macro unit 4

Suppose that the federal reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20%, the maximum increase in the money supply is?

$2000 billion

Assume the required reserve ratio is 20%. If a bank initially has no excess reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is...

$80,000

Suppose that all banks hold no excess reserves and the reserve requirement is 20%. If Paula deposits $200 she earned for babysitting in the bank, what is the maximum increase in the total money supply?

$800

Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of:

$900

Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be...

$900

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If the disposable income increases by $1,200, consumption spending will increase by:

$960

If on receiving a checking deposit of $500 a bank's excess reserves increased by 400, the required reserve must be:

20%

Assume that the nominal interest rate is 10%. If the expected inflation is 5 percent, the real interest rate is?

5%

Which of the following is most likely to occur if the Federal Reserve engages in open market operations to reduce inflation:

A decrease in excess reserves in the banking system

Which of the following will lead to a decrease in a nation's money supply?

An increase in reserve requirements

All of the following will shift the investment demand curve to the right EXCEPT?

An increase in the real interest rate

Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10%?

Bank B can increase its loans by $40

The Federal Reserve can increase the money supply by:

Buying bonds on the open market

With an increase in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways?

Consumption: decrease, real gross domestic product: decrease

Country H's domestic output is lower than its potential domestic output. Assume the central bank now decreases its administered interest rates. What will be the short run effects of the central bank's action on cyclical unemployment and real income?

Cyclical unemployment will decrease, and real income will increase

Which of the following is the best example of the crowding out effect?

Deficit spending results in high interest rates that decrease private investment

If businesses predict that the economy will improve and sales will increase in the future, which of the following will occur in the loanable funds market?

Demand for loans: increase and real interest rate: increase

Which of the following is an asset for the Luko Bank?

III and IV only (vault cash and money that Luko Bank has deposited with the Federal Reserve)

According to the graph, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

Income: increase and employment: increase

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

Interest Rate: Decrease, Quantity of Money: Not change

If the FED institutes a policy to reduce inflation, which of the following is most likely to increase?

Interest rates

Which of the following sequences of events would occur if the federal reserve implemented contractionary monetary policy?

Interest rates increase, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease.

The required reserve ratio is 10% and the central bank sells $2 million in bonds to banks. If banks loan out all their excess reserves and there are no leakages, what will happen to the money supply?

It will DECREASE by $20 million

If required reserves is 10% and that bank receives a new demand deposit of $300, which of the following will most likely occur in the bank's balance sheet?

Liabilities increase by $300 and required reserves increase by $30

An expansionary monetary policy will lead to?

Lower interest rates and more investment

The demand for money is very closely associated with money's use as a?

Medium of exchange

An open market purchase of bonds by the Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways?

Money supply: increase, Interest Rate: Decrease, Unemployment Rate: Decrease

When an economy is operating below the full employment level of output, an appropriate monetary policy would be to increase which of the following?

Open market purchase of government bonds

An economy is in short run equilibrium at a level of output that is less than full employment output. If there were no fiscal or monetary policy interventions, which of the following changes on output and the price level will occur in the long run?

Output: increase, price level: decrease

If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate decrease?

Purchases of government bonds by the central bank.

If you use money as a store of value, you would be?

Putting money into a savings account

Which Federal Reserve action can shift the aggregate demand curve to the left?

Raising the discount rate

Which of the following is not part of M1?

Savings deposits

To eliminate an inflationary gap, the Federal Reserve might?

Sell bonds on the open market

Which of the following combined policies is the most effective in decreasing unemployment?

Taxes: decrease, Discount rate: decrease, reserve requirement: decrease

Open market operations refer to which of the following activities?

The buying and selling of government securities (bonds) by the Federal Reserve

An increase in the government budget deficit is most likely to result in an increase in which of the following?

The real interest rate

Which of the following is true for the money market graph?

There is an inverse relationship between the nominal interest rate and the quantity of money demanded

If the federal reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short run?

There will be a movement to the left along a short run Phillips curve

For which set of the following sets of unemployment and inflation rates will a central bank be most reluctant to increase the rate of growth in the money supply?

Unemployment rate: 5% and Inflation rate: 10%

The price for a ticket to the super bowl is $500. The statement best illustrates money used as a?

Unit of account

When government spending cause an increase in real interest rates, gross private domestic investment?

Will experience crowding out

A commercial bank's ability to create money depends on which of the following:

a fractional reserve banking system

A decrease in the supply of money will cause which of the following:

an increase in nominal interest rates

The federal funds rate is the interest rate that:

banks charge one another for short-term loans

The Federal Reserve decreases the federal funds rate by:

buying government bonds on the open marker

Banks may not be able to create the maximum amount of money from a new deposit as a result of:

individuals holding a larger portion of their assets as cash

If the Federal Reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short run? :

there will be movement in the left along a short-run Phillips curve