Macro Graded Assignment #6

Using a commodity as money creates a problem because _____________

A commodity is bulky and its value changes over time

Money serves the function of ______________

A medium of exchange, a unit of account, and a store of value

The central bank of the US performs many functions, one of which is that it

Acts as a bank's bank

Sara withdraws $1000 from her savings account at the Luck S&L, keeps $50 in cash, and deposits the balance in her checking account at Bank of Illinois The immediate change is ___________ in M1 of $1000 and __________ in M2

An increase; no change

If the Fed makes an open market purchase of $1 million of securities from a bank, hat initial changes occur in the economy? The bank's total assets __________, its reserves __________

Are the same; increase

The discount rate is the interest rate _______________

At which the Fed stands ready to lend reserves to depository institutions

The deposits of the following three types of depository institutions make up the nation's money _________

Commercial banks, thrift institutions, and money market mutual funds

What is the difference between deposits, checks, and credit cards?

Deposits are money, checks are not money, and credit cars are not money

The ratio of reserves to deposits that a bank plans to hold is its ___________. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has __________

Desired reserve ratio; unplanned reserves

Suppose the Fed buys $50 million of govt securities from the Bank of America The Bank of America's total assets __________ and its total liabilities __________

Do not change; do not change

A bank manager tells you that she doesn't create money. She just ends the money that people deposit. The bank manager is wrong because ____________

Every new loan creates a ew deposit, and a new deposit is new money

The central bank fo the US is the ____________

Federal Reserve System

The liabilities of the Fed are _________, and these liabilities along with __________ make up the monetary base

Federal Reserve notes held by households and businesses and reserves of depository institutions; coins issued by the Treasury

The monetary base is the sum of ____________. The monetary base is equal to _________

Federal reserve notes, coins, and depository institutions deposits at the Fed; the liabilities of the Fed + coins issued by the Treasury

The fed is the lender of last resort, which means _____________

If depository institutions are short of reserves they can borrow from the Fed

Suppose the Fed buys $50 million of govt securities from the Bank of America The Fed's total assets ________ and its total liabilities ________

Increase by $50 million; increase by $50 million

An open market purchase __________ the monetary base. An open market sale ___________ the monetary base

Increases; decreases

If the Fed makes an open market purchase of $1 million of securities from a bank, hat initial changes occur in the economy? The monetary base _________ and the Fed's assets _________

Increases; increase

To increase its assets to $2.3 trillion in 2008, the Fed used _________

Last resort loans

The two main official measures of money in the US today are _________. The two main official measure of money in the US _________ really money

M1 and M2; are

The equation of exchange is ___________ and it is true __________

MV=PY; by definition

The Federal Open Market Committee is the ____________

Main policy making organ of the Federal Reserve system

In the economy of Nocoin bank deposits are $800 billion. Bank reserves are $40 billion, of which two thirds are deposits with the central bank. Households and firms hold $80 billion in bank notes. There are no coins. Calculate the monetary base and the quantity of money. Calculate the banks' desired reserve ratio and the currency drain ratio.

Monetary base = $120 billion (Notes + reserves) The quantity of money = $880 billion (Reserves + deposits) Desired reserve ratio = 5% (reserves / deposits) Currency drain ratio = 10% (notes/deposits)

The demand for money is the relationship between the quantity of real money demanded and the ______________ when all other influences on the amount of money that people wish to hold remain the same

Nominal interest rate

The Fed's policy tools include _________

Open market operations, last resort loans, and required reserve ratio

The Fed's three policy tools are _________

Open market operations, last resort loans, and the required reserve ratio

A rise in the price level ________ the nominal interest rate in the short run

Raises

Other things remain the same. An increase in real GDP _________ the nominal interest rate in the short run. An increase in the money supply _________ the nominal interest rate in the short run

Raises; lowers

In the short run _________ and ___________ adjusts to achieve equilibrium

Real GDP determines the demand fro money curve and the Fed determines the quantity of real money supplied; the nominal interest rate adjusts

The man functions of the FOMC are to _____________

Review the state of the economy and determine the monetary policy actions to be taken by the NY Fed

A _________ is a depository institution that accepts savings deposits and makes mostly home-purchase loans A _________ is a depository institution owned by a social or economic group such as a firm's employees that accepts deposits and makes mostly personal loans

Savings bank; credit union

1. Most people know the price of gum, so it could serve as money because it is a unit of account. 2. Gum does not serve as money because it is not a good store of value. 3. Gum does not serve as money because it is not generally accepted in exchange for goods and services. 4. Because most people buy gum, it can be used as money because it is a useful tool in barter. Choose the correct statements

Statements 2 and 3 are correct

1. The President of the US is a member of the FOMC 2. The president of the San Francisco Fed is always a member of the FOMC 3. The FOMC meets approximately every six weeks 4. The chairman and the other six members of the Board of Governors are members of FOMC Choose the correct statements

Statements 3 and 4 are correct

When the Fed buys securities from a bank, ____________

The bank's reserves increase but its deposits do not change

The bank plans to hold $5 for every $100 deposits. The bank holds desired reserves of $4000 and unplanned reserves of $7000

The banks desired reserve ratio is 5% The banks actual reserves are $11,000

The velocity of circulation is the average number of times a dollar of money is used to buy _____________. The formula used to measure the velocity of circulation, V, is ___________, where P is the price level, Y is real GDP, and M is the quantity of money

The goods and services that make up GDP; V= (P x Y) / M

The quantity of money that the banking system can create is limited by ___________

The monetary base, desired reserves, and desired currency holdings

Suppose an increase in the monetary base of $400,000 increases the quantity of money by $2,000,000. What is the multiplier?

The money multiplier is 5

In the long run, an increase in the quantity of money _________ the interest rate

does not change

When the interest rate falls, other things remain the same, the opportunity cost of holding money __________ and __________

falls; the quantity of money demand increases

A depository institution takes deposits from __________ and earns most of its income by __________

households and firms; making loans and buying securities that earn a higher interest rare than that paid to depositors

A 26-year-old Montreal man appears to have succeeded in his quest to barter a single red paper clip all the way up to a house. It took almost a year and 14 trades. Barter _________ a means of payment. When trading on e-Bay, barter _________

is; is not as efficient as money because barter requires a double coincidence of wants

The quantity of money theory is that in the __________, an increase in the quantity of money brings an equal percentage increase in the _________

long run; price level

Something is money if it is a commodity or token that is generally acceptable as a _________

means of payment

The money multiplier is the ration of the change in the quantity of __________ to the change in the quantity of __________

money; monetary base

After the Fed decreases the quantity of money, at an interest rate of 5% a year, people want to hold ________ money than the quantity supplied, so they ________ bonds The price of a bond ______ and the interest rate ________

more; sell falls; rises

When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of real money demand _________

rises; decreases