Macroeconomics Study Guide (Ch 14-16)

D. $1.2 million

Refer to the table above. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are:

D. Decrease the money supply to shift the aggregate demand curve leftward

Which of the following is a monetary policy intended to rein in inflation?

C. $300 million

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

C. Increase by $32 billion

Assume that the MPC is 0.75 and that the price level is "sticky". If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to:

C. $600 million, but by $800 million if the securities are purchased directly from commercial banks

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of:

C. $16 billion, and also by $16 billion if the securities are purchased directly from commercial banks

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the non-bank public, this action has the potential to increase money supply by a maximum of:

B. The demand for money increases

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when:

B. The Federal Reserve System and the banks

Money in the U.S. is essentially debt of:

C. Commercial banks

Money supply M1 does not include the currency held by:

C. Escape the complications of barter

One major advantage of money serving as a medium of exchange is that it allows society to:

B. Decrease net exports and decrease aggregate demand

Other things equal, an appreciation of the U.S. dollar would:

D. Increase investment spending, real GDP, and the price level

Other things equal, an improvement in the expected rate of net profit would:

B. $213,333

Refer to the above data. If the balance sheet was for the whole commercial banking system rather than a single bank, then loans and deposits could expand by a maximum of approximately:

C. $42 billion

Refer to the above data. The commercial banking system has excess reserves of:

A. $15,000

Refer to the data above. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of:

C. $200

Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

B. Decrease aggregate demand by increasing the interest rate from 4 to 6 percent

Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Qf in the economy, the Fed should try to:

D. $100,000

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of:

B. $37,000

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

B. Controlling the money supply

The Federal Reserve System performs many functions but its most important one is:

B. $140,000 in checkable-deposit liabilities and $46,000 in reserves

The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

C. Housing price increased drastically

The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except:

C. 25 percent

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be:

C. Part of money supply M1

The so-called near-monies have the following characteristics, except:

A. Central banks, banker's banks, and quasi-public banks

The twelve Federal Reserve Banks can best be characterized as:

D. Control the supply of money in the economy

To keep high inflation from eroding the value of money, monetary authorities in the United States:

Refer to the list above. Which items are included in the M2 money supply, but not the M1 money supply? D. 1, 2, and 5

Use the following list to answer the question about the money supply. Items 1. Money market mutual funds held by individuals 2. Savings deposits, including money market deposit accounts 3. Money market mutual funds held by businesses 4. Currency held by the public 5. Small time deposits 6. Checkable deposits

D. They compete with commercial banks in their basic functions

Which of the following is not true about the Federal Reserve banks?

C. Credit-card balances are part of M2, but not part of M1

Which of the following is not true about the use of a credit card?

D. $2,500

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of:

D. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately:

B. $2 million

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal:

A. Debts of commercial banks and savings institutions

Checkable deposits are:

C. Token money

The currency or money of the United States, like those of other countries, is:

C. $13,000

Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:

A. Shifting Sf1 to Sf2

Refer to the figure above. Which change would be consistent with an attempt by the Federal Reserve to rein in inflation?

A. C

Refer to the graph above which shows the supply and demand for money where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following an autonomous increase in the asset demand for money?

A. Increase the money supply from $75 to $150 billion

Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at equilibrium at the intersection of the aggregate supply curve and aggregate demand curve AD3. What policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?

B. Increase the money supply from $75 to $150 billion

Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point X on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?

C. Sell government securities in the open market

Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Z on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a noninflationary full-employment level of real GDP?

B. $0.65 million

Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:

B. Rise to 6 percent

Refer to the table above. Suppose that the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

B. 5 percent

Refer to the table above. Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest rate is:

C. $5,899 billion

Refer to the table above. The size of the M2 money supply is:

D. $4,663 billion

Refer to the table above. The value of the money included in M2 but not counted in M1 is:

D. Obtaining a short-term loan

The use of a credit card is most similar to:

A. Paying with a check

The use of a debit card is most similar to:

Refer to the table above. The size of the M1 money supply is: B. $2,080

Use the following table to answer the question about the money supply given the following hypothetical data for an economy.

B. Ability to make new loans is restricted

When a bank's loans are written off, then the bank's:

A. Excess reserves of the banking system will decrease

When people withdraw money from their deposits in the banking system, the:

D. $8,333

When the interest rate in the economy was 10%, the price of a bond with no expiration date and pays a fixed annual interest of $500 was $5,000. If the interest rate in the economy falls to 6%, the price of this bond will be about:

B. $1,500

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of:

D. A means of payment

An asset's liquidity refers to its ability to be:

B. $10,800

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:

C. $660 million

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about:

C. Increased by $5,400

Henry deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply of money has:

B. Decrease by 2 percentage points

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will:

B. $50,000 and $250,000

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively: