Week 9 Quiz

A shopper lines up a 45-dollar phone plan next to a 60-dollar one and sees which costs less each month. Which job is money doing for the shopper?

Select one.

• Medium of exchange
• Store of value
• Unit of account
• A form of wealth

A family's house is part of its wealth, but it is not money, because it cannot be handed over in everyday payment.

True or false.

• True
• False

Which description matches the monetary base, the total the central bank controls directly?

Select one.

• Currency plus bank reserves
• Currency plus the deposits people can spend most directly
• M1 plus small time deposits and retail money market funds
• Everything a household owns minus everything it owes

In the illustrative deposit chain, a café owner deposits 1,000 dollars at a bank, and the required reserve ratio is 0.10. How much does the bank lend?

Select one.

• 100 dollars
• 900 dollars
• 1,000 dollars
• 10,000 dollars

In the same illustrative chain, the first bank's 900-dollar loan is spent and deposited at a second bank, with the required reserve ratio still 0.10. How much does the second bank lend?

Select one.

• 90 dollars
• 729 dollars
• 810 dollars
• 900 dollars

In the illustrative banking system, the monetary base is 105 dollars and the required reserve ratio is 0.10. In the classroom model, what is the largest money supply the base can support?

Select one.

• 525 dollars
• 1,025 dollars
• 105 dollars
• 1,050 dollars

In the classroom model, the money multiplier 1 ÷ RR is a ceiling on money creation. Which of these keep the actual expansion below that ceiling? Select all that apply.

Select every option that applies.

• Banks choose to hold reserves beyond what the rules require
• People keep some of their money as cash instead of depositing it
• Every bank lends all of its excess reserves
• The required reserve ratio is cut from 0.10 to 0.05

In the illustrative banking system, the monetary base is 105 dollars and the required reserve ratio is 0.10, but banks choose to keep an extra 0.10 of each deposit as well. What is the new ceiling on the money supply?

Select one.

• 2,100 dollars
• 525 dollars
• 1,050 dollars
• 420 dollars

Which statement correctly keeps the spending multiplier and the money multiplier apart?

Select one.

• The money multiplier scales new spending into output, and the spending multiplier scales new reserves into deposits
• Both multipliers scale new reserves into deposits, so either one works on a banking question
• Both multipliers scale new spending into output, so either one works on a fiscal question
• The spending multiplier scales new spending into output, and the money multiplier scales new reserves into deposits

A student is asked how far the café owner's new 1,000-dollar deposit can expand deposits when the required reserve ratio is 0.10, and uses the spending multiplier of 5 from an MPC of 0.8 instead. What figure does the student get, and what is the correct ceiling?

Select one.

• 5,000 dollars, against a correct ceiling of 10,000 dollars
• 10,000 dollars, against a correct ceiling of 5,000 dollars
• 1,250 dollars, against a correct ceiling of 10,000 dollars
• 5,000 dollars, against a correct ceiling of 1,000 dollars