1. The benefit of ________ is interest, while the benefit of ________ is a portion of a company's profit.

a bond; stock or equity

cash; a bond

cash; a demand deposit

stock; a bond

business investment; a bond

2. If the government increases the level of its borrowing, what will happen to the real interest rate and the price of existing bonds?

Real interest rate	Price of existing bonds
Remain constant	Remain constant

Real interest rate	Price of existing bonds
Decrease	Decrease

Real interest rate	Price of existing bonds
Decrease	Increase

Real interest rate	Price of existing bonds
Increase	Increase

Real interest rate	Price of existing bonds
Increase	Decrease

3. Several major natural disasters disrupt supply lines and increase the expected inflation rate from 3% to 5%. If previously the real interest rate had been 6%, what is the new nominal interest rate?

1%

10%

8%

11%

14%

4. Which of the following is true for the real rate of interest?

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. If $20,000 worth of mutual funds in an economy have lost their value, the M2 will ________ and the M1 will ________.

decrease; remain constant

increase; remain constant

remain constant; increase

increase; decrease

decrease; increase

6. Eggs functioned as money in many agrarian economies in the 19th century. If a farmer compares his goat's worth at 1,500 eggs with his cow's worth of 4,500 eggs, which function of money is he using?

Store of wealth

Means of payment

Medium of exchange

Unit of account

Store of value

7. 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?

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. Use the data table to answer the following question.

Assets (billion $)	Liabilities (billion $)
Total reserves 3,000	Deposits 18,000
Loan 15,000
Total 18,000	Total 18,000

Assume the required reserve ratio to be 10%. Is the bank holding any excess reserve? If so, then what is the magnitude of the excess reserve?

No, the bank is not holding any excess reserve.

Yes, the bank is holding an excess reserve of $1,200 billion.

Yes, the bank is holding an excess reserve of $1,260 billion.

Yes, the bank is holding an excess reserve of $1,800 billion.

Yes, the bank is holding an excess reserve of $1,860 billion

9. Which of the following statements is correct about the demand for money, supply of money, and the nominal interest rates?

The demand for money is inversely related to the nominal interest rates, and the supply of money is positively related to the nominal interest rates.

The demand for money is positively related to the nominal interest rates, and the supply of money is inversely related to the nominal interest rates.

The demand for money independent of the nominal interest rates, and the supply of money is positively related to the nominal interest rates.

The demand for money is inversely related to the nominal interest rates, and the supply of money is independent of the nominal interest rates.

The demand for money is positively related to the nominal interest rates, and the supply of money is independent of the nominal interest rates.

10. Use the graph to answer the question that follows.