Econ Unit 4 Test

If your parents loaned you $5,000 for a used car payment. So you must pay back that $5,000 one year from now, then how much do you need to deposit into a bank account today earning an interest rate of 10%

$4,545

Assume the required reserve ratio is 20%. If a bank initially has no Excess Reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

$80,000

With continuous compounding at 8 percent for 20 years, what is the approximate future value of a $20,000 initial investment?

$93,219

if the nominal interest rate is 5%, and inflation is 2%, then the real interest rate is 3%, but if the money is held as cash, then the opportunity cost is

5%

Suppose businesses are fearful that there will be a recession on the near future. Which of the following best describes the impact of this belief on demand for loanable funds and interest rate? Demand for loanable funds & interest rate

Decrease / Decrease

Reserves, the money supply, and interest rates are most likely to change in which of the following ways when the Federal Reserve sells bonds? Reserves, Money Supply, Interest Rates

Decrease, Decrease, Increase

If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected? Interest Rates / Real GDP

Increase / Decrease

If required reserves is 10% and that bank receives a new demand deposit of $300. Which of the following will most likely occur in the bank's balance sheet? Liabilities/ Required Reserves

Increase by $300/increase by $30

What will happen to the supply of loanable funds and the equilibrium real interest rate if the Federal Reserve buys government securities? Supply, Real Interest Rate

Increase, Decrease

An open market purchase of bonds by the Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways? MoneySupply/Interest Rate/Unemployment Rate

Increase/decrease/decrease

The price of a bond is

Inversely related to interest rate

Fractional reserve banking means that banks are required to

Keep part of their demand deposits as required reserves

Which of the following is NOT part of M1?

Savings deposits

To eliminate an inflationary gap, the Federal Reserve might

Sell bonds on the open market

Open market operations refer to which of the following activities?

The buying and selling of government securities by the Federal Reserve

"The price for a Spurs ticket to is $500." This statement best illustrates money used as a

Unit of account

When households decide to hold more money

interest rates rise and investment decreases.

The opportunity cost of money, and, as a result, the price of money, is

nominal interest rate

The real interest rate is the true cost of borrowing and is simply stated as

nominal interest rate minus the expected inflation rate

Crowding out refers to the decrease in

private investment due to increased borrowing by the government

Within the loanable funds framework, if the market interest rate exceeds the equilibrium interest rate, then

the volume of loanable funds supplied exceeds the volume of loanable funds demanded and interest rates will tend to fall.

demand pull inflation is most likely to occur when

there is an increase in consumer spending