Review for Final Exam 1. With a Cobb–Douglas production function, the share of output going to labor: A) decreases as the amount of labor increases. B) increases as the amount of labor increases. C) increases as the amount of capital increases. D) is independent of the amount of labor. 2. If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1000. 3. Since 1960, the U.S. ratio of labor income to total income has: A) been about 2.5 to 1. B) been about 0.7. C) increased steadily. D) decreased steadily. 4. In a Cobb–Douglas production function the marginal product of labor will increase if: A) the quantity of labor increases. B) the quantity of capital increases. C) capital's share of output increases. D) average labor productivity decreases. 5. Skill-biased technological change ______ the demand for high-skilled workers, while the slowdown in the pace of educational advancement reduces the supply of skilled workers, resulting in relatively _____ wages for skilled workers. A) increases; higher B) increases; lower C) decreases; higher D) decreases; lower 6. Estimates by Goldin and Katz indicate that the financial returns of a year of college _____ between 1980 and 2005. A) increased. B) decreased. C) did not change. D) were negative.

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7. If the consumption function is given by C = 500 + 0.5(Y – T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals: A) 2,500. B) 2,800. C) 3,500. D) 4,200. 8. If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals: A) 1,000. B) 2,500. C) 3,000. D) 5,000. 9. If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then savings: A) decreases by 0.85 units. B) decreases by 0.15 units. C) increases by 0.15 units. D) increases by 0.85 units. 10. Assume that the consumption function is given by C = 150 + 0.85(Y – T) and the tax function is given by T = t0 + t1Y. If t0 increases by 1 unit, then consumption: A) decreases by 0.85 units. B) decreases by 0.15 units. C) increases by 0.15 units. D) increases by 0.85 units. 11. Assume that the consumption function is given by C = 150 + 0.85(Y – T), the tax function is given by T = t0 + t1Y, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by: A) 85. B) 425. C) 500. D) 525.

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12. Assume that the investment function is given by I = 1,000 – 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be: A) 240. B) 700. C) 760. D) 970. 13. Government transfer payments: A) are included as part of government purchases, G. B) can be viewed as negative tax payments, T. C) are received as payment for inputs in the factor market. D) do not affect the level of public or private saving. 14. Public saving is: A) always positive. B) always negative. C) always zero. D) either positive, negative, or zero. 15. In a closed economy, Y – C – G equals: A) national saving. B) private saving. C) public saving. D) financial saving. 16. Private saving is: A) income minus consumption minus government spending. B) disposable income minus consumption. C) disposable income minus government spending. D) taxes minus government spending. 17. National saving is: A) private saving. B) public saving. C) private saving plus public saving. D) private saving minus public saving.

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18. Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 – 100r, where r is the real interest rate in percent. No government exists. In this case, the equilibrium real interest rate is: A) 2 percent. B) 5 percent. C) 10 percent. D) 20 percent. Use the following to answer questions 19-22: Exhibit: Saving, Investment, and the Interest Rate 1

19. (Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, holding other factors constant? A) Point A B) Point B C) Point C D) Point D

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20. (Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts taxes, holding other factors constant? A) Point A B) Point B C) Point C D) Point D 21. (Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government increases spending, holding other factors constant? A) Point A B) Point B C) Point C D) Point D 22. (Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government raises taxes, holding other factors constant? A) Point A B) Point B C) Point C D) Point D

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Use the following to answer questions 23-24: Exhibit: Saving, Investment, and the Interest Rate 2

23. (Exhibit: Saving, Investment, and the Interest Rate 2) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods? A) Point A B) Point B C) Point C D) Point D 24. (Exhibit: Saving, Investment, and the Interest Rate 2) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)? A) Point A B) Point B C) Point C D) Point D 25. In a closed economy, the components of GDP are: A) consumption, investment, government purchases, and exports. B) consumption, investment, government purchases, and net exports. C) consumption, investment, and government purchases. D) consumption and investment.

