Econ 101 Final 2020

Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of

$1,000

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of:

$3,750

The price of a bond having no expiration date is originally $8,000 and has a fixed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

16%

The total demand for money curve will shift to the right as a result of

an increase in nominal GDP

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to purpose a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

banks did not have enough reserves to continue lending to firms

In recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that

banks held on to excess reserves and people chose to pay off loans rather than spend

What are "mortgage-backed securities"?

bonds backed by mortgage payments

If server demand-pull inflation was occurring in the economy, proper goverment policies would involve a goverment

budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements

In the financial industry, "securitization" refers to

bundling groups of loans, bonds, mortgages, and other financial debts into new securities

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

control the supply of money in the economy

Which of the following would most likely occur during the expansionary phase of the business cycle?

demand-pull inflation

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

federal funds rate

Which of the following best explains why prices tend to be inflexible even when demand changes?

firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals

Fractional reserve banking refers to a system where banks

hold only a fraction of their deposits in their reserves

"Consumer sovereignty" refers to the

idea that both decisions of producers must ultimately conform to consumer demands

It is costly to hold money because:

in doing so, one sacrifices interest income.

In the aggregate expenditures model, an increase on goverment spending may

increase output and employment

Which of the following best describes the effect of the zero interest rate policy implemented in December 2008?

its effectiveness was limited by the zero lower bound problem

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of:

liabilities

The two major income-earning assets of commercial banks are

loans and securities

According to the Taylor rule, if real GDP is 4% below potential GDP, the Fed should

lower federal funds rate by 2% points

The greater the required reserve ratio, the

lower is the monetary multiplier

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro?

many Europeans will switch and buy their own imports instead of imports form the U.S.

The ZZZ Corporation issued $25 million in new common stock in 2016. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment

of $18 million occurred

Which of the following Fed actions will decrease the money supply?

revers repos

If a family's MPC is 0.7, it means that the family is

spending seven-tenths of any increment to its income

The cyclically adjusted budget refers to

the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment

Real GDP measures the

value of final goods and services produced within the borders of a country, corrected for price changes.

The asset demand for money

varies inversely with the rate of interest