SECTION A: Multiple-choice questions

1. Money

a. is more efficient than barter.

b. makes trades easier.

c. allows greater specialization.

d. All of the above are correct.

2. Which of the following best illustrates the unit of account function of money?

a. You list prices for candy sold on your Web site, www.sweettooth.com, in RMs

b. You pay for your WNBA tickets with RMs.

c. You keep RM10 in your backpack for emergencies.

d. None of the above is correct.

3. People will want to hold less money if the price level

a. or the interest rate increases.

b. or the interest rate decreases.

c. increases or the interest rate decreases.

d. decreases or the interest rate increases.

4. Which of the following is not included in M1?

a. currency

b. demand deposits

c. savings deposits

d. travelers' checks

5. The BNM can increase the money supply by conducting open market

a. sales and raising the discount rate.

b. sales and lowering the discount rate.

c. purchases and raising the discount rate.

d. purchases and lowering the discount rate.

6. In a 100-percent reserve banking system, if people decided to decrease the amount of

currency they held by increasing the amount they held in checkable deposits

a. M1 would increase.

b. M1 would decrease.

c. M1 would not change.

d. M1 might rise or fall.

7. Suppose a bank has a 10 percent reserve requirement, RM5,000 in deposits, and has

loaned out all it can given the reserve requirement.

a. It has RM50 in reserves and RM4,950 in loans.

b. It has RM500 in reserves and RM4,500 in loans.

c. It has RM555 in reserves and RM4,445 in loans.

d. None of the above is correct.

8. Suppose a bank has RM200,000 in deposits and RM190,000 in loans. It has loaned out all

it can. It has a reserve ratio of

a. 2.5 percent.

b. 5 percent.

c. 9.5 percent.

d. 10 percent.

9. If the reserve ratio is 10 percent, banks do not hold excess reserves, and people do not

hold currency, then when the BNM purchases RM20 million of government bonds, bank

reserves

a. increase by RM20 million and the money supply eventually increases by RM200

million.

b. decrease by RM20 million and the money supply eventually increases by RM200

million.

c. increase by RM20 million and the money supply eventually decreases by RM200

million.

d. decrease by RM20 million and the money supply eventually decreases by RM200

million.

10. The money supply would fall if

a. households decide to hold relatively more currency and relatively fewer deposits

and banks decide to hold relatively more excess reserves and make fewer loans.

b. households decide to hold relatively more currency and relatively fewer deposits

and banks decide to hold relatively fewer excess reserves and make more loans.

c. households decide to hold relatively less currency and relatively more deposits

and banks decide to hold relatively more excess reserves and make fewer loans.

d. households decide to hold relatively less currency and relatively more deposits

and banks decide to hold relatively less excess reserves and make more loans.