SOPHIA ECON102 Unit 3 Challenge 2 Latest 2022 May

ECON102 Macroeconomics

Unit 3 Challenge 2

Which of the following statements regarding different types of money is true?

a.)There are five main categories of money, based on liquidity.

b.)Time deposits belong in the least liquid category of money.

c.)A checking account is a form of M0.

d.)Different types of money all have the same level of liquidity.

If the reserve requirement of a bank is 50%, then the multiplier effect will be ________ and $100 in M1 will increase the money supply by ________.

a.)0.5; $50

b.)2; $200

c.)2; $50

d.)0.5; $200

Which statement is NOT true regarding the way that the Federal Reserve controls the money supply?

a.)The Fed gives bondholders cash in exchange for securities (bonds).

b.)The U.S. Treasury sends the money it prints directly into circulation.

c.)Money that is printed by the Bureau of Printing and Engraving is turned over to the Fed.

d.)If the Fed wants to reduce the money supply, it sells bonds and shreds the money it receives.

Fed member banks enter the federal funds market in order to __________.

a.)meet reserve requirements

b.)boost profits

c.)increase the interest rate they can charge on loans

d.)increase their size and importance

Why would banks need to borrow directly from the Fed?

a.)To meet monthly deposit target goals

b.)To purchase Federal Treasury bonds on the open market

c.)To meet the reserve requirement

d.)To increase the interest rate they can charge to lenders

Which of the following statements regarding inflation is true?

a.)Decreasing the discount rate is one way to combat inflation.

b.)When inflation is extreme, it can destroy a country's currency.

c.)According to most economists, an annual inflation rate of 8% is normal and just fine.

d.)When the unemployment rate is under 5%, inflation is not a concern anymore.

Expansionary policy is created in order to __________.

a.)reduce GDP

b.)slow down business investment in the economy

c.)counteract inflation

d.)encourage households and businesses to spend money