EC111 Test 3

The national economic objectives that the Fed attempts to achieve include all these actions EXCEPT:

keeping tax rates low

The table above shows the T-account entries of a bank. If the required reserve ratio is 0.20, what is the maximum amount of additional loans that this bank can make from its current reserves?

$2,600

If Eighth Street Bank receives a $1,000 deposit, loans out $800, and keeps $200 in reserves, the total liabilities of Eighth Street Bank increased by $:

1,000

The Federal Reserve System includes _____ regional banks.

12

A nominal GDP of $46 billion and an M1 of $23 billion results in a velocity of:

2

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 2.1%, and output is 4% below potential GDP, the target federal funds rate according to the Taylor rule is:

2.15%

If the reserve requirement is 10% and a bank initially receives $20,000 in deposits, then the maximum amount of money that the banking system can create is $:

200,000

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves of $300,000. The bank has excess reserves of $:

200,000

Suppose banks hold 20% of money in reserves. What is the money multiplier?

5

_______________ are included in M1.

Checking accounts

Which of these was NOT a cause of the 2007-2009 financial crisis?

Congress enacted restrictive trade policies that failed to curb imports.

Which of the following rates is targeted by the Fed as it conducts the monetary policy?

Federal Funds Rate

The _____ oversee(s) the main tool of monetary policy.

Federal Open Market Committee

Which of these are functions performed by the Federal Reserve Banks and their branches? I. Regulating and supervising member banks II. Distributing coins and currency III. Setting interest rates paid by homeowners

I and II

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true?

Neither M1 nor M2 changed.

The output level of a country rises 5% and the money supply increases 8%. According to the equation of exchange, what can be expected in the long run in this country?

Prices will rise by 3%

Based on the graph, if households decide to save a larger portion of their income because they fear job loss due to a recession, the loanable funds supply curve will shift from _____ to _____, and the new equilibrium will be at point _____, holding demand constant at D0.

S0; S1; b

What is the difference between the Eurozone and the European Union (EU)?

The Eurozone includes all countries that adopted the Euro as their official currency, whereas the EU includes all countries that belong to the European Union.

Why are shares in retail money market mutual funds NOT considered part of the M1 money supply?

The funds are not spendable as a medium of exchange

Which one of these will cause the supply of loanable funds curve to shift rightward?

a perceived peak in an asset index (e.g., the Dow Jones Industrial Average)

Refer to the figure. If the economy starts with a recessionary gap at point ______, the Fed can conduct a ___________ monetary policy to take the economy back to the full employment level.

a; expansionary

Which of these will cause the demand for loanable funds curve to shift leftward?

an end to a program that provides investment tax credits

According to the Taylor rule, the two MOST important factors influencing the Federal Reserve's changing the federal funds rate are:

an inflation rate different from the Fed's target and output different from potential GDP.

Assume that the economy is in full-employment equilibrium. If an inflation targeting rule is used and a positive demand shock hits the economy, the Federal Reserve will use _____ monetary policy to _____.

contractionary; keep the inflation rate low

During the Christmas season, people tend to draw money out of their checking accounts to pay for presents. As a result, the actual money multiplier will:

decrease

The twin goals of monetary policy are:

economic growth and stable prices.

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price:

falls to $875.

Institutions that serve as the bridge between savers and borrowers are known as:

financial intermediaries

If the Federal Reserve adheres strictly to the Taylor rule, it will:

increase the target federal funds rate when there is concern about inflation and lower it when there is concern about recessions.

Suppose the economy enters a recession and income falls more than the demand for loanable funds. In this case, the supply of loanable funds shifts _____ and the equilibrium interest rate _____.

left; rises

Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____.

lower; more liquid

Which is considered to be one of the Federal Reserve's conventional monetary policy tools?

lowering the federal funds rate

Sasha buys a pair of shoes for $200. She pays for them with 200 one-dollar bills. The dollar bills, in this case, are functioning as a:

medium of exchange

Bond prices and their yields are _____ related because the bond's _____ can fall below its _____.

negatively; sale price; face value

Monetarists believe that in the short run, a change in the money supply can affect _____, while in the long run, a change in the money supply will affect _____.

output and the price level; the price level only

The supply curve for loanable funds is:

positively sloped

Tightening monetary policy refers to the Federal Reserve:

raising interest rates, usually to fight inflation.

In order for the Federal Reserve to raise interest rates, it needs to:

reduce the money supply.

Which list represents monetary policy actions that are consistent with one another?

sell government bonds, raise reserve requirements, raise the discount rate

Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _____ loanable funds shifts _____.

supply of; left

Monetary policy is LEAST effective in maintaining low inflation and high GDP when:

there has been a supply shock.

When the Federal Reserve sells bonds, it is implementing:

tightening monetary policy.