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26. Disposable personal income is defined as income after the payment of all: A) taxes. B) interest. C) loans. D) social insurance contributions. 27. Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. A) positively; positively B) positively; negatively C) negatively; negatively D) negatively; positively 28. The marginal propensity to consume is: A) normally expected to be between zero and one. B) equal to consumption divided by disposable income. C) normally assumed to decrease as disposable income increases. D) normally assumed to increase as disposable income increases. 29. In the circular flow diagram, firms receive revenue from the _____ market, which is used to purchase inputs in the _____ market. A) goods; financial B) factor; financial C) goods; factor D) factor; goods 30. The two most important factors of production are: A) goods and services. B) labor and energy. C) capital and labor. D) saving and investment. 31. Macroeconomists call assets used to make transactions: A) real income. B) nominal income. C) money. D) consumption.

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32. All of the following are considered major functions of money except as a: A) medium of exchange. B) way to display wealth. C) unit of account. D) store of value. 33. People use money as a store of value when they: A) hold money to transfer purchasing power into the future. B) use money as a measure of economic transactions. C) use money to buy goods and services. D) hold money to gain power and esteem. 34. People use money as a unit of account when they: A) hold money to transfer purchasing power into the future. B) use money as a measure of economic transactions. C) use money to buy goods and services. D) hold money to gain power and esteem. 35. People use money as a medium of exchange when they: A) hold money to transfer purchasing power into the future. B) use money as a measure of economic transactions. C) use money to buy goods and services. D) hold money to gain power and esteem. 36. When a pizza maker lists the price of a pizza as $10, this is an example of using money as a: A) store of value. B) unit of account. C) medium of exchange. D) flow of value. 37. Money's liquidity refers to the ease with which: A) coins can be melted down. B) illegally obtained money can be laundered. C) loans can be floated. D) money can be converted into goods and services.

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38. To make a trade in a barter economy requires: A) currency. B) a check. C) scrip. D) a double coincidence of wants. 39. Money that has no value other than as money is called ______ money. A) fiat B) intrinsic C) commodity D) government 40. A country that is on a gold standard primarily uses: A) commodity money. B) fiat money. C) credit money. D) the barter system. 41. In prisoner of war camps during World War II, the “currency” used was: A) chocolates. B) cigarettes. C) gold. D) IOUs. 42. An important factor in the evolution of commodity money to fiat money is: A) a desire to reduce transaction costs. B) a desire to increase transaction costs. C) the fact that gold is no longer highly valued. D) a desire to use gold for jewelry. 43. The use of fei as money on the island of Yap illustrates the idea of money as a social convention because: A) only fei physically in the possession of the owner is accepted in transactions. B) legal claim to a fei never seen by current generations was accepted in transactions. C) the central bank of Yap accepts fei in exchange for paper certificates. D) the government of Yap verifies the authenticity of fei used for transactions.

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44. In a country on a gold standard, the quantity of money is determined by the: A) government. B) central bank. C) amount of gold. D) buying and selling of government securities. 45. The quantity of money in the United States is essentially controlled by the: A) President of the United States. B) Department of the Treasury. C) Federal Reserve. D) system of commercial banks. 46. The central bank in the United States is the: A) Bank of America. B) U.S. Treasury. C) U.S. National Bank. D) Federal Reserve. 47. In the United States, monetary policy is controlled by: A) the President. B) the Congress. C) the Federal Reserve. D) the Treasury Department. 48. To increase the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) buys corporate stocks. D) sells corporate stocks. 49. To reduce the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) creates demand deposits. D) destroys demand deposits.

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50. Open-market operations are: A) Commerce Department efforts to open foreign markets to international trade. B) Federal Reserve purchases and sales of government bonds. C) Securities and Exchange Commission rules requiring open disclosure of market trades. D) Treasury Department purchases and sales of the U.S. gold stock. 51. Currency equals: A) M1. B) the sum of funds in checking accounts. C) the sum of checking accounts and paper money. D) the sum of coins and paper money. 52. Demand deposits are funds held in: A) currency. B) certificates of deposit. C) checking accounts. D) money markets. 53. All of the following assets are included in M1 except: A) currency. B) demand deposits. C) traveler's checks. D) money market deposit accounts. 54. Money market mutual fund shares are included in: A) M1 only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2. 55. Credit card balances are included in: A) M1 only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

