Econ test 3 10/25

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The quantity of loanable funds supplied by ___ is____ related to the real interest rate

savers; positively

Near monies includes

savings deposits

If the Fed wants to raise the federal funds rate, it will ___ bonds which _____ bond prices

sell bonds; lowers

Which of the following lists represents monetary poilcy actions that are consistent with one another

sell gov't bond, raise reserve requirements, rate the discount rate.

Which action i the Fed ost likely to take to curb inflation

sell securites in the open market

The fed Board of Governors consists of ____ members who are appointed by the ___ and confirmed by the _____

seven; president; senate

When a financial insititution accepts funds from savers and pools this money into a portfolio of diversifies financial instruments, It is?

spreading risk

Keynesian theory

states that open market operations and increase in te money supplu lead people to buy bond causing bond prices to rise and interst rates to flal and increase the investment componenmt of aggregate demand

The taylor rule

targets the federal funds rate

Which of the following items is NOT one of the primary tools of the FED?

tax rates

An interest rate that is low only for a short time is called

teaser rate

If bank increase excess reserves to increase their ability to absorb a higher rate of defaults

the actual multiplier will fall

The reasons bond prices and interest rates are inversely related is that

the coupon payment is fixed for the life of a bond

If monetary policies is tight

the dollar will rise

Monetarists and classical economist agree that

the economy is self stabilizing long ru

If the Fed lowers the reserve requirement

the money multiplier will rise

Monetary targeting is setting a steady growth rate in

the money supply

In may 2013 said the central bank had the autonomy to what was needed to tame inflation

tight fall cheaper

When the FED sells bonds it is

tight money policy

Why did the EU central bank take extraodinary actions to prevent member countries from defaulting on their debt

to prevent a loss of confindence in the ero

If you are estimating the amount you plan to spend on a vacation, money is serving as a

unit of account

The actual money mulitplier is

usually smaller than the potential money mulitplier

In the equation of exchange

v=6

If the gov't decrees that bottle tops will be treated as money, then a bottle top:

will not function well as a unit of account

This banks reserve ratio is

.1

If the potential money multiplier is 4 then the reserve requirement is

.25

If the reserve requirement is 2.5% and a bank initially receives 30,000 in deposits from the Fed, the the maximum amount of money that the banking system can create is

1.2 milliion

What is the amount of this banks reserves?

10000

Suppose the ZZZ corporation sells a one year coupon bond for 1000. Its coupon payment is 100 for the year. In this example the yield is ____ percent. If instead the price of the bond is 500 the yield is ____

10;20%

Sumit deposits 1500 cash into his hecking account. The reserve requirement is 25% what is the chnage in his banks excess reserves

1125

Federal Reserve board members serve for ___ years but the chair serves for ___

14; 4

About how many US depository institutions are bound by the Fed reserve requirement?

15,000

How many prices must a customer know in a barter economy that produces exactly 20 goods

190

The federal Reserve system was established in

1913

If the reserve requirement is 10% and a bank initially receives 20,0000 in deposits, then the maximum amount of money that the banking system can create is

200,000

Suppose a bank has 1 mil in deposits a reserve requirement of 10% and the bank reserves of 300,000 the bank has excess reserves of:

200,000

Suppose a bank has 1 mil in deposits, a reserve requirement of 20% and bank reserves of 400,000 the bank has excess reserves of

200,000

If a person borrows 2000 at 5%interest and never makes any payments, how much will the loan balance be after two years

2205

Using the equation of exchange i the money supply is 4 tril and the price level is 2 and the upper level of outot is 6 trillion the velocity of money is

3

Sumit deposits 1500 cash into his checking account. The reserve requirement is 25% what is the hange in his banks required reserves?

375

If the reserve requirement is 25% the potential money multiplier is

4

If the reserve requirement is 2.5 the potential money multiplier is

40

If the reserve requirement is 20% the money multiplier is

5

If the reserve requirement is 18.5% what is the money multiplier

5.4

If this bank is subject a reserve requirement is 5% what is that amount of its excess reserves

5000

If this bank is subject to a reserve requirement of 5% how much more can it loan out if it wants to be fully loaned up

5000

Callie Withdraws 600 from her bank account. If the reserve requirement is 15% by how many dollars must her bank reduce its lending

510

Consider this t- account Your banks reserve ratio is

57.14

Sumit deposits 1500 cash into his checking account. The reserve requirement is 25% How much money can the banking system create

6000

If a person borrow 3000 at an 8% interest and never makes any payments, how much will the loan balance be after 10 years

6476.77

How much is a bond worth if it pay 55$ per year in interest and the market interest rate is 8'%

687.50

If a perpetuity bond has an interest payment of 80 and your required yield is 10% the most you would be willing to pay for the bond is

800

(table) From the Information in the table, M2 for June 2010 was

A 8624.1 bil

Which one of the following is NOT a function of money

A double coincidence of wants

The most important function of money is

A medium of exchange

Market for Loanable Funds 2 If households decide to save a larger portion of their income because they fear job loss due to a recession, the loanale funds supply curve will shift from ___ to _____ and the new equilibrium will be at point holding demand constant at D0

A. S0; S1 b

(Market for loanable funds 2) If business taxes increase, the demans for loanable funds curve will shift from ___ to ___ and the new equilibrium will be at point _____ holding supply constant at S0

A. d1; D0 ; A

The fractional reserve banking system

All of the abov

M2 includes

All of the above

Federal reserve banks are located in all of these cities EXCPET

Augusta

The quantity of loanable funds demanded by _____ is______ related to the real interst rate

Borrowers; negatively

An economist notices that M1 is rapidly rising. One conclusion she might draw is that

Consumers are preparing to make more purchases

Which agency does Not regulate financial markets?

Council of Economic Advisers

M1 is equal to

Currency +demand deposits+ travlers checks+ oter checkable deposits

If abigail withdraws 300 cash from her checking account, then her banks assets:

Fall by 300 and liabilities fall by 300

Suppose a perpetuity bond with a face value of 1000 has a coupon rate of 8% if the market interest rates rise to 12% the price of the bond

Falls to 666.67

Kim recently purchased a perpetual bond for 1000. The bong pays 50 in interest per year. Suppose market interest rates rise to 7% after the purchase the price of the bond falls

Falls to 714

The ___ rate is the rate at which banks charge each other for overnight loans, while the ___ rate is the rate at which regional Federal Reserve banks charge depository institutions for Short Term Loans

Federal Funds; Discount

The ____ oversee the main tool of monetary policy

Federal Open Market Commitee

Which of the following is NOT a financial intermdiary

Federal Reserve Bank

What is the interest rate for moeny borrowed to satisfy daily reserve requirements?

Federal funds rate

Institutions that acquire funds from savers and then lend those funds to borrowers are called

Financial intermediaries

The Fed will increse the money supply by a set percentage every year at a level consistent with long term price stability and economic growth

Friendmans monetary rule

Assume the reserve requirement is 10% If the Federal Open Market Commitee buys a 10,000 bond from bank A Bank A's reserves

Increase by 10,000

Which of the following measures would decrease the money supply?

Increasing the reserve requirement

In September 2013 ...... this wait for accurate data to be collected is known as the

Information lag

The demand curve for loanable funds represents ___ and is ____

Investors; downwards sloping

Jose is putting money for college in a savings account. The bank makes the money availble to business borrowers. in essence

Jose is supplying loanable funds for business investment

All of the following are included in the definition of M2 EXCEPT

Large time deposits

M2 includes all of the following Except

Large-denomination time deposits

m1 is the most ___ of all assets because as a medium of exchange it requires no conversion

Liquid

If the Fed wanted to use all three of its primary tools to increase money supply, It should

Lower the reserve requirement, lower the discount rate, and conduct an open market purchase.

