Macro Econ Unit 3
Which of the following describes a major difference between stocks and bonds? A Stocks represent ownership in a corporation, and bonds represent a loan to a corporation. B Bonds represent ownership in a corporation, and stocks represent a loan to a corporation. C Stocks are counted in gross domestic product, and bonds are not counted. D Bonds are counted in gross domestic product, and stocks are not counted. E Bonds pay dividends, and stocks earn interest.
A Stocks represent ownership in a corporation, and bonds represent a loan to a corporation.
Of the following, the most liquid asset is A mutual funds B currency C time deposits D demand deposits E savings deposits
B Currency
The table gives the value of selected assets and liabilities of a commercial bank's T-account. What is the maximum amount of new loans the bank could lend with the given amounts of reserves? A $10,000 B $20,000 C $30,000 D $50,000 E $70,000
A $10,000
Which of the following shifts the money demand curve to the right? A An increase in the price level B A decrease in the price level C An increase in interest rates D A decrease in interest rates E A decrease in the nominal gross domestic product
A An increase in the price level
When a central bank conducts open-market bond sales, the money supply, interest rate, and aggregate demand will change in which of the following ways in the short run? A Money SupplyInterest RateAggregate DemandDecreaseIncreaseDecrease B Money SupplyInterest RateAggregate DemandDecreaseDecreaseIncrease C Money SupplyInterest RateAggregate DemandDecreaseIncreaseIncrease D Money SupplyInterest RateAggregate DemandIncreaseDecreaseIncrease E Money SupplyInterest RateAggregate DemandIncreaseDecreaseDecrease
A Money SupplyInterest RateAggregate DemandDecreaseIncreaseDecrease
Which of the following statements about inflation is true? A The expected inflation rate is the difference between nominal and real interest rates. B Low expected inflation rates lead to high inflation rates. C Lenders lose from expected inflation. D Lenders gain from unexpected inflation. E Workers lose from expected inflation.
A The expected inflation rate is the difference between nominal and real interest rates.
Which of the following will happen if the central bank of a nation purchases government bonds on the open market? A The monetary base will increase and the money supply will increase. B The monetary base will increase and the money supply will not change. C The monetary base will decrease and the money supply will increase. D The monetary base will decrease and the money supply will not change. E The monetary base will decrease and the money supply will decrease. Answer A
A The monetary base will increase and the money supply will increase.
If the central bank buys government bonds from individuals on the open market and banks do not loan out any excess reserves created by the open market purchase, which of the following will happen? A The money supply will increase. B The money supply will remain unchanged. C Loans to the private sector will increase. D Demand deposits will decrease. E The level of actual reserves will decrease.
A The money supply will increase.
If the interest rate on short-term government bonds declined as a result of open market operations by a central bank, the central bank must have A purchased government bonds B sold government bonds to commercial banks C decreased the amount of currency in circulation D increased the supply of bonds E increased the discount rate on loans to commercial banks
A purchased government bonds
Banks create money when A they make loans B the loans they make are repaid C they keep all excess reserves D customers increase their cash withdrawals from their savings accounts E the money multiplier is less than one
A they make loans
An increase in the price level will most likely cause which of the following? A A leftward shift of the aggregate demand curve B An increase in the demand for money C An increase in the real interest rate D A decrease in the nominal interest rate E An increase in the supply of money
B An increase in the demand for money
The aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways? A Demand for MoneyInterest RatesInvestmentIncreaseIncreaseIncrease B Demand for MoneyInterest RatesInvestmentIncreaseIncreaseDecrease C Demand for MoneyInterest RatesInvestmentIncreaseDecreaseIncrease D Demand for MoneyInterest RatesInvestmentDecreaseIncreaseDecrease E Demand for MoneyInterest RatesInvestmentDecreaseDecreaseIncrease
B Demand for MoneyInterest RatesInvestmentIncreaseIncreaseDecrease