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56. Checking account balances that are linked to debit cards are included in: A) M1. B) M2 only. C) both M1 and M2. D) neither M1 nor M2. 57. Credit cards: A) are part of the M1 money supply. B) are part of the M2 money supply. C) are part of both the M1 and M2 money supply. D) may affect the demand for money. 58. Payment is deferred by using _______, but immediate access to funds occurs when using ______. A) currency; demand deposits B) credit cards; debit cards C) demand deposits; savings deposits D) debit cards; credit cards 59. In the United States, the money supply is determined: A) only by the Fed. B) only by the behavior of individuals who hold money and of banks in which money is held. C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. D) according to a constant-growth-rate rule. 60. The money supply consists of: A) currency plus reserves. B) currency plus the monetary base. C) currency plus demand deposits. D) the monetary base plus demand deposits. 61. Bank reserves equal: A) gold kept in bank vaults. B) gold kept at the central bank. C) currency plus demand deposits. D) deposits that banks have received but have not lent out.

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62. In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply: A) increases by $100. B) decreases by $100. C) increases by more than $100. D) remains the same. 63. In a 100-percent-reserve banking system, banks: A) can increase the money supply. B) can decrease the money supply. C) can either increase or decrease the money supply. D) cannot affect the money supply. 64. In a system with fractional-reserve banking: A) all banks must hold reserves equal to a fraction of their loans. B) no banks can make loans. C) the banking system completely controls the size of the money supply. D) all banks must hold reserves equal to a fraction of their deposits. 65. Unemployment insurance increases the amount of frictional unemployment by: A) making workers more frantic in their search for new jobs. B) inducing workers to accept the first job offer that they receive. C) making employers more reluctant to lay off workers. D) softening the economic hardship of unemployment. 66. All of the following policies were adopted by the government in an attempt to reduce the natural rate of unemployment except: A) unemployment insurance. B) government employment agencies. C) public retraining programs. D) the Illinois bonus program for unemployment insurance claimants who found jobs quickly. 67. The unemployment insurance system may be desirable because unemployment insurance: A) raises the natural rate of unemployment. B) reduces the rate of job finding. C) increases workers' uncertainty about their incomes. D) induces workers to reject unattractive job offers.

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68. Firms currently have incentives to temporarily lay off workers because firms typically are charged for ______ of workers' unemployment benefits. A) all B) only a part C) none D) twice the cost 69. Most current unemployment-insurance programs are: A) paid for fully by state governments. B) paid for fully by the federal government. C) 100 percent experience rated. D) partially experience rated. 70. Government policies directed at reducing frictional unemployment include: A) abolishing minimum-wage laws. B) making unemployment insurance 100 percent experience rated. C) increasing the earned income credit. D) making government part of the union-firm wage bargaining process. 71. Public policy to increase the job finding rate include _____ and public policy to decrease the job separation rate include _____. A) government employment agencies; higher unemployment insurance benefits B) job training programs; 100 percent experience rated unemployment insurance C) higher minimum wage laws; payment of unemployment benefits for longer periods D) higher efficiency wages; partially experience rated unemployment insurance 72. According to studies of individual unemployed workers, these workers are most likely to find a job: A) about three months before their unemployment insurance runs out. B) within a few weeks of their unemployment insurance running out. C) about three months after their unemployment insurance runs out. D) at a time not influenced by the remaining number of weeks of unemployment insurance. 73. The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment. A) efficiency; inefficiency B) efficiency; structural C) frictional; efficiency D) structural; frictional

