econ final chp 6 HW

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

3 percent

The seven Fed governors, the president of the Federal Reserve Bank of New York, and four of the presidents of the other regional Federal Reserve Banks constitute the:

Federal Open Market Committee.

Which of the following would be expected to increase the demand for U.S. currency?

Political instability rises dramatically in developing nations.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives planned aggregate expenditure (PAE)?

[790 - 700r] + 0.8Y

The federal funds rate is the interest rate on short-term loans made by:

commercial banks to other commercial banks.

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

conducting open-market operations.

If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will ______ their loans based on current deposits, and the money supply will _____.

decrease; decrease

In the short-run, if the Federal Reserve increases interest rates, then consumption and investment ______, planned aggregate expenditure ______, and short-run equilibrium output _______.

decrease; decreases; decreases

Higher nominal interest rates ______ the amount of money demanded and a higher price level ______ the amount of money demanded.

decrease; increases

Higher nominal interest rates ______ the amount of money demanded and higher real income ______ the amount of money demanded.

decrease; increases

To close a recessionary gap, the Federal Reserve must ______ real interest rates by ______ the money supply.

decrease; increasing

Innovations in the United States, such as credit cards, debit cards, and ATMs have:

decreased the demand for money.

A higher real interest rate ______ investment spending and ______ consumption spending.

decreases; decreases

When Argentines increase their savings in U.S. dollars, the U.S. money:

demand curve shifts right.

Deposit insurance is a system in which the government guarantees that:

depositors will not lose any money even if their bank goes bankrupt.

A banking panic is an episode in which:

depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.

A higher real interest rate ______ saving and ______ consumption spending.

increases; decreases

When commercial banks borrow reserves from the Fed, the quantity of reserves in the banking system ______ and, ultimately, the money supply _____.

increases; increases

The Federal Reserve System was created by the Federal Reserve Act, passed by Congress in 1913, and began operations in 1914. Like all central banks, the Federal Reserve is a government agency. All of the following statements are true about the Fed except:

it focuses on making a profit like commercial banks.

A reserve requirement set by the Federal Reserve is the:

minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain.

The Federal Open Market Committee makes decisions about ______ policy.

monetary

Because the Fed determines the money supply, the:

money supply curve is vertical.

If the Federal Reserve is currently paying 0.75% interest on bank reserves, but then increases that interest rate to 1%, banks may decide to hold ______ reserves, and the money supply may _____.

more; decrease

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02). If potential output equals 8,000, the central bank must ______ the interest rate to close the ______ gap.

raise; expansionary

To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

reduces; increases; increases

The money demand curve relates ______ to the ________.

the aggregate quantity of money demanded; nominal interest rate

The Federal Reserve System is:

the central bank of the United States.

For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for:

the federal funds rate

Three macroeconomic factors that affect the demand for money are:

the nominal interest rate, real income, and the price level.

The opportunity cost of money is:

the nominal interest rate.