With an expansionary fiscal policy, what will most likely happen to the real gross domestic product (GDP) and the nominal interest rate in the short run? A Real GDPNominal Interest RateIncreaseDecrease B Real GDPNominal Interest RateIncreaseIncrease C Real GDPNominal Interest RateNo changeNo change D Real GDPNominal Interest RateDecreaseIncrease E Real GDPNominal Interest RateDecreaseDecrease
B Real GDPNominal Interest RateIncreaseIncrease
The table above shows the current entries in the T-account of XYZ Bank. Kim purchases a bond issued by the Federal Reserve Bank for $50,000 and pays for the bond by drawing on her company's account at XYZ Bank. What is the effect of Kim's purchase of the bond on the required and excess reserves of XYZ Bank and the total money supply? A RequiredExcessMoney SupplyIncreaseDecreaseDecrease B RequiredExcessMoney SupplyDecreaseDecreaseDecrease C RequiredExcessMoney SupplyNo changeDecreaseNo change D RequiredExcessMoney SupplyIncreaseNo changeIncrease E RequiredExcessMoney SupplyDecreaseIncreaseIncrease
B RequiredExcessMoney SupplyDecreaseDecreaseDecrease
Which of the following accurately describes the federal funds rate? A The interest rate that banks charge state governments B The interest rate that banks charge other banks for overnight loans C The interest rate that banks pay on long-term savings D The interest rate on personal loans E The interest rate on government bonds
B The interest rate that banks charge other banks for overnight loans
The amount of money that the public wants to hold is $10 billion. With a monetary base of $2 billion and a money multiplier of 4, which of the following will most likely occur? A The monetary base will increase. B The nominal interest rate will increase. C The money multiplier will increase. D The money demand curve will shift right. E Spending will increase.
B The nominal interest rate will increase.
Which of the following is true when interest rates rise? A The opportunity cost of holding cash decreases. B The opportunity cost of holding cash increases. C The opportunity cost of holding cash stays the same. D The money demand curve shifts to the right. E The money supply curve shifts to the right.
B The opportunity cost of holding cash increases.
The money demand curve is downward sloping because A the transaction demand for money decreases as interest rates fall B people hold less money as the opportunity cost of holding money rises C money is less liquid as interest rates rise, so people are able to hold less of it D banks are more willing to create money when interest rates fall E with higher incomes, people are willing to hold smaller percentages of their money
B people hold less money as the opportunity cost of holding money rises
A bank has $200 million in demand deposits and $150 million in reserves. The reserve ratio is 20 percent. What is the maximum amount of loans the bank can make from its reserves? A $750 million B $150 million C $110 million D $50 million E $40 million
C $110 million
Which of the following will lower the prices of a country's outstanding government bonds? A An open-market purchase of government bonds by the country's central bank B A decrease in the required reserve ratio for the country's commercial banks C An outflow of financial capital to other countries D A decrease in the country's government spending E A decrease in inflationary expectations in the country
C An outflow of financial capital to other countries
Which of the following is most likely to increase the real interest rate in Country Z ? A Country Z's central bank purchases government securities from banks and citizens. B Country Z reduces government expenditures. C Country Z is viewed as having increased political and economic risk. D Country Z's citizens increase their savings in anticipation of needed retirement income. E Country Z introduces a tax on consumption goods.
C Country Z is viewed as having increased political and economic risk.
Which of the following is considered the most liquid asset? A Stocks B Bonds C Currency D Real estate E Commodities
C Currency
Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run? A Interest RatesInvestmentIncreaseIncrease B Interest RatesInvestmentIncreaseDecrease C Interest RatesInvestmentDecrease Increase D Interest RatesInvestmentDecreaseDecrease E Interest RatesInvestmentNo changeIncrease
C Interest RatesInvestmentDecrease Increase
Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer? A It is the real interest rate divided by the price level. B It is the real interest rate minus the expected inflation rate. C It is the interest rate charged by the bank. D It is the interest rate charged by the bank minus the expected inflation rate. E It is the interest rate charged by the bank minus the interest rate the bank pays to its depositors.
C It is the interest rate charged by the bank.
