Econ unit 4
the table below gives the value of various monetary measures, in millions of dollars. based on the table above, what is the value of M1, a measure of the money supply?
$1,120 million
a bank has $220 million in demand deposits and $150 million in reserves. the reserve ration is 20%. what is the maximum amount of loans the bank can make form its reserves?
$110 million
based on the table above, what is the value of the monetary base?
$110 million
a commercial bank is facing the conditions given above. fi the reserve requirement is 12% and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is
$3,000
assume that Linda deposits in her checking account the $1000 cash she was keeping at home for an emergency. if the required reserve ratio is 0.20, what is the maximum change in the money supply from her deposit?
$4000
assume that the required reserve ratio is 10%, banks keep no excess reserves, and borrowers deposit all loans made by banks. suppose you have saved $100 in cash at home and decide to deposit it in your checking account. as a result of your deposit, the money supply can increase by a maximum of
$900
assume that the reserve requirement is 10%. Marwa deposits $1 million in cash into her checking account at First Bank. the deposit will initially increase excess reserves at First Bank by
$900,000
assume that the nominal interest rate is 10%. if the expected inflation rate is 5%, the real interest rate is
5%
in the country of Agronomia, banks charge 10% interest on a ll loans. if the general price level has been increasing at the rate of 4% per year, the real rate of interest in Agrnomia is
6%
Which of the following is true for bonds but not for stocks?
Bonds are interest-bearing assets
Which of the following is considered the most liquid asset?
Currency
Fred Jones withdraws $1000 in cash from his savings account. what immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?
M1 increases, M2 no change
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes?
Speculation
Which of the following describes a major difference between stocks and bonds?
Stocks represent ownership in a corporation, and bonds represent a loan to a corporation
Which of the following will happen when interest rates increase in an economy?
The opportunity cost of holding money will increase
the diagram shows the effect of a monetary policy action on aggregate demand. which of the following will shift the aggregate demand curve in the direction shown in the diagram above?
a decrease in the overnight interbank lending rate
in the short run, a reduction in the money supply will cause
a leftward shift in the aggregate demand curve
which of the following is NOT a function of fiat money?
a source of intrinsic value
the money demanded for the purpose of purchasing goods and services is known as
a transactions demand
expansionary fiscal policy will most likely result in
an increase in nominal interest rates
an increase in the price level will most likely cause which of the following?
an increase in the demand for money
an inflationary gap can be eliminated by all of the following EXCEPT
an increase in the money supply
based the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10%?
bank B can increase its loans by $40
investment in physical capital is most likely to occur as a result of an increase in
business confidence
if the Federal Reserve lowers the reserve requirement, which of the following would most likely occur?
businesses will purchase more factories and equipment
expansionary monetary policy can affect ethics's economy through which of the following chains of events?
buying bonds increases the money supply, which lowers the interest rate.
the aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?
demand for money increase, interest rates increase, investment decrease
an ingrain government spending will affect the demand for money and nominal interest rates in which of the following ways?
demand for money increase, nominal interest rate increase
one way in which the Federal Reserve works to change the United States money supply is by changing the
discount rate
all of the following are components of the money supply in the United States EXCEPT
gold bullion
which of the following will most likely occur in an economy if more money is demanded than is supplied?
interest rates will increase
which of the following is true of the opportunity cost of holding cash?
it increases as the interest rate rises
which of the following is true about the expected real interest rate?
it is negative if the expected inflation are exceeds the nominal interest rate
if both the nominal interest rate and the expected inflation rate increase, what will happen to the real interest rate?
it will decrease if the expected inflation rate increases by more than the nominal interest rate.
if a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to
lower the discount rate and buy bonds on the open market to generate an increase in output
banks expand the money supply when
making loans
if the central bank raises the required reserve ratio, the money multiplier and the money supply will change I which of the following ways?
money multiplier decrease, money supply decrease
a contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?
nominal interest rate increase, aggregate demand decrease
in the narrowest definition of many, M1, savings accounts are excluded because they are
not a medium of exchange
if the Federal Reserve pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short-run?
output decrease, price level decrease
during a mild recession, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?
purchase of government securities by the Federal Reserve
with an expansionary fiscal policy, what will most likely happen to the real gross domestic product (GDP) and the nominal interest rate in the short run?
real GDP increase, nominal interest rate increase
an increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output?
real interest rates decrease, real output increase
when there is excess demand in the loanable funds market, which of the following will occur?
real interest rates will increase
the loanable funds market is best described as bringing together
savers and borrowers
if aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to
sell securities on the open market
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
which of the following will most likely result in a lower real interest rate in a nation?
the citizens of the nation increase their savings for retirement
which of the following changes will necessarily occur as. result of an increase the nominal interest rate?
the quantity of money demanded will decrease
if businesses become optimistic about the profitability of investments in an economy, which of the following will happen in the loanable funds market in the short run?
the real interest rate 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