Macroeconomics Chapters - 4, 5, 7
_____ refers to the process of transferring funds from savers to borrowers.
Financial intermediation
Which is the equation used to calculate the money supply M?
M = Currency + Deposits
The Fed increases the interest rate it pays banks for holding reserves:
Monetary base- increase Money Multiplier- decrease Money supply- decrease
The federal reserve buys bonds using open market operations:
Monetary base- increase Money multiplier- no effect Money Supply- increase
_____ are included in the money supply.
Neither checks nor debit cards
According to the text, which is the MOST likely reason that individuals began to hold paper money instead of gold?
People believed the government's promise that it would redeem government-issued paper bills for gold.
Which are included in M2 but not included in M1?
Saving deposits are included in M2 but not in M1.
The _____ is a new mechanism that the Federal Reserve has set up that allows for banks to borrow from it.
Term Auction Facility
an important factor in the evolution of commodity money to fiat money is:
a desire to reduce transaction costs
Credit cards are:
a method of deferring payment.
What are the three functions of money
a store of value, a medium of exchange, a unit of account
If the Federal Reserve pays a higher interest rate on reserves, the money supply will MOST likely:
decrease
In a fractional-reserve banking system, the leverage ratio must always be:
greater than 1
using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tends to have _______ rates of inflation and decades of low money growth tended to have ________ rates of inflation
high ; low
An increase in the number of bank failures will MOST likely cause the reserve-deposit ratio to
increase
Money is NOT a(n):
input to production.
Assuming that banks hold no excess reserves, suppose that banks hold a reserve-deposit ratio of 25 percent. If a customer deposits $4,000, the bank will keep as reserves _____ and will lend out _____.
$1,000; $3,000
Which item would be MOST likely to be characterized as fiat money?
the U.S. half-dollar coin
the costs of unexpected inflation, but not of expected inflation, are:
the arbitrary redistribution of wealth between debtors and creditors
which of the following is not part of the money supply
the balances that are in your retirement account
the ratio of the money supply to the monetary base is called
the money multiplier
if you hear in the news that the Federal reserve conducted open-market purchases, then you should expect_________to increase
the money supply
If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:
the money supply decreases
when a pizza maker lists the price of a pizza as $10, this is an example of using money as an:
unit of account
When a person knows that three one-dollar bills can buy a gallon of gasoline when the price of a gallon of gasoline is $3.00, then that person understands that money can serve as a:
unit of account.
If currency held by the public equals 100 billion, reserves held by banks equal 50 billion, and bank deposits equal 500 billion, then the money supply equals
600 billion
if the monetary base equals 400 billion and the money multiplier equals 2, then the money supply equals:
800 billion
which of the following would most likely be called a hyperinflation
price increases averaged 300 percent per year
if the transactions velocity of money remains constant while the quantity of money doubles the:
price of the average transaction multiplied by the number of transactions must double
If bankers were to become more cautious because of bank failures, they would increase the _____ratio, and the money multiplier would _____.
reserve-deposit; decrease
Which is an example of commodity money?
salt
the inconvenience associated with reducing money holdings to avoid the inflation tax is called:
shoe leather costs
When money serves as a _____, it allows an individual to transfer purchasing power from the present to the future.
store of value
if velocity is constant and in addition the factors of production and the production function determine real GDP, then:
the price level is proportional to the money supply
the value of a bank's owners' equity is called bank:
capital
Because of leverage, a 5 percent decline in the value of a bank's assets will cause the value of the bank's ________ to fall by _________ than 5 percent
capital ; more
demand deposits are funds held in
checking accounts
A decrease in the confidence of consumers in the banking system caused by bank failures would cause the _____ ratio to increase and the money multiplier to _____.
currency-deposit; decrease
Raising the reserve requirement would MOST likely cause the money supply to:
decrease
If the monetary base doubles but the money supply stays the same, the money multiplier will:
decrease by half
In a 100-percent-reserve banking system, a customer withdrawal will:
decrease deposits.
when the Fed decreases the interest rate paid on reserves, it:
decreases the reserve-deposit ratio (rr)
Liabilities of banks include:
demand deposits
The "fractional" in "fractional-reserve banking" refers to banks keeping as reserves a fraction of customer:
deposits in the banks' vaults or at the Federal Reserve.
The Federal Reserve:
did not pay interest on reserves in the past but recently began to do so.