Investment in physical capital is most likely to occur as a result of an increase in A interest rates B inflation rates C business confidence D money demand E personal consumption
C business confidence
Pat deposits a portion of her wages into a personal savings account every week. The saved money can be considered to be primarily a A means of payment B unit of account C store of value D measure of value E medium of exchange
C store of value
Assume that Linda deposits in her checking account the $1,000 cash she was keeping at home for an emergency. If the required reserve ratio is 0.20, what is the maximum change in the money supply from her deposit? A $1,000 B $1,250 C $2,000 D $4,000 E $5,000
D $4,000
If the required reserve ratio is 10 percent, what is the maximum change in the money supply from John's deposit of $50,000 cash into his checking account? A $5,000 B $45,000 C $55,000 D $450,000 E $500,000
D $450,000
Which of the following changes in the loanable funds market will decrease the equilibrium real interest rate? A A decrease in private savings B A decrease in the expected inflation rate C An increase in government spending on highways financed by borrowing D An increase in foreign financial capital inflows E An investment tax credit for plant and equipment
D An increase in foreign financial capital inflows
Assume that a country's government increases borrowing. What will most likely happen to the prices of previously issued bonds and the price level in the short run? A Bond PricesPrice LevelIncreaseIncrease B Bond PricesPrice LevelIncreaseDecrease C Bond PricesPrice LevelIncreaseNo change D Bond PricesPrice LevelDecreaseIncrease E Bond PricesPrice LevelDecreaseDecrease
D Bond PricesPrice LevelDecreaseIncrease
If the loanable funds market is in equilibrium, then which of the following must be true? A Government spending equals tax revenues. B Investment spending equals national savings. C Investment spending equals private savings. D Borrowing equals lending. E Foreign inflows of financial capital equal investment spending.
D Borrowing equals lending.
To counter a recession, the central bank might pursue which of the following actions? A Increasing reserve requirements and selling securities on the open market B Increasing capital gains tax and selling securities on the open market C Decreasing reserve requirements and increasing the discount rate D Decreasing the discount rate and buying securities on the open market E Decreasing the capital gains tax and selling securities on the open market
D Decreasing the discount rate and buying securities on the open market
If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following? A Slow economic growth B An appreciating domestic currency C Rising unemployment D Rising price levels E Rising imports and declining exports
D Rising price levels
Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will A increase by $10,000 B increase by $50,000 C decrease by $10,000 D decrease by $50,000 E not change
D decrease by $50,000
An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways? A Demand for MoneyNominal Interest RatesIncreaseIncrease B Demand for MoneyNominal Interest RatesIncreaseDecrease C Demand for MoneyNominal Interest RatesIncreaseIndeterminate D Demand for MoneyNominal Interest RatesDecreaseIncrease E Demand for MoneyNominal Interest RatesDecreaseDecrease
Demand for MoneyNominal Interest RatesIncreaseIncrease
Assume the economy is currently in long-run equilibrium. An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways? A Short RunLong RunFallsFalls B Short RunLong RunRisesRises C Short RunLong RunNo changeRemains at the natural rate D Short RunLong RunRises above the natural rateFalls back to the natural rate E Short RunLong RunFalls below the natural rateRises back to the natural rate
E Short RunLong RunFalls below the natural rateRises back to the natural rate
Which of the following changes will necessarily occur as a result of an increase in the nominal interest rate? A The money demand curve will shift to the left. B The money demand curve will shift to the right. C The money supply curve will shift to the left. D The quantity of money supplied will decrease. E The quantity of money demanded will decrease.
E The quantity of money demanded will decrease.
Which of the following is a determinant of the amount of money the commercial banking system can create? A The marginal propensity to consume B The marginal propensity to save C The total number of banks D The size of the federal debt E The reserve requirement
E The reserve requirement
In the short run, a tight monetary policy tends to cause A a decrease in the interest rate and a decrease in prices B a decrease in the interest rate and an increase in private investment C a decrease in prices and an increase in private investment D an increase in the interest rate and an increase in private investment E an increase in interest rate and a decrease in private investment
E an increase in interest rate and a decrease in private investment