Currently ___ is equal to roughly 2.5 trillion and it is the most liquid part of the money supply

M1

Checking accounts as part of

M1 and M2

For defining money ________ and also includes ____

M2 includes M1 ; near money

The quantity theory of equation

MV=PY

Money used to purchase goods or services is functioning as a

Medium of exchange

Which of the following statements about monetary rules is correct

Monetary rules assumes the economy is inherently stable

____ are near money

Money Market deposit accounts

What occurs during a negative demand shock

Output and price level decrease

The Fed engineered a recession to reduce ut of control inflation under

Paul Volker

Assume that market interest rates are 6% and the bondholders receives a 60$ coupon payment per year on a bond with a face value of 1000. If the market interst rate falls to 4% the bond price

Rises to 1500

If the government offers firms investment tax credits for building new factories, the after tax rate of return ___ causing the loanable funds_____ curve to shift ___ leading to _____ interest rates

Rises; demand; Rightward; lower

The supply curve for loanable funds represent ___ and is _____

Savers; upward sloping

When the Fed wants to decrease the money supply it will

Sell Bonds

The discount rate is the interest rate

The FED charges depository institutions to borrow reserves from a regional FED banks.

Which of the following statements is correct?

The Federal reserve is considered to be an independent central bank

Which of the following is NOT one of the criteria for a commodity to serve as money?

The commodity must be issued as currency or coin

Which of the following statements lists contractionary policies

The fed sells bonds, raises the discount rate, and raises the reserve requirement

As the real interest rate falls

The quantity supplied of loanable funds decreases

The federal Reserve rarely uses control of

The reserve requirement

A deferment on a college loan means that ____ will pay it off

The student, beginning at a later time

Which of the following is NOT true

The supply of funds to the loadable funds market is inversely related to the interest rate

Serving as a ____ is a function of money that gives us a yardstick by which we can measure and compare the values of a wide variety of goods and services.

Unit of account

What are the primary functions of money?

Unit of account, medium of exchange, store of value

In which city is the Federal Reserves Board of Governors

Washington DC

Starting at the equiulibrium

a

There are two ways for money to be initially deposited into the banking system. They include

a cash deposit by a bank customer and an electronic reserve deposit by the government

Successful barter in a primitive economy necessitates

a double coincidence of wants

Which is NOT one of the three basic functions of money?

a means to collect tazes

Another term for a unit of account is

a measure of value

_____ keeps the growth of money stocks, such M1 and M2 on a steady path, following the equation of exchanege

a monetary rule

Which is an example of money being used as a unit of account

a resturants profits for the week of October 3rd to October 10 are $1250

One of the key factors leading to the last economis crisis was

a worldwide savings glut

The feds monetary policies, like fiscal policy are subject to ____ lags

all of the above implementation, decision, information

Monetary policy is LEAST effective in reversing

an adversesupplu shock

Which one of the following will cause the demand for loanable funds curve to shift leftward

an end to a program that provides investment tax credits

Which one of the following will cause the supply of loanable funds curve to shift leftwards

an increase in the gov't deficit

According to the Taylor Rule, the two most important factors influencing the Federal Reserves changing the federal funds rate are

an inflation rate different from the Fd target and output different from potential GDP

M1 includes:

banknotes and coins

The direct exchange of goods and services is called

barter

The use of money as a medium of exchange helps reduce the inefficiencies inherent in

barter

Financial intermediaries match:

borrowers with savers

If the economy is a short run equil. point b

c further increase, increase

Which of the economists believe that changes in the money supply lead only to price changes

classical economics

The most common type of short term debt is

credit card debt

Starting at the equilibrium

d

equilbrium point b

d

If a person borrows 3000 at 8 percent interst and never makes any payments, how much will the loan balance be after three years

d.3779.14

Tighter lending standards tend to ____ the money multiplier, making it ___ for the Fed to use its tool effectively?

decrease; harder

Financial Institutions greatly increas the flow of funds to the economy by

decreasing information costs

Which of the following assets is the MOST liquid

demand deposits

an inrease in the intrest rate causes the aggregat _____ curve to shift to ____

demand; leftward

If the real interest rate were below the equilibrium real interest rate in the loanable funds market, an excess _____ for loanable funds would exist and the real interest rate would ____

demand;rise

If the spread of ATMS made it more likely for people to hold their money in banks, the potential money multiplier probably ___ and the actual money multiplier probably, ceteris paribus

did not change; rose

During the last financial crisis the fed was criticized for overstepping its authority and excercising powers it had not been granted. Which was not one of the auses of the critisims

didnt explain why it was taking certain actions

Fiat Money

does not necessarily have any intrinsic value but has declared by a gov't to be money

The twin goals of monetary policy ar

economic growth with low unemployment and stable prices with moderate long term interst rates

