PART I : TRUE OR FALSE
_____ 1. Money is anything that is generally acceptable as a means of payment for goods and services.
_____ 2. If money were not a store of value, it could not serve as a medium of exchange
_____ 3. Gold and silver are examples of fiat money.
_____ 4. All paper money is private debt money.
_____ 5. In the United States, M1 fits the definition of a medium of exchange.
_____ 6. In the United States, currency in circulation is the largest component of M1.
_____ 7. In the United States, M3 is smaller than M1.
_____ 8. Financial intermediaries can pool risks but they cannot create liquidity.
_____ 9. Required reserves are equal to deposits divided by the required reserve ratio.
_____ 10. Actual reserves are equal to required reserves plus excess reserves.
_____ 11. When currency is deposited in a bank, the bank's required reserves go up by the full amount of the deposit.
_____ 12. When a bank loans out its excess reserves, it changes the form of the money supply but it does not increase the size of the money supply.
_____ 13. The larger the required reserve ratio, the larger will be the simple money multiplier.
_____ 14. In the long-run, an increase in the money supply will tend to cause nominal wages to increase.
_____ 15. Though the Equation of Exchange is true, it is not useful for making predictions about the price level.
_____ 16. The Aggregate Demand-Aggregate supply model predicts that the rate of inflation will always be equal to the rate of growth of the money supply.
PART II: FILL IN THE BLANKS
1. ___________________________ are dollar accounts in banks outside the United States.
2. The __________________________________ is the fraction of a bank's reserves that are required by regulation, to be kept as required reserves.
3. The __________________________________________ is equal to 1 divided by the required reserve ratio.
4. By making loans, banks bring their _______________________ reserves into equality with their actual reserves.
5. In the short-run, the effect of increasing the money supply will be to shift the aggregate demand curve to the ______________________.
6. In the long run, an increase in the money supply causes prices to ______________________________ and leaves real GDP unchanged.
7. The Equation of Exchange states that the nominal money supply multiplied by the velocity of circulation is equal to
________________________________ multiplied by the real GDP.
8. The _________________________ Theory of Money assumes that the velocity of money is constant and that real GDP is not affected by the growth of the nominal money supply.