Macroeconomics Test 3

the membership of the Board of Governors of the Federal Reserve System consists of:

seven persons appointed by the President of the United States

appointments to the Federal Reserve Board are staggered so that one expires every other year. this provision was enacted to ensure:

stability and continuity on the Board

suppose the economy is in full-employment equilibrium. then a positive supply shock, caused by a fall in oil prices hits the economy. an expansionary monetary policy will:

stabilize prices but at a much higher output level in the short run

which of the following statements is CORRECT?

the Federal Reserve is considered to be an independent central bank

if monetary policy is tight:

the dollar will rise

the Federal Reserve rarely uses control of:

the federal funds rate

monetary policy deals with how:

the money supply is controlled to target interest rates

which of the following statements about the classical money transmission mechanism is FALSE?

the quantity theory provides a good explanation of the short-run impact of monetary growth

a bank has excess reserves of $4k and demand deposits of $40k; the reserve requirement is 20%. if the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is:

$3,000

***Assume that Empathy State Bank begins with the balance sheet below and is fully loaned up*** This banks reserve ratio is:

0.10

(figure: shifts in aggregate demand) starting at the equilibrium point b, if imports increase or consumer demand decreases, the demand curve will shift to _____, thus _____ the price level and _____ real output

AD2; decreasing, decreasing

there are two ways for money to be initially deposited into the banking system. they include:

a cash deposit by a bank customer and an electronic reserve deposit by the government

the fractional reserve banking system:

all of the answers are correct

quantitative easing refers to the process whereby the Fed:

buys securities to stimulate the economy

to slow down a high inflation rate, the Fed should use a(n) _____ monetary policy by using open market _____

expansionary; purchases

when interest rates rise, exports _____ and imports _____

fall; rise

after the banking crisis of 2008, the financial services industry had:

higher returns on equity

when current real output exceeds potential real output, the Fed will _____ interest rates in an effort to fight _____

increase; inflation

which of the following measures would decrease the money supply?

increasing the reserve requirement

which of the following is a provision of the Federal Reserve Act or subsequent legislation that contributes to the independence of the Fed?

members of the Federal Reserve Board cannot be reappointed

which of the following is a provision of the Federal Reserve Act or subsequent legislation that weakens the independence of the Fed?

members of the Federal Reserve Board cannot be reappointed

the _____ measures the maximum amount of the money supply can increase when new deposits enter the system

money multiplier

when the interest rate falls, American bonds become _____ attractive to foreign investors, often leading to _____ in the value of the US dollar in foreign exchange markets

more; an increase

Sometimes the Fed's goals conflict, and the Fed must emphasize one goal over another. which of the following is a goal of the Fed that might conflict with its goal of full employment?

promoting economic growth

if zachary deposits $500 cash into his checking account, then his banks assets:

rise by $500, and its liabilities rise by $500

if the Fed is buying bonds, then it wants bond prices to _____ and the federal funds rate to _____.

rise; fall