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74. When there is structural unemployment, the real wage is: A) rigid at a level below the market-clearing level. B) rigid at the market-clearing level. C) rigid at a level above the market-clearing level. D) flexible. 75. Wage rigidity: A) forces labor demand to equal labor supply. B) is caused by sectoral shifts. C) prevents labor demand and labor supply from reaching the equilibrium level. D) increases the rate of job finding. 76. The unemployment resulting from wage rigidity and job rationing is called ______ unemployment. A) frictional B) structural C) minimum-wage D) insider 77. When the real wage is above the level that equilibrates supply and demand: A) the quantity of labor supplied exceeds the quantity demanded. B) the quantity of labor demanded exceeds the quantity supplied. C) there is no unemployment. D) the labor market clears. 78. Workers unemployed as a result of wage rigidity are: A) actively searching for a job to match their skills. B) not eligible to receive unemployment insurance benefits. C) waiting for a job to become available. D) relocating to another part of the country as a result of sectoral shifts. 79. Which of the following is the best example of structural unemployment? A) Tim is looking for a job with flexible hours but has not been offered one yet. B) Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. C) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. D) Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has 2 months of unemployment insurance benefits left.

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80. All of the following are causes of structural unemployment except: A) minimum-wage laws. B) the monopoly power of unions. C) unemployment insurance. D) efficiency wages. 81. If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged 82. If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will ______ the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged 83. The minimum wage: A) is usually about 75 percent of the average wage earned in manufacturing. B) raises the wages of highly skilled workers. C) encourages master workers to take on apprentices. D) has its greatest impact on teenage unemployment. Use the following to answer questions 84-85: Exhibit: Steady-State Consumption II

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84. (Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is: A) AC. B) AB. C) BC. D) DE. 85. (Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state investment per worker is: A) AC. B) AB. C) BC. D) DE. 86. If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: A) 1. B) 2. C) 4. D) 9. 87. In the Solow growth model of Chapter 8, the economy ends up with a steady-state level of capital: A) only if it starts from a level of capital below the steady-state level. B) only if it starts from a level of capital above the steady-state level. C) only if it starts from a steady-state level of capital. D) regardless of the starting level of capital. 88. In the Solow growth model, the steady-state occurs when: A) capital per worker is constant. B) the saving rate equals the depreciation rate. C) output per worker equals consumption per worker. D) consumption per worker is maximized.

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89. Exhibit: Capital–Labor Ratio and the Steady State

In this graph, capital–labor ratio k2 is not the steady-state capital–labor ratio because: A) the saving rate is too high. B) the investment ratio is too high. C) gross investment is greater than depreciation. D) depreciation is greater than gross investment. 90. Exhibit: Steady-State Capital–Labor Ratio

In this graph, the capital–labor ratio that represents the steady-state capital–ratio is: A) k0. B) k1. C) k2. D) k3.

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91. Exhibit: The Capital–Labor Ratio

In this graph, starting from capital–labor ratio k1, the capital–labor ratio will: A) decrease. B) remain constant. C) increase. D) first decrease and then remain constant. 92. In the Solow growth model, if investment exceeds depreciation, the capital stock will ______ and output will ______ until the steady state is attained. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase 93. The Golden Rule level of the steady-state capital stock: A) will be reached automatically if the saving rate remains constant over a long period of time. B) will be reached automatically if each person saves enough to provide for his or her retirement. C) implies a choice of a particular saving rate. D) should be avoided by an enlightened government. 94. If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate: A) the economy is following the Golden Rule. B) steady-state consumption per worker would be higher in a steady state with a lower saving rate. C) steady-state consumption per worker would be higher in a steady state with a higher saving rate. D) the depreciation rate should be decreased to achieve the Golden Rule level of consumption per worker.

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95. If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steadystate capital stock: A) is greater than the Golden Rule level. B) is less than the Golden Rule level. C) equals the Golden Rule level. D) could be either above or below the Golden Rule level. 96. If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock: A) is greater than the Golden Rule level. B) is less than the Golden Rule level. C) equals the Golden Rule level. D) could be either above or below the Golden Rule level. 97. With a per-worker production function y = k1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by: A) k* = (s/δ)2. B) k* = (δ/s)2. C) k* = s/δ. D) k* = δ/s. 98. To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the: A) largest MPK. B) smallest depreciation rate. C) largest consumption per worker. D) largest output per worker. 99. If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls: A) output, consumption, investment, and depreciation will all decrease. B) output and investment will decrease, and consumption and depreciation will increase. C) output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state. D) output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

