ECON 211 Quiz 6

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​Which of the following policies can the Fed follow to increase the money supply?

​Reduce the interest rate on reserves

Based on the quantity equation, if Y = $8,000, P = 3, and V = 7, then M =

$3,429.

Table 29-2 The information in the following table pertains to the hypothetical economy of Florencial. ​ Type of Money Amount (Billions of dollars) Large time deposits 120 Small time deposits 80 Demand deposits 300 Other checkable deposits 50 Savings deposits 65 Traveler's checks 5 Money market mutual funds 200 Currency 150 Credit card balances 300 Miscellaneous categories of M230 Refer to Table 29-2. What is the M2 money supply in Florencial?

$880 billion

Suppose a burrito costs $6. Clara holds $120. What is the real value of the money she holds?

20 burritos. If the price of burritos rises, to maintain the real value of her money holdings she needs to hold more dollars.

The set of items that serve as media of exchange includes

demand deposits.

Economists generally argue that

high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes.

Refer to Table 29-4. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Cheerton now hold?

$600

In the special case of the 100-percent-reserve banking, the money multiplier is

1 and banks do not create money.

Table 29-5 First National Bank Assets Reserves $1,200 Loans 8,000 Short-term securities 800 Liabilities and Owners' Equity Deposits $9,000 Debt 800 Capital (owners' equity) 200 ​ Refer to Table 29-5. This bank's leverage ratio is

50.

Which of the following both increase the money supply?

A decrease in the discount rate and a decrease in the interest rate on reserves

Which of the following is not included in either M1 or M2?

Large time deposit

When inflation causes relative-price variability consumer decisions,

are distorted and the ability of markets to efficiently allocate factors of production is impaired.

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 5, then the quantity of money

demanded is greater than the quantity supplied; the price level will fall

Refer to Table 29-3. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

have $64,000 in excess reserves

Shoeleather costs arise when higher inflation rates induce people to

hold less money

Table 29-3 The First Bank of Roswell Assets Reserves $30,000 Loans 170,000 Liabilities Deposits $200,000 ​ ​ ​ ​ Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank

is in a position to make new loans equal to a maximum of $12,000

When the Consumer Price Index decreases from 140 to 125

less money is needed to buy the same amount of goods, so the value of money rises.

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

more reserves, so the reserve ratio will rise.

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

raised the price level and decreased the value of gold in Cairo.

Relative-price variability

rises with inflation, leading to a misallocation of resources

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply.

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

the inflation rate and the nominal interest rate by the same number of percentage points.

The principle of monetary neutrality implies that an increase in the money supply will increase

the price level, but not real GDP.

In the long run, money demand and money supply determine

the value of money but not the real interest rate.

The shoeleather cost of inflation refers to the

waste of resources used to maintain lower money holdings


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