In Zealand, banks' required reserve ratio is 20 per cent and there is no currency drain. The Bank of Zealand conducts a £1 million open market sale. Zealand's monetary base ___________ and the quantity of money in Zealand ________________.

increases by £1 million; increases by £5 million
decreases by £1 million; decreases by £1 million
increases by £1 million; decreases by £1 million
decreases by £1 million; decreases by £5 million

In Fair Isle, banks have no excess reserves and total required reserves of £6 billion. £5 billion of these reserves are on deposit at the central bank. Bank notes in circulation outside of the central bank total £10 billion. Bank deposits total £50 billion. The quantity of money is ________ and the money multiplier is ________.

£50 billion; 3.33
£50 billion; 10.00
£60 billion; 4.00
£66 billion; 13.20

The figure shows the money market in Futureland. The required reserve ratio is 40 per cent of deposits and there is no currency drain. If the Bank of Futureland undertakes an open market purchase of £1 million of government securities, then the interest rate will __________________.

fall to 1 per cent a year
fall to 2 per cent a year
remain at 6 per cent a year
fall to 4 per cent a year

The figure shows the money market in Futureland. The required reserve ratio is 40 per cent of deposits and there is a currency drain. If the Bank of Futureland undertakes an open market purchase of £1 million of government securities, then the interest rate will be ______________.

1 per cent a year
less than 1 per cent a year
0 per cent a year
greater than 1 per cent a year

The figure shows the money market in Tomorrowland. The Bank of Tomorrowland plans to increase the interest rate to 5 per cent a year. If the money multiplier is 2 and there is no currency drain, what open market operation must the Bank undertake?

purchase of £0.75 billion
sale of £1.5 billion
sale of £0.75 billion
purchase of £1.5 billion

If a central bank wants to implement a contractionary policy it will conduct an open market operation by _______ securities. Bank reserves will _______ and bank lending will _______ leading to a _______ in the quantity of money.

selling; increase; increase; increase
purchasing; decrease; increase; decrease
selling; decrease; decrease; decrease
purchasing; decrease; decrease; decrease

The nominal interest rate is 4 per cent a year and the inflation rate is 3 per cent a year. The real interest rate is approximately equal to _______per cent a year.

7
4
1
3

An increase in the opportunity cost of holding money creates a _______ the money demand curve and a decrease in real GDP creates a _______ the money demand curve.

movement up along; leftward shift of
leftward shift of; movement down along
movement up along; movement down along
movement down along; rightward shift of

The real interest rate on money equals __________.

minus the inflation rate
the inflation rate
minus the nominal interest rate
the interest rate minus 1

If the money supply is growing at above the rate of growth of long-run GDP, then the ratio of M4 to GDP __________.

will be rising
will be falling only if the short-term interest rate is rising
will be rising only if the short-term interest is rising
will be falling