EXAM

Summit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How much of this amount can his bank make in new loans?

$1,125

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

an increase in the government deficit

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price:

falls to $875

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

financial intermedaries

Which of the following is NOT a policy tool of the Federal Reserve?

fiscal policy

In counteracting a negative supply shock, the Fed could achieve _______ by using _____ monetary policy.

full employment but not price stability; expansionary

If a bank's reserve requirement is 10% an initial injection of $2,000 would increase the overall money supply by up to:

$20,000

Assume that the reserve requirement is 20%. A bank has $20 billion in demand deposits. How much money does the bank have to keep in required reserves?

$4 billion

If the reserve requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of:

$4,000

Perry deposits $10,000 in his bank account. If the reserve requirement is 15%, how much of this amount can his bank make in new loans?

$8,500

If the reserve requirement is 1%, what is the money multiplier?

100

If the reserve requirement is 5%, what is the money multiplier?

20

Using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and the level of output (real GDP) is $6 trillion, then the velocity of money is ________.

3

What is likely to happen if the government runs a budget surplus?

Additional loanable funds are provided to the market, leading to lower interest rates

If the Federal Reserve wants to increase the money supply, it should raise the reserve requirment.

False

Checking accounts are counted as part of:

M1 and M2

The Fed will engage in expansionary monetary policy during times of economic downturn.

True

What are the primary functions of money?

Unit of account, medium of exchange, store of value

Which of the following is the LEAST liquid?

a Picasso painting

Which of these will cause the demand for loanable funds curve to shift leftward?

an end to a program that provides investment tax credits

Which of the following is considered a supply shock?

an increase in input costs

Which is NOT a way financial institutions reduce risk?

by guaranteeing a high rate of return for all lenders

Banks:

create money by making loans using the deposits of their customers

Thelma grew some carrots in her garden. She needs a winter coat. John has an extra coat he doesn't need but would like to bake some carrot cake. The two find each other and make an exchange. This situation is called the:

double coincidence of wants

In times of economic downturn the Fed will engage in____ monetary policy by_____ bonds.

expansionary; buying

When current real output exceeds potential real output, the Fed will ______ interest rates in an effort to fight ________.

increase; inflation

The demand curve for loanable funds represent_____ and is_____.

investors (firms); downward sloping

The main tool of monetary policy is:

open market operations

Monetarists believe that in the short run a change in the money supply can affect _______________, while in the long run, a change in the money supply will affect ________________.

output and the price level; the price level only (I think)

Negative demand shocks to the economy can come from:

reductions in consumer demand

If the government offers an incentive for individuals to save, the supply for loanable funds will shift to the______and the real interest rate will_______.

right; decrease

Suppose the economy enters a recession and income falls more than the demand for loanable funds. In this case, the supply of loanable funds shifts ________ and the equilibrium interest rate _______.

right; falls (I think)

'Ceteris paribus', suppose an economy institutes reforms that reduce government regulations. In this case the demand for loanable funds shifts_____ and the equilibrium interest rate____.

right; rises

The supply curve for loanable funds represents ______ and is _______.

savers; upward sloping

When the Fed wants to decrease the money supply, it will:

sell bonds

Suppose the government implements a policy reducing the rewards earned by savers. In this case the_____ loanable funds shifts______.

supply of; left

The central bank of the United States is:

the Federal Reserve System

If there is a general rise in fear of the financial system:

the actual money multiplier will fall

When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that:

the economy tends to full employment in the long run

The actual money multiplier is:

usually smaller than the potential money multiplier