### Macroeconomics Practice Test - 12: The Supply and Demand for Money

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1. The following functions of money are provided by a unique set of financial assets:

1. Medium of exchange, store of value, and unit of account

2. Store of value, unit of account, and standard of deferred value

3. Unit of account, standard of deferred value, and medium of exchange

4. Standard of deferred value, medium of exchange, and store of value

2. The M 1 definition of money is the sum of

1. Currency outside banks and checking deposits

2. Currecny outside banks, checking deposits, and travelers' checks

3. Currency outstanding and checking deposits

4. Currency outstanding, checking deposits, and money market deposit accounts

3. The Federal Reserve controls

1. The monetary base through open market operations

2. The monetary base through reserve requirements on deposit accounts

3. The money multiplier through open market operations

4. The money multiplier through reserve requirements on deposit accounts

4. When the reserve requirement on checking deposits is 0.10 and the Federal Reserve purchases government securities valued at $100,000, the M 1 money supply 1. Is unchanged 2. Increases by$100,000

3. Increases by \$1,000,000

4. Increases by an amount determined by the money multiplier

5. According to the quantity theory of money

1. An increase in the nominal money supply causes a proportional increase in the price level, ceteris paribus

2. An increase in the nominal money supply causes a proportional increase in real GNP, ceteris paribus

3. An increase in the real money supply causes a proportional increase in the price level, ceteris paribus

4. An increase in the real money supply causes a proportional increase in real GNP, ceteris paribus

6. The average M1 balance held for transactions is

1. Negatively related to the length of the pay period and positively related to the income level

2. Positively related to both the length of the pay period and the income level

3. Negatively related to both the length of the pay period and the income level

4. Positively related to the length of the pay period and negatively related to the income level

7. When holding M1 balances involves an opportunity cost, the average M1 balance held is negatively related to the return on

1. Currency, ceteris paribus

2. Travelers' checks, ceteris paribus

3. Money market deposit accounts, ceteris paribus

4. Demand deposit, ceteris paribus

8. Which of the following statements is incorrect?

1. The precautionary demand for money is unrelated to income

2. There is a precautionary demand for money because of uncertainty about the receipt of future income

3. The precautionary demand for money is affected by the opportunity cost of holding M1 balances

4. There is a precautionary demand for money because of unexpected expenditures

9. According to Keynes, there is a speculative demand for money because

1. People like to speculate in the stock market

2. There is considerable risk in holding M1 balances

3. Money, at times, may be a better store of value than long-term bonds

4. Money always provides a cetain, higher return than long-term bonds

10. The Federal Reserve should should follow a money supply monetary policy when

1. The IS schedule is negatively sloped

2. The LM schedule is largely insensitive to the rate of interest

3. The location of IS in space is more certain than that of LM

4. The location of LM in space is more certain than that of IS