Econ #3

The tool of monetary policy that involved the Fed's buying and selling of government bonds is:

OMO

If the interest rate is 10%, the amount received two years from now as a result of lending $1,000 today is:

$2121

What is the present value of $100 received one year from now, if the interest rate is 5%?

$95.24

According to Keynesian theory:

*a decrease in aggregate demand leads to decrease in output and prices *ability of shifts in aggregate demand to influence aggregate output in short run

Which of the following statements is broadly agreed upon by modern macroeconomists?

*a monetary rule can effectively increase GDP *both expansionary monetary and fiscal polices are effective in the short run but not the long run

Money is anything that

*serves as a medium of exchange, unit of account, store of value *can buy goods or services

If a checking account has an interest rate of 1% and a government Treasury bill has an interest rate of 2% the opportunity cost of holding the checking account as money is:

1%

If a checking account has an interest rate of 1% and a government Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in your wallet is:

3%

If a one-year project costs $100,000 and is expected to return the firm $105,000, then the rate of return of the project is:

5%

When the interest rate is 6%, the quantity demanded of loanable funds will equal:

50 billion

In 1958, which of the following economists came up with a theory regarding the tradeoff relationship between unemployment and inflation?

AWH Phillips

According to the short-run Phillips curve, when actual real GDP is ______ potential output, the price level ______ and the unemployment rate falls.

Above & Rises

Suppose a seat on the Fed's Board of Governors becomes vacant. How is this vacancy filled?

Appointed by President, confirmed by the Senate

Which of the following is considered to be an IOU?

Bond

The notion that the real quantity of money is always at its long-run equilibrium level is associated with _____ of the price level.

Classical model

If the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity demanded of money will ______.

Decrease & decrease

Which of the following would accurately characterize the portion of a firm's profit paid to the owner of one share of its stock?

Dividend

To expand the money supply, the Federal Reserve would have to do which of the following?

Engage in an open purchase of Treasury bills

AN increase in the money supply causes ______ in output in the short run, and _____ in output in the long run.

Increase & no change

Suppose the economy is currently in long-run equilibrium at full employment levels of real GDP. If the money supply increases, in the long run, we would expect _______ in the price level, and _______ in real GDP.

Increase & no change

If you transfer $1,000 from your savings account to your checking account:

M1 increases by $1,000, M2 doesn't change

The primary difference between M1 and M2 is that:

M1 is money, M2 is money and private savings/time deposits

All of the following are responsibilities of the Fed EXCEPT:

Monetary Policy, RRR, Discount Window, OMO

The Federal Reserve system was created largely as a response to

Panic of 1907

The negative relationship between the inflation rate and the unemployment rate is known as the:

Phillips Curve

Which of the following actions would allow banks to lend out more money?

RRR down, DW down, OMO buying bonds

The major tools of monetary policy available to the Federal Reserve System include:

RRR, Discount Window, OMO

A share in the ownership of a company held by a shareholder

Stock

According to the classical school, the short-run aggregate supply curve is ______, while according to the Keynesian school the short-run aggregate supply curve is ______.

Vertical & Upward Sloping

An inflation tax is:

When government creates money simply by printing than using tax revenue or borrowing from the public

The reserve ration is the:

amount the banks must keep in vaults as specified by the Fed

In the classical model, it is thought that the long-run:

and the short run supply cures are both vertical

If the Fed wants to decrease interest rates, in can:

buy bonds, decrease DW and RRR

The Federal Reserve is able to have an impact on financial crises because the Fed:

conducts monetary policy

Which of the following asses is the MOST liquid?

currency

The demand for lovable funds is ____ sloping because ______ respond to lower interest rates by _____ their quantity demanded for loanable funds.

downward: Lenders- decreasing Borrowers- increasing

Bank reserves are:

funds a bank holds

A business will want to borrow to undertake an investment project when the rate of return on that project is:

greater than the interest rate

If the natural rate of unemployment is 5%, and the actual rate of unemployment is 4%

inflation is up 1%

The price in the loanable funds market is:

interest rate

The money demand curve shows the relationship between the:

interest rate and quantity of money demanded by public

Banks create money when they:

loan money

When the Treasury Department borrows from the public to finance the government's purchases of goods and services, and the Fed purchases the debt back from the public in the form of Treasury bills, it is known as:

monetizing the debt

Monetary policy attempts to affect the overall level of spending in the economy by changes in:

money supply and interest rate

If the Fed increases the discount rate:

money supply in banks decrease

A sale of bonds by the Fed:

raises interest rates and reduces money supply

The inflation tax is:

revenue that government raises by creating money

Economists refer to the revenue generated by the governments right to print money as:

seignorage

A bank run occurs when:

too many people try to withdraw despots at once

When lending $Y to a friend at an interest rate of r% you would expect to be repaid _________ in one year.

y+yr