In Zealand, banks' required reserve ratio is 20 percent 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 ________________.

decreases by $1 million; decreases by $5 million
increases by $1 million; increases by $5 million
increases by $1 million; decreases by $1 million
decreases by $1 million; decreases by $1 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 $11 billion. Bank deposits total $50 billion. Calculate the money supply and the money multiplier in Fair Isle.

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

The figure shows the money market in Futureland. The required reserve ratio is 40 percent 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 __________________.

remain at 6 percent a year
fall to 2 percent a year
fall to 1 percent a year
fall to 4 percent a year

The figure shows the money market in Futureland. The required reserve ratio is 40 percent 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 _________________.

less than 1 percent a year
0 percent a year
greater than 1 percent a year
1 percent a year

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

purchase of $1.5 billion
sale of $1.5 billion
sale of $0.75 billion
purchase of $0.75 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 money supply.

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

The central bank of Cobra buys securities in an open market operation. In the short run, aggregate demand ___________, real GDP _______, and the price level _______.

increases; increases; rises
does not change; decreases; rises
does not change; increases; falls
decreases; decreases; falls

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

If a central bank wants to slow down the growth rate of real GDP and prevent inflation from taking off, it will _______ the money supply. Short-term interest rates will _______ relative to the long-term interest rates.

tighten; rise
loosen; fall
tighten; fall
loosen; rise

If people anticipate that the Fed plans to increase the money supply, the interest rate will _______the change in the money supply, and if the Fed increases the money supply and catches people by surprise, the interest rate will _______ the change in the money supply.

fall before; fall at the same time as
rise at the same time as; rise before
rise before; rise at the same time as
fall at the same time as; fall before

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