quiz 4
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A's required reserves increase by
$2,000.
According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be
15 percent.
Refer to the diagram to the right. Suppose the economy is in short run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the static ADminusAS model, the correct Fed policy for this situation would be depicted as a movement from
C to B.
Banks can continue to make loans until their
actual reserves equal their required reserves.
Economies where goods and services are traded directly for other goods and services are called ________ economies.
barter
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
federal funds rate.
The interest rate that banks charge other banks for overnight loans is the
federal funds rate.fe
Commodity money
has value independent of its use as money.ha
Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to
increase
An increase in the interest rate
increases the opportunity cost of holding money.in
Which of the following assets is most liquid?
money
Milton Friedman would have liked the Fed to follow a monetary rule where the
money supply is increased every year by a percentage rate equal to themo long-run growth rate of real GDP.
The main tool the Federal Reserve uses to conduct monetary policy is
open market operations.op
Refer to the diagram to the right. The money demand curve would move from MD1 to MD2 if
real GDP increased.re
Which of the following functions of money would be violated if inflation were high?
store of value
An increase in the price level causes
the money demand curve to shift to the right.th
Support for a monetary rule of the kind advocated by Friedman declined since 1980 because
the Fed's performance since 1980 has been excellent even without a formal inflation target.
Soldiers in a World War II prisoner-of-war camp
used cigarettes as money.us
Consider the following choices and determine the correct definition for the monetary rule.
A monetary rule is a plan for increasing the money supply at a constant rate regardless of the prevailing economic condition.A
Refer to the diagram to the right. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static ADminusAS model, this would be depicted as a movement from
A to B.
Refer to the diagram to the right. Suppose the economy is in a recessionary gap and no policy is pursued. Using the static ADminusAS model, this situation would be depicted as a movement from
A to E.
Which of the following best describes how banks create money?
Banks create checking account deposits when making loans from excess reserves.
Consider the figures below and determine which is the best description of what causes the shift from AD 1 to AD 2.
Both A and B.
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives.Fe
Expansionary monetary policy refers to the ________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates
The purchase of Treasury securities by the Federal Reserve will, in general,
increase the quantity of reserves held by banks.in
Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
increase.
Fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body.li
In the figure to the right, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
lower interest rates.lo
The three main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, and reserve requirements.
In response to already low interest rates doing little to stimulate the economy, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as
quantitative easing
In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by
the establishment of the Federal Deposit Insurance Corporation.th
The monetary policy target the Federal Reserve focuses primarily on today is
the interest rate.
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of
$50,000.
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A can make a maximum loan of
$8,000.
If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.
decrease; not change
If the reserve requirement ratio (RR) is 0.20, the simple deposit multiplier is
5.
To increase the money supply, the Federal Reserve could
conduct an open market purchase of Treasury securitiesco
To decrease the money supply, the Federal Reserve could
conduct an open market sale of Treasury securities.
Which of the following is not counted in M1?
credit card balances
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A's reserves immediately increase by
$10,000.
Open market operations refer to the purchase or sale of ________ to control the money supply.
U.S. Treasury securities by the Federal ReserveU.
In response to already low interest rates doing little to stimulate the economy, the Fed announced a new program in September 2011 under which it would purchase long-term Treasury securities while selling an equal amount of shorter-term Treasury securities.
Operation Twist.
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDPa