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100. Suppose an economy is initially in a steady state with capital per worker exceeding the Golden Rule level. If the saving rate falls to a rate consistent with the Golden Rule, then in the transition to the new steady state, consumption per worker will: A) always exceed the initial level. B) first fall below then rise above the initial level. C) first rise above then fall below the initial level. D) always be lower than the initial level. 101. A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state. A) increase B) decrease C) first increase, then decrease D) first decrease, then increase 102. The formula for the steady-state ratio of capital to labor (k*) with population growth at rate n but no technological change, where s is the saving rate, is s: A) divided by the sum of the depreciation rate plus n. B) multiplied by the sum of the depreciation rate plus n. C) divided by the product of f(k*) and the sum of the depreciation rate plus n. D) multiplied by f(k*) divided by the sum of the depreciation rate plus n. 103. In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except: A) offset the depreciation of existing capital. B) provide capital for new workers. C) equal the marginal productivity of capital (MPK). D) keep the level of capital per worker constant. 104. In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate ______ and output grows at rate ______. A) n; n B) n; 0 C) 0; 0 D) 0; n

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105. The Solow model with population growth but no technological change cannot explain persistent growth in standards of living because: A) total output does not grow. B) depreciation grows faster than output. C) output, capital, and population all grow at the same rate in the steady state. D) capital and population grow, but output does not keep up. 106. With population growth at rate n but no technological change, the Golden Rule steady state may be achieved by equating the marginal product of capital (MPK): A) net of depreciation to n. B) to n. C) net of depreciation to the depreciation rate plus n. D) to the depreciation rate. 107. In the Solow growth model with population growth, but no technological progress, in the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal: A) 0. B) the population growth rate. C) the saving rate. D) output per worker. 108. In the Solow growth model with population growth, but no technological progress, if in the steady state the marginal product of capital equals 0.10, the depreciation rate equals 0.05, and the rate of population growth equals 0.03, then the capital per worker ratio ____ the Golden Rule level. A) is above B) is below C) is equal to D) will move to 109. Banks create money in: A) a 100-percent-reserve banking system but not in a fractional-reserve banking system. B) a fractional-reserve banking system but not in a 100-percent-reserve banking system. C) both a 100-percent-reserve banking system and a fractional-reserve banking system. D) neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

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110. If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve–deposit ratio, then the total money supply is: A) reserves divided by rr. B) 1/rr. C) reserves times rr. D) reserves divided by (1 – rr). 111. In a fractional-reserve banking system, banks create money when they: A) accept deposits. B) make loans. C) hold reserves. D) exchange currency for deposits. 112. In a fractional-reserve banking system, banks create money because: A) each dollar of reserves generates many dollars of demand deposits. B) banks have the legal authority to issue new currency. C) funds are transferred from households wishing to save to firms wishing to borrow. D) the wealth of the economy expands when borrowers undertake new debt obligations. Use the following to answer questions 113-115:

Assets Reserves Loans Securities

Bank Balance Sheet Liabilities & Net Worth $ 10,000 Deposits $100,000 100,000 Debt 20,000 40,000 Equity 30,000

113. (Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank? A) 3 B) 4.67 C) 5 D) 10 114. (Table: Bank Balance Sheet) Based on the table, what is the reserve ratio at the bank? A) 3 percent B) 5 percent C) 10 percent D) 15 percent

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115. (Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent. A) 10 B) 20 C) 30 D) 40 116. The money supply will increase if the: A) currency–deposit ratio increases. B) reserve–deposit ratio increases. C) monetary base increases. D) discount rate increases. 117. To increase the monetary base, the Fed can: A) conduct open-market purchases. B) conduct open-market sales. C) raise the interest rate paid on reserves. D) lower the required reserve ratio. 118. When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the two changes exactly offset each other. 119. The money supply will decrease if the: A) monetary base increases. B) currency–deposit ratio increases. C) discount rate decreases. D) reserve–deposit ratio decreases. 120. To increase the money multiplier, the Fed can: A) conduct open-market purchases. B) conduct open-market sales. C) raise the interest rate paid on reserves. D) lower the interest rate paid on reserves.

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