4.1-4.3 asseesment
Assume that in a banking system in which banks hold no excess reserves, the public holds part of its money in cash and the rest in checking accounts. If the required reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will be equal to
$120 million
Anderson Q6 on 4.1-4.3 Based on the data provided, what is the value of total reserves held by depository institutions?
$2500 million
Suppose that the real interest rate is equal to seven percent and the expected inflation rate is currently three percent. If an oil crisis in the Middle East increases the expected inflation rate to four percent, the new nominal interest rate is equal to
11%
Assume the nominal interest rate on a 15-year fixed-rate mortgage loan is 5 percent. If the expected inflation rate is 2 percent, the expected real interest rate is
3%
Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent, the real interest rate is
5%
In the country of Agronomia, banks charge 10 percent interest on all loans. If the general price level has been increasing at the rate of 4 percent per year, the real rate of interest in Agronomia is
6%
The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is
8%
Which of the following is NOT a function of fiat money?
A source of intrinsic value
Assume a country's banking system has limited reserves. In the short run, which of the following would occur to the price of previously issued bonds and interest rates if a central bank bought bonds through open-market operations?
Bond Prices, Increase. Interest Rates, Decrease
Assume that a country's government increases borrowing. What will most likely happen to the prices of previously issued bonds and the price level in the short run?
Bond prices, decrease/ Price level Increase
Which of the following is true for bonds but not for stocks?
Bonds are interest-bearing assets.
Which of the following is true of the quantity of money demanded?
It falls when interest rates rise, because the opportunity cost of holding money increases.
Which of the following is true about the expected real interest rate?
It is negative if the expected inflation rate exceeds the nominal interest rate.
Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2 ?
M1 will not change; M2 will not change
Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?
Nominal Interest Rates, increase. Bond Prices, Decrease
An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run?
Nominal Interest rates, Increase/ Bond Prices, Decreases
Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?
People who borrowed funds at the nominal interest rate during this time period would lose.
Sam pays monthly installments on a five-year fixed interest rate auto loan. If the expected inflation rate increases, which of the following will happen?
Sam will pay a lower real interest rate.
When Stephanie took out a one-year fixed-rate loan, she expected to pay a real interest rate of 3 percent. At the end of the year, the real interest rate had fallen to 2 percent. Which of the following could have caused the decrease in the real interest rate?
The actual inflation rate was greater than the expected inflation rate.
Assume that the inflation rate is 10 percent and a bank account effectively yields a real rate of interest of negative 5 percent per year. Would a person be better off keeping money in the bank account or in cash?
The bank account, because the loss is less than it is when holding cash.
When purchasing her house, Ms. Jones took out a 15-year mortgage loan from a local bank at a fixed interest rate of 7 percent. The rate of expected inflation at the time was 3 percent. If the actual rate of inflation was 4.5 percent, which of the following is true?
The bank lost because the real rate of interest decreased by 1.5%
Which of the following measures the opportunity cost of holding currency?
The forgone interest on alternative assets
Which of the following will happen when interest rates increase in an economy?
The opportunity cost of holding money will increase.
On the island of Mabera, the local money is called "favoli." The price of every good in Mabera is expressed as the number of favolis needed to buy the good. The use of favolis to express the price of goods describes which function of money?
Unit of account
All of the following are components of the money supply in the United States EXCEPT
gold bullion
In the long run, a fully anticipated increase in the inflation rate will
increase the nominal interest rate
A barter economy is different from a money economy in that a barter economy
involves higher costs for each transaction
The narrowest definition of money, M1, includes which of the following
savings accounts
Pat deposits a portion of her wages into a personal savings account every week. The saved money can be considered to be primarily a
store of value
The real value of the United States dollar is determined by
the goods and services it will buy