A leverage ratio of 15 means that for every dollar of capital that bank owners have contributed, the bank has 15
dollars of assets
most hyperinflation end with_____ reforms that eliminate the need for ____
fiscal ; seigniorage
Suppose that the Federal Reserve requires all lending to commercial banks go through the Term Auction Facility (TAF) only. This would _____ the Federal Reserve's ability to control the monetary supply.
improve
An increase in the number of bank failures will MOST likely cause the currency-deposit ratio to:
increase
If the federal reserve reduces the interest rate it pays on reserves, it will tend to _________ the money multiplier and _________ the money supply
increase ; increase
Suppose that a change in transaction technology reduces the amount of currency people want to hold relative to demand deposits. If the Fed does nothing, the money supply will tend to _______. However, the Fed can hold the money supply constant by ________ bonds in open-market operations
increase ; selling
the demand for real money balances generally assumed to
increase as real income increases
If the reserve-deposit ration is less than one, and monetary base increases by 1 million, then the money supply will:
increase by more than 1 million
An increase in the interest rate on reserves will MOST likely cause the reserves to _____ and the money supply to _____.
increase; decrease
Jose's Bank chooses to hold 100 percent of deposits as reserves. If a customer deposits $5,000 to his checking account, the bank's deposits will _____ $5,000, while its reserves will _____.
increase; increase $5,000
In 1932, the US government imposed a 2-cent tax on checks written on deposits in bank accounts. This action would be expected to __________ the currency-deposit ration and __________ the money supply.
increase;decrease
According to some economists, the U.S. Federal Reserve might have reduced the severity of the Great Depression if it had
increased the monetary base even more than it did.
Deposit insurance promote a financial system's stability because it prevents large
increases or decreases in the currency-deposit ratio.
according to the quantity theory of money, if the money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as result of financial innovatio, the rate of inflation must be:
increasing
if the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:
inflation of 1 percent and the nominal interest rate of 1 percent
The discount rate is the:
interest rate that the Federal Reserve charges banks when they borrow from the Federal Reserve.
the classical dichotomy
is said to hold them the values of real variables can be determined without any reference to nominal variables or the existence of money
The fed flies a helicopter over 5th Avenue in New York City and drops newly printed 100 bills
monetary base- increase money multiplier- may increase or decrease money supply- increase
rumors about a computer virus attack on ATMs increase the amount of money people hold as currency rather than demand deposits
monetary base- no effect money multiplier- decrease money supply- decrease
in a system of fraction-reserve baking, lending by banks increases the
money supply
an economy produces 50 widgets which sell for $4 each, and has a one supply of 100 what is the velocity of money?
money x velocity = price x output velocity = 2
Money is a perfect store of value when the economy is experiencing:
neither inflation nor deflation.
variable expressed in terms of money are called _____ variables
nominal
in its most general formulation, the demand function for rebalances depends on the level of income and the:
nominal interest rate
the opportunity cost of holding money is the:
nominal interest rate
according to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:
Federal Reserve
Which is the equation used to calculate the monetary base B?
B = Currency + Reserves
If the reserve-deposit ratio and the currency-deposit ratio are unchanged, a _____ percent increase in the monetary base will cause a 10 percent increase in the money supply.
10
According to the text, the gold standard was most commonly used throughout the world during the
1800s
according to the quantity theory of money, a 5 percent increase in money growth increases inflation by ____ percent. Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by_____
5 ; 5
Which are included in M1 but not included in M2?
All items in M1 are also included in M2.
excess reserves are reserves that banks keep:
above the legally required amount
if nominal wages cannot be cut, then the only way to reduce real wages is by:
adjustments via inflation
In a country on a gold standard, the quantity of money is determined by the:
amount of gold
The members of the U.S. Federal Reserve Board of Governors are:
appointed by the president of the United States and confirmed by Congress.
if the demand for real money balances is proportional to real income, velocity will
be constant
checking account balances that are linked to debit cards are included in:
both M1 and M2
If a central bank wants to increase the money supply, it can _______ bonds in open-market operations or ________ reserve requirements.
buy; decrease
the inflation tax is paid:
by all holders of money
In the United States, the money supply is determined:
jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held
according to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises
less ; smaller
The _____ ratio is the ratio of the bank's total assets to bank capital.
leverage
Bank regulators prefer banks to have a:
low leverage ratio.
To increase the money multiplier, the Fed can
lower the interest rate paid on reserves
in a fractional-reserve banking system, banks create money when they
make loans
A reserve requirement is the:
minimum reserve-deposit ratio that bank regulators require banks to have.
The Fed reduces its lending to banks through its Term Auction Facility
monetary base- decrease money multiplier- no effect money supply- decrease