Macro Quiz Answers

Dollar Bank is currently loaned up. If the required reserve ratio is​ lowered,

Dollar Bank will have excess reserves that it can lend out.

As a measure of the money​ supply, M1 differs from M2 in that

M2 includes M1 plus savings​ accounts, money market​ accounts, and other near monies.

There is a negative relationship between the amount of money you should hold and the interest rate because:

1. the lower the interest​ rate, the smaller the incentive you have to put your money in an​ interest-bearing account. 2. the higher the interest​ rate, the greater the incentive you have to put your money in an​ interest-bearing account. 3. a high interest rate means the opportunity cost of holding money is high due to the interest lost by not moving deposits to an​ interest-bearing account.

Assuming there is no foreign trade in the​ economy, the economy is in equilibrium when

I​ + G​ = S​ + T.

What institution has formal responsibility for setting U.S. monetary​ policy?

The FOMC​ (Federal Open Market​ Committee)

If the Fed sells government​ securities, then there is

a decrease in the supply of money.

Aggregate output is always equal to

aggregate income

All of the following changes shift the consumption function ​except:

an increase in income.

If output is less than planned aggregate​ expenditure, there will be

an unplanned decrease in inventories.

An​ open-market purchase of securities by the Fed results in​ ________ in reserves and​ ________ in the supply of money.

an​ increase; an increase

The Fed uses open market operations to

buy or sell government securities

Which of the following represents an action by the Federal Reserve that is designed to increase the money​ supply?

buying government securities in the open market

How will an increase in the interest rate will most likely affect the quantity of money​ demanded?

decrease in the quantity of money​ demanded

When the interest rate​ rises, bond values

fall.

Banks borrow not only from the Fed but also from each other. What is the interest rate in this market​ called?

federal funds rate

The opportunity cost of holding money is the

forgone interest from holding bonds

According to the​ "paradox of​ thrift," as individuals increase their saving

income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.

As the MPS​ decreases, the multiplier will

increase

If aggregate expenditure falls short of real​ GDP

inventories will accumulate and real GDP and aggregate income will fall in future.

To ensure that paper money will be​ accepted, the U.S. government implicitly promises the public that

it will not print money so fast that it loses its value.

The development of money as a medium of exchange has facilitated the expansion of trade because

money eliminates the​ "double coincidence of​ wants" problem.

The multiple by which total deposits can increase for every dollar increase in reserves is the

money multiplier.

If interest rates increase to a very high​ level, people will most likely hold

more money in savings accounts and less cash.

As the interest rate​ falls, people hold​ ________ money in non-interest-bearing checking accounts instead of savings accounts because the opportunity cost of holding money has​ ________.

more;fallen

How are the demand for money and the interest rate related?

negatively related.

How are the price of bonds and the interest rate related?

negatively related.

When the aggregate price level ​(P​) is multiplied by real aggregate income ​(Y​), the result is

nominal income.

The treasury bill rate is the interest rate paid

on government securities that mature in less than a year.

If autonomous consumption​ increases, the size of the multiplier would

remain constant.

If the head of the Central Bank of Brazil wanted to decrease the supply of money in Brazil in​ 2015, which of the following would do​ it? This action will​ ____________.

sell government securities in the open market; reduce credit availability and lower the money supply

If household wealth increases​, the consumption function

shifts upward ​since, for the same level of​ income, individuals can spend more.

Assume that banks become more conservative in their lending policies and start holding some excess reserves. Compared to a situation in which banks are not holding excess​ reserves, the size of the money supply will be

smaller

The interest rate that commercial banks charge each other for borrowing and lending reserves is called

the federal funds rate.

Which of the following instruments is not used by the Federal Reserve to change the money​ supply?

the federal tax code

the MPS is equal to

the fraction of additional income that is saved

The MPC is

the slope of the consumption function

Which of the following is considered a liability to a​ bank?

time deposits

aggregate income equals the

total income received by all the factors of production in a given period

aggregate output is equal to the

total quantity of goods and services produced in an economy during a given period

The demand for money depends​ ________ on the size of total transactions in a period and​ ________ on the interest rate.

​positively; negatively