An individual bank can, at most lend out all of its

excess reserves

When the Federal Reserve increase excess reserves to reduce interest rates and stimulatins spending it is said to engage in

expansionary monetary policy

When interest rates ____ exports ____

fall rise

When the value of the dollar exports ___ and imports _____

fall rise

During the 2007-2009 recession, the money multiplier

fell less than 1

Which of the following is Not a policy tool of the Federal Reserve

fiscal policy

The idea that banks hold only a portion of deposits and lend the rest out is called the

fractional reserve banking system

Open Market Operations involve the purchase and sale of

gov't securities

If the reserve requirement is 20% then a 1$ decrease in deposits means that the money suppy

has the potential to decrease by 5$

If the reserve requirement is 10% than a 6000 decrease in deposits means that the money supply

has the potential to decrease by 60,0000

If the reserve requirement is 25% then a 500 increase in depoits means that the money supply

has the potential to increase by 2000

If the reserve requirement is 25% then a 1$ increase in deposits means that the money supply

has the potential to increase by 4$

According to the Taylor rule, the higher the inflation rate, other things equal the

highr the Federal funds target rate

The fractional reserve banking system refers to a system in which banks

hold reserves equal to a fraction of their deposit liabiities

The existence of a liquidity trap implies that an

increase in the money supply leads to inflation

When current real output exceeds potential real output, the FED will ___ interst rates iin an effore to fight

increase; inflation

Monetary policy involves all of the following except

increases in personal taxes

a lower reserve requirement is

increases the ability of banks to make loan

Assume the reserve requirement is 20% and the Federal Open Market Comittee buys a 10,000 bond. The impact on the banking system is an

injection of 10,000 in new reserves

The fed announced in Sept. 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases

interest rates will rise

The reward for saving is called ______ and this variable is placed on the ____ axis of the loanable funds market graph

interest; vertical

The Federal Open Market Commitee

is composed of the Board of Governors and five other regional Reserve Bank presidents

To say that the FED is transparent means that he FED

is open regarding its monetary policy

If a bank has assets of 5bil and liabilities of 4.8 bil

its equity equals 200 mil

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

keeping tax rates low

Which economists believe that fiscal policy is effective, while monetary policy may be ineffective

keynesians

In the long run, when the economy is at ful employment, any chnage in the money supply

leads to a change i nprices

The financial panic and credit freeze in the late 2008 pointed to the Feds important role as a

lender of last resort

Bonds are considered to be ___ than stocks because _____

less risky; bondholders are less affected by a firms bankruptcy

When the interst rate falls, american bonds become ___ attractive to forein investors often leading to __ in the value the US dollar in forign echange markets

less' decrese

Some analysts blame the last economic crisis on FED policy they argue that

low interst rates encourage excessive mortgage borrowing, leading to the housing bubble

Which of the following measures did the European Central Bank take to prevent the financial crisis on individual countrie from collapsing the EURO

making loans to troubled countries

Money is considered a ____ because it is general accepted as payment for goods and services

medium of exchange

If the fed sets a fixed rate for moeney supply growth it is usin

monetary targeting

Which of the following assets is MOST liquid

money

Suppose the economy is in full employment equilibrium. The a positive supply shock, cause by a fall in oil prces, hits the economy. A contracionary monetary policy will

move rhe ecoomy back to full employment but a much liwer price

If a bank is subject to a reserve requirement of 10% and if its reserve ratio is 33% the all of the following are true Except that is

must limit withdrawls

Savings deposits are

not part of M1 but are part of M2

Roth Indivisual Retirement Accounts are tazex

only when you make contributions

The federal Open Market Committee is responsible for

overseeing the buying and selling of gov't securities in the open market

Financial institutions

reduce information costs, reduce transaction costs, and diversify assets

When a financial institution provides a standardized financial product such as a mortgage, It is

reducing transaction costs

a policy of transparency in the Federal reserve

requires the federal reserve to explain why it acted or chose not to at in certain situations

The formula for calculating the reserve ratio is

reserves divided by total deposits

a monetary rule would make it difficult to

resond to unforeen events

If the FED is buying bonds, then it wants bond prices to ___ and the federal funds rate to

rise; fall


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