1) What happens if, after September 11th, people fear economic collapse and begin preferring to hold currency instead of demand deposits?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

2) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

3) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

4) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

5) What happens if the Fed increases their purchases of bonds in OMO?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

6) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

7) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

8) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

9) What happens if there's an increase in real income?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

10) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

11) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

12) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

13) What happens if the interest rate rises in the economy?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

14) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

15) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

16) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

17) What happens if there’s a decrease in the cost of banking?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

18) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

19) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

20) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

21) What happens if the Fed increases the reserve requirement?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

22) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

23) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

24) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

25) What happens if the Fed reduces the discount rate?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

26) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

27) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

28) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

29) What happens if velocity increases?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

30) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

31) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

32) What happens if interest rates fall?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

33) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

34) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

35) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

36) What happens if people expect inflation to rise in the near future?

  1. Money Supply increases
  1. Money Supply decreases
  1. Money Demand increases
  1. Money Demand decreases
  1. Money Supply and Demand do not change

37) Continuing with the previous question, does the above change occur because

  1. the money multiplier increases
  1. the money multiplier decreases
  1. velocity increases
  1. velocity decreases
  1. none of the above

38) Continuing with the previous question, what happens next in the economy? There's

  1. A potential money surplus and prices rise
  1. A potential money shortage and prices rise
  1. A potential money surplus and prices fall
  1. A potential money shortage and prices fall
  1. no change, so prices stay the same

39) Continuing with the previous question, what happens to the value of money?

  1. Money increases in value
  1. Money decreases in value
  1. no change, the value stays the same

Answers:

  1. b. This is a change in preference for type of money (checking versus currency)
  2. b. Because people are withdrawing their money from banks, banks have less deposits to multiply, so the multiplier decreases
  3. d. A drop in supply leads to a shortage and falling prices
  4. a. As prices fall, money will increase in value
  5. a. This increases the monetary base
  6. e. multiplier & velocity not affected
  7. a. more supply leads to a surplus and higher prices
  8. b. With higher prices, the value of money falls
  9. c. With more goods to buy means an increase in money demand.
  10. e.
  11. d. An increase in demand leads to a money shortage and lower prices
  12. a.
  13. d. With higher interest rates, people will prefer savings to holding money. The interest rate is the cost of holding money, and money has become more costly to hold.
  14. c. People will try to hold less money wanting savings instead, which means they make more frequent trips to the bank which increases velocity.
  15. a. A decrease in demand leads to a money surplus and higher prices.
  16. b.
  17. d. If it is easier to bank, that is to withdraw money from savings, then people will want to keep more in savings and hold less money
  18. c. (see #14)
  19. a.
  20. b.
  21. b. Banks having to keep more in reserve means they have less to lend out and multiply so the money supply decreases.
  22. b. Since banks have to keep more in reserve, the money multiplier falls
  23. d.
  24. a.
  25. a. If the Fed reduces the discount rate, banks will borrow more money from the Fed and this will increase the monetary base and thus the money supply.
  26. e. The discount rate works through the base, not the money multiplier
  27. a.
  28. b.
  29. d. If people are going to the bank more often and making money circulate faster, they will want, or demand, less money.
  30. a.
  31. b.
  32. c. (see #13, but opposite)
  33. d.
  34. d.
  35. a.
  36. d. Inflation devalues money, so if people expect higher inflation in the near future, they’ll want to get rid of their money now, before it becomes devalued.
  37. c. People will try to hold less money wanting savings which pays a nominal interest rate and compensates for inflation. This means they will make more frequent trips to the bank which will increase velocity.
  38. a.
  39. b.