Sam has $500 in traveler's checks. He cashes a $100 traveler check, deposits $150 into his checking account at a Savings and Loan Association, and deposits the remaining $250 into a savings account at a credit union. Immediately, ____________________.

M1 decreases by $400 and M2 increases by $250
M1 decreases by $250 and M2 does not change
M1 and M2 do not change
M1 does not change and M2 increases by $250

Banks in the land of Nod have total deposits of $3 million, an actual reserve ratio of 10 percent, and loans to households and firms of $2 million. They have no net worth. Total assets of the banks are __________ and total reserves are __________.

$3 million; $300,000
$2 million; $1 million
$300,000; $300,000
$1 million; $2 million

The commercial banks on Sunny Island have checking deposits of $3 million , reserves of $600,000, loans of $2.4 million. These banks have no net worth and hold no excess reserves. The required reserve ratio is ____________ and the deposit multiplier is ___________.

4.00; 2.5
5.00; 0.2
0.20; 5.0
0.25; 4.0

You've decided to immigrate to Banana Isle. You take your total life savings of $500 and deposit the $500 into a bank on Banana Isle. The required reserve ratio on Banana Isle is 20 percent. After the bank system has made 3 rounds of loans, it has created __________ of new money and its required reserves have increased by _____________.

$500 plus interest; $100
$976; $244
$1,220; $244
$1,476; $244

You've decided to immigrate to Banana Isle. You take your total life savings of $500 and deposit the $500 into the only bank on Banana Isle. The bank's required reserve ratio is 20 percent. When the bank in Banana Isle has reduced its excess reserves to zero, the quantity of loans made by the bank is ______________.

$500
$2,000
$625
$2,500

A new financial innovation results in people switching their money from demand deposits to saving accounts. The quantity of M1 _____________ and the quantity of M2 _____________.

increases; decreases
decreases; increases
decreases; does not change
decreases; decreases

The figure shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the country of Slag. The economy is currently at point a. The quantity of money in Slag increases. Slag moves to point _______ in the short run and to point _______ in the long run.

d; c
d; a
b; a
b; c

If the money supply increases when the economy is at full employment, aggregate demand ____________. In the short run, ____________ but in the long run, real GDP will _____________.

increases; real GDP increases; increase further
decreases; the price level falls; return to potential GDP
decreases; real GDP decreases; increase to potential GDP
increases; the price level rises; return to potential GDP

The economy is at an above full-employment equilibrium. _____________in the quantity of money will _______________ aggregate demand and prevent the price level from rising.

A decrease; increase
An increase; increase
An increase; decrease
A decrease; decrease

The velocity of circulation of M1 is greater than the velocity of circulation of M2 because ___________.

M1 is greater than M2
in the long run; people will hold more M1
with excess reserves; banks create additional loans
M1 is less than M2

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