acquire other goods and services.

7.

(04.04 MC) Assume that a bank has a total deposit of $55,000 and the reserve ratio is 20%. What are the amounts of money that the bank will keep for itself and it will give out as loans? (2 points)

	The bank's fractional reserve is equal to $11,000, and the excess reserve is equal to $44,000.
	The bank's fractional reserve is equal to $11,000, and the excess reserve is equal to $55,000.
	The bank's fractional reserve is equal to $44,000, and the excess reserve is equal to $11,000.
	The bank's fractional reserve is equal to $55,000, and the excess reserve is equal to $66,000.
	The bank's fractional reserve is equal to $55,000, and the excess reserve is equal to $44,000.

8.

(04.04 MC) Use the data table to answer the question that follows.

Assets	Liabilities
Actual Reserves $6,000	Demand deposits $40,000
Loans $34,000

Assume the reserve requirement is 10%. Based on this small bank's data, what is the maximum amount in new loans that it could give? (2 points)

	$2,000
	$4,000
	$10,000
	$20,000
	$34,000

9.

(04.05 MC) Assuming no other change, there is a decrease in the nominal interest rate. How will the money supply in the economy change as a result of this change in the nominal interest rate? (2 points)

	There will be an increase in the money supply.
	There will be a decrease in the money supply.
	There will be an increase initially, but it will decrease afterwards.
	There will be a decrease initially, but it will increase afterwards.
	There will be no change in the money supply.

10.

MS. Nominal Interest Rate, r MD Quantity of Money ($)\fReal interest rate S2 S R2 $1 R R1 D Q2 Q Q1 Quantity of loanable funds