(1.)The M1 definition of money includes __________.

• a.)
• physical currency only
• b.)
• physical currency and demand deposits
• c.)
• demand deposits only
• d.)
• demand deposits and time deposits

(2.) If the reserve requirement of a bank is 25%, then the multiplier effect will be ________ and $200 in M1 will increase the money supply by ________.

• a.)
• 25; $50
• b.)
• 4; $800
• c.)
• 4; $50
• d.)
• 25; $800

(3.)Which statement is NOT true regarding the way that the Federal Reservecontrols the money supply?

• a.)
• The U.S. Treasury sends the money it prints directly into circulation.
• b.)
• Money that is printed by the Bureau of Printing and Engraving is turned over to the Fed.
• c.)
• If the Fed wants to reduce the money supply, it sells bonds and shreds the money it receives.
• d.)
• The Fed gives bondholders cash in exchange for securities (bonds).

(4.) Which of the followingstatements is true as it relates to banks and the federal funds market?

• a.)
• The FOMC uses taxation to control our money supply.
• b.)
• The federal funds rate is charged on an annual basis.
• c.)
• Banks with less than the reserve requirement need overnight loans to meet their obligations.
• d.)
• The federal funds market developed as banks lost customers.

(5.) Which statement below is true about the discount rate?

• a.)
• It is the rate that banks charge other banks to loan money overnight.
• b.)
• It is the same as the fed funds rate.
• c.)
• This is the rate used when banks borrow directly from the Fed.
• d.)
• It is the interest rate that the federal government pays to the public via the sale of Treasury securities.

(6.) Which of the following statements is associated withdeflation?

• a.)
• Prices fall, but loan payments stay the same.
• b.)
• Prices increase so quickly that it hurts trade.
• c.)
• In extreme cases, this can force people to revert back to a barter economy.
• d.)
• It decreases the real value of debt.

(7.) Which of the following is associated with contractionary monetary policy?

• a.)
• Increasing taxes
• b.)
• Lowering the discount rate
• c.)
• Buying Federal Treasury bonds
• d.)
• Increasing the reserve requirement