CHAPTER 9: Exercises about monetary policy

A person transfers one million dong from a term savings account to a checking account that can write checks, then:

• M1 and M2 both decrease

• M1 decreases while M2 increases

• M1 and M2 both increase

• M1 increases, while M2 remains unchanged

Below are three channels that the central bank can use to reduce the money supply:

• Sell government bonds, increase required reserves, and raise the discount rate

• Sell government bonds, increase required reserves, and lower the discount rate

• Sell government bonds, lower required reserves, and lower the discount rate

• Sell government bonds, lower required reserves, and raise the discount rate

If commercial banks want to keep 3% of deposits as reserves and people also want to hold cash at 10% compared to bank deposits that can be checked, what will the money multiplier be?

• 11.0

• 10.0

• 36.7

• 8.5

Assuming cash to deposits is 0.2 and the reserve ratio to deposits is 0.1, if we want to increase the money supply by 1 billion VND through open market operations, the central bank must:

• Buy 167 million government bonds

• Buy 250 million government bonds

• Sell 167 million government bonds

• Sell 250 million government bonds

Assuming that cash outside the bank is 23%, the required reserve ratio is 6%, the optional reserve ratio is 1%, and the money supply is 820 trillion VND, what is the strong money supply:

• 300 trillion VND

• 200 trillion VND

• 240 trillion VND

• 120 trillion VND

When does the money multiplier increase?

• The required reserve ratio decreases

• The cash ratio outside the bank decreases

• Commercial banks can lend more and hold less reserves

• All of the above answers are correct

The money supply (base money) includes:

• Cash in the hands of the public and reserves in the banking system

• Cash in the hands of the public and deposits in the banking system

• Reserves in the banking system and demand deposits

• All of the above answers are incorrect

The ratio of cash outside banks to demand deposits is 80%; the general reserve ratio to demand deposits is 10%; the amount of base money (high-powered money) is 700; If the central bank sells government bonds to the public in the amount of 100, how does the money supply change?

• No change

• Increase by 200

• Decrease by 200

• All three answers above are incorrect.

The money demand function depends on:

• Interest rates and output

• Only output

• Only interest rates

• Payment demand

When the output increases while the money supply remains unchanged, then:

• The demand for money decreases

• The equilibrium interest rate decreases

• The equilibrium interest rate increases

• The equilibrium interest rate remains unchanged