Exam 3 Review (Ch. 11, 12,13 and 17)

Which of the following statements is correct?

Which of the following statements is correct?

When the nominal interest rate falls, there is

a downward movement along the demand for money curve.

The higher the federal funds rate, the ________ the opportunity cost of holding reserves, which ________ the incentive to economize on reserves.

higher, increases

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? i.government expenditure on goods and services and taxes ii.the government budget deficit or surplus iii.changes in the federal funds rate

iii only

If the money multiplier is 3.0, a $1,000 increase in the monetary base

increases quantity of money by $3,000.

In the short run, to decrease the interest rate, the Federal Reserve ________ the quantity of money by ________ government securities.

increases; buying

When the Fed raises the federal funds rate, the exchange rate ________ and net exports ________.

increases; decreases

The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What is the total amount of deposits in this bank?

$1,600,000

If the price of oil rises, the

AS curve shifts leftward, the equilibrium price level rises, and equilibrium real GDP decreases.

Which of the following Federal Reserve Banks carries out the decisions of the FOMC?

The New York Federal Reserve Bank

Money is used as a ________ when you visit the local farmers' market and compare prices across different vendors.

Unit of account

In an open market purchase, the Fed ________ government securities, which ________ bank reserves and ________ the federal funds rate.

buys; increases; lowers

An increase in expected future income increases ________.

consumption expenditure, which increases current aggregate demand

When the Fed sells government securities, banks' reserves ________, the quantity of money ________, and the federal funds rate ________.

decrease; decreases; rises

When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________.

increase; increases

Suppose that the equilibrium nominal interest rate is 4 percent and the equilibrium quantity of money is $1 trillion. At any interest rate above 4 percent,

less than $1 trillion will be demanded and bond prices will increase.

During an inflationary period, a household with savings of $100,000

loses because inflation increases the real tax on the interest paid.

High inflation

makes money function less well as a store of value

When we use money to purchase goods and services, we are using money as a

medium of exchange.

If the Federal Reserve lowers the required reserve ratio, people will end up taking out ________ because the interest rates ________.

more loans, will fall

When the nominal interest rate increases, the

quantity of money demanded decreases and there is a movement upward along the demand for money curve

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

raise the federal funds rate, thereby raising the real interest rate and increasing potential GDP.

If the Fed wants to fight inflation, it will ________ the federal funds rate in order to ________.

raise; decrease aggregate demand

The Fed is concerned about inflation. Its policy will ________ U.S. short-term interest rates and, in the foreign exchange market, lead to the value of the U.S. dollar ________.

raise; rising

When the Fed purchases government securities,

required reserves in the banking system decrease, leading to fewer loans being made.

A consequence of hyperinflation is that people

spend time trying to keep their money holdings near zero.

The long-run money demand curve shows

that the value of money influences the quantity of money that households and firms plan to hold.

Aggregate supply increases when ________.

the money wage rate falls

If the economy is at full employment and the Fed increases the quantity of money, _______.

aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise in the long run

When potential GDP increases, _______.

aggregate supply increases

The economy is at full employment. If aggregate demand increases,

an inflationary gap is created and the AS curve shifts leftward as the money wage rate rises.

According to the equation of exchange, if the quantity of money is $4 billion and the velocity of circulation is 3, nominal GDP is

$12 billion

Suppose the desired reserve ratio is 10 percent and there is no currency drain. Then a $200 increase in the monetary base results in the banking system increasing the quantity of money by

$2,000.

A bank has $250 in checking deposits, $1,000 in savings deposits, $1,200 in time deposits, $1,000 in loans to businesses, $400 in outstanding credit card balances, $800 in government securities, $25 in currency in its vault, and $25 in deposits at the Fed. Of these, ________ are part of M2.

$2,450

A bank has $400 in checkable deposits, $800 in savings deposits, $700 in time deposits, $900 in loans to businesses, $300 in outstanding credit card balances, $500 in government securities, $10 in currency in its vault, and $20 in deposits at the Fed. The bank's deposits that are part of M1 are equal to

$400.

Mary has $1,000 and is considering purchasing a $1,000 bond that pays 7 percent interest per year. Mary decides not to buy the bond and holds the $1,000 as cash. If the inflation rate is 4 percent, the opportunity cost of holding the $1,000 as money is

$70.00.

When Grayce deposits $4,000 cash in her checkable deposit at the Beach Bank and the Beach Bank's excess reserves increase by $3,600, the desired reserve ratio is

10 percent

According to the equation of exchange, if the quantity of money is $20 billion, velocity 3, and real GDP is $6 billion, then the price level is

10.

You have a $500 saving bond. If the nominal interest rate is 10 percent, then the inflation rate must be

4 percent if in real terms you earned $30.

A bank has $200 of reserves and $4,000 of deposits. It is just meeting its desired reserves and has no excess reserves. Thus the desired reserve ratio is

5 percent

If the inflation rate is 2.5 percent and the nominal interest rate is 10 percent, then the real interest rate is

7.5 percent.

In December 2009, currency was $400 billion, traveler's checks were $5 billion; checkable deposits owned by individuals and businesses were $600 billion, saving deposits were $2,000 billion, time deposits were $1,500 billion; and money market funds were $1,200 billion. What was the M1 in December 2009?

M1 = $1,005 billion

If Rob deposits $300 in currency into his savings account at Bank of America,

M1 Decreases

As the economy enters a strong expansion in which real GDP increases, which of the following occurs?

The demand for money curve shifts rightward.

Other things remaining the same, in the long run ________ in the quantity of money brings an equal percentage ________.

a decrease; decrease in the price level

When the output gap is positive, it represents ________ gap, and when it is negative, it represents ________ gap.

an inflationary; a recessionary

When the Fed sells government securities to banks, the sale

decreases banks' reserves

If the Fed wants to raise the interest rate, in the short run in the money market the Fed

decreases the quantity of money.

As more and more businesses accept credit cards, the

demand for money decreases.

All else the same, when real GDP increases, the

demand for money increases.

Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.

demanded; real GDP supplied

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates ________ and the exchange rate ________.

fall; falls

If the Fed carries out an open market operation and buys U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

falls; increases

Which of the following is NOT a monetary policy goal?

keeping a high exchange rate for the dollar

When the price level increases, people demand ________ money and the demand for money curve ________.

more; shifts rightward

If the Fed increases the quantity of reserves, a new equilibrium is reached by a

movement down the demand for reserves curve.

The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as ________ in total assets and ________ in reserves.

no change; a $100 million increase

Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a _______.

rising price level and demand-pull inflation

The ________ the desired reserve ratio, the ________ the ________ in the quantity of money created from an initial increase of $100,000 in the monetary base.

smaller; larger; increase

If the Fed lowers the federal funds rate, which of the following will NOT happen?

the price level falls

The quantity of real GDP demanded increases if _______.

the price level falls