Macroeconomic Final

The statement, "My iPhone is worth $300" represents money's function as

a unit of account.

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would 63) cause the inflation rate to be relatively ________ and real GDP to be relatively ________.

higher; higher

In 1980, one Zimbabwean dollar was worth 1.47 U.S. dollars. By the end of 2008, the exchange rate was one U.S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience

hyperinflation

The quantity equation states that the

money supply times the velocity of money equals the price level times real output.

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

open market operations, discount policy, and reserve requirements.

Which of the following are goals of monetary policy?

price stability, economic growth, and high employment

If the Fed's policy is contractionary, it will

use open market operations to sell Treasury bills.

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's required reserves increase by

$2,000.

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

$5,000.

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20% Refer to Scenario 14-2. As a result of Kristy's deposit, checking account deposits in the banking 23) system as a whole (including the original deposit) could eventually increase up to a maximum of

$50,000.

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's excess reserves increase by

$8,000

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20% Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

$8,000.

According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be

15 percent.

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%

If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is

5.

The most liquid measure of money supply is

M1.

Which of the following would cause the money demand curve to shift to the left?

a decrease in real GDP

A major source of inefficiency in barter economies is that they require

a double coincidence of wants in exchange.

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

an asset; a liability

To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could

buy Treasury securities.

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers.

The largest proportion of M1 is made up of

checking account deposits.

Which of the following is not counted in M1?

credit card balances

An increase in interest rates

decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports.

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

By making exchange ________, money allows for ________ and higher ________.

easier; specialization; productivity

Commodity money

has value independent of its use as money.

An increase in the interest rate

increases the opportunity cost of holding money.

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

The money demand curve has a negative slope because

lower interest rates cause households and firms to switch from financial assets to money.

Which of the following assets is most liquid?

money

You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. You have

money = $300, annual income = $6,000, and wealth = $4,300.

The major assets on a bank's balance sheet are its

reserves, loans, and holdings of securities.

To offset the effect of households and firms deciding to hold more of their money in checking account deposits and less in currency, the Federal Reserve could

sell Treasury securities.

The ________ the reserve ratio, the ________ the money multiplier.

smaller; larger

Which of the following functions of money would be violated if inflation were high?

store of value

Hyperinflation can be caused by

the government selling bonds to the central bank.

According to the quantity theory of money, the inflation rate equals

the growth rate of the money supply minus the growth rate of real output

The monetary policy target the Federal Reserve focuses primarily on today is

the interest rate.

An increase in the price level causes

the money demand curve to shift to the right.

Monetary policy refers to the actions the Federal Reserve takes to manage

the money supply and interest rates to pursue its economic objectives.

If the Fed pursues expansionary monetary policy then

the money supply will increase, interest rates will fall and GDP will rise.

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

use open market operations to buy Treasury bills

Silver is an example of a

commodity money.

To decrease the money supply, the Federal Reserve could

conduct an open market sale of Treasury securities.

With a required reserve ratio of 20 percent, an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of

$50,000.

If the required reserve ratio is RR, the simple deposit multiplier is defined as

1/(RR)

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

11 percent.

If the required reserve ratio is 5 percent, then the simple deposit multiplier is

20.

Which of the following is a function that money serves? store of value,unit of account,medium of exchange, or all of the above?

All of the above

Contractionary monetary policy on the part of the Fed results in

a decrease in the money supply, an increase in interest rates, and a decrease in GDP.

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

increase.

An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.

increase; decrease

A decrease in interest rates can ________ the demand for stocks as stocks become relatively 55) ________ attractive investments as compared to bonds.

increase; more

Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. Assets Liabilities Reserves+ $2,000 Deposits + $2,000 As a result of the transaction, the bank can make a maximum loan of

$1,800.

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is

$1,800.

If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an 24) increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

$10,000.

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

$10,000.