macroeconomics test 4

If the reserve requirement is 10% and a bank initially receives $20,000 in deposits, what is the potential amount of loans?

$200,000

A customer makes a deposit of $1,500. The reserve ratio is 25%. What is the amount in required reserves?

$375

New deposits of $1 billion are placed in a bank. The reserve requirement is 20%. How much does the money supply increase, assuming no leakages?

$5 billion

In May 20xx the U.S. dollar was worth 1.50 Canadian dollar. How many U.S. dollars did it take to buy one Canadian dollar?

.667

if nominal GDP is $3,200 billion and M1 is $800 billion, then velocity is

4

A reserve requirement of 20 percent means a money multiplier of

5

A stronger euro is less favorable for:

American tourists traveling in France.

in a recession, appropriate monetary policy would tend to be for the fed to ___ bonds to ____ AD

Buy; increase

the equation of exchange can be written as

M x V = P x Q

The most commonly traded currency in foreign exchange markets is the:

U.S. dollar

According to the simple quantity of money, a change in the money supply of 6.5 percent would, holding velocity constant, lead to

a 6.5 percent change in nominal GDP

money principal role is to serve as

a medium of exchange

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

a self- fulfilling prophecy

which of the following is considered to be a relatively weak tool of monetary policy

altering the discount rate

example of a group not participating in foreign exchange markets:

an Iowa travel firm that arranges vacation tours for loan; seniors to Hawaii

Which of the following denotes a common misunderstanding about exchange rates?

an appreciating currency must be better than a depreciating currency

What would lead to a demand for euros?

anyone wanting to purchase a German good

The direct exchange of goods and services is called

barter

If the required reserve ratio were increased, then

both the money supply and the outstanding loans of banks would tend to decrease.

if the fed wishes to expand the money supply, it

buys government bonds

What is the most liquid asset?

cash

the central bank _______ monetary policy to offset business related economic contractions and expansions

countercyclical

Which list ranks assets from most liquid to least liquid?

currency, stocks, fine art

contractionary monetary policy will tend to have what effect?

decrease the money supply and increase interest rates

A decrease in foreign demand for U.S. exports will ______ the demand for U.S. dollars and cause the U.S. dollar to _____ in value.

decrease; depreciate

Which of the following financial assets is included in M2?

demand deposits and other checkable deposits

Required reserves of a bank are a specific percentage of their

deposits

what term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks

discount rate

Under a system of flexible exchange rates, an increase in the foreign demand for the U.S. dollar in the foreign exchange market will cause the:

dollar to appeciate

The _____ is an example of a large-scale common currency.

euro

A central must be concerned about whether a large and unexpected _________ will drive most of the country's existing banks into bankruptcy.

exchange rate depreciation

If a central bank focus on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then:

exchange rates will have less reason to vary

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

exports; imports

The Fed selling government bonds will tend to cause a multiple expansion of bank deposits.

false

an expansionary policy can be thought of as an increase in the money supply or an increase in the interest rate

false

an increase in the money supply raises the equilibrium nominal interest rate

false

People or firms use one currency to purchase another currency at the _______________________.

foreign exchange market

an increase in demand deposits combined with an equal decrease in currency in circulation would

have no direct effect on M1 or M2

Liquidity refers to

how quickly, easily, and reliably an asset can be converted into a medium of exchange

aReducing reserve requirements, other things being equal, would tend to

increase dollar volume of loans made by banking system, increase money supply, and increase aggregate demand

To offset an inflationary boom, appropriate Fed policy could be to ____ reserve requirements to ____ AD.

increase; decrease

The money multiplier:

measures the maximum amount the money supply can increase when new deposits enter the banking system

When money is used to purchase goods or services, money is functioning as a

medium of exchange

an example of a "near money" would be

money market deposit accounts

Fiat money is:

money that does not necessarily have any intrinsic value but has been declared by government to be money

________ equalizes the prices of internationally traded goods across countries.

purchasing power parity

If a reduction in the money supply were desired in order to slow inflation, the Federal Reserve might

raise the discount rate

when the fed purchases government bonds from a commercial bank, the bank

receives reserves that can be used to make additional loans

The most important role of the federal reserve system is

regulating the supply of money

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

the Canadian dollar appreciated against U.S. dollar

The Canadian dollar will most likely strengthen against the U.S. dollar if:

the Canadian inflation rate becomes extremely low

*Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank.

the M1 went down by $5,000 but the M2 was unchanged

If a nation merges its currency with another nation to create a single currency, what must it give up?

the ability to determine its own nationally oriented monetary policy

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

the dollar depreciated against the yen

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:

the dollar strengthened against the peso

Liquidity is defined as

the ease with which an asset can be converted into cash

if the fed lowers the discount rate, what will be the effect one the money supply?

the money supply will tend to increase

Which of the following federal reserve actions would most likely help counteract an oncoming recession

the purchase of government bonds and a reduction in the discount rate

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with ________.

the tools of demand and supply

M1 includes currency plus:

traveler's checks and demand deposits

The central bank typically serves as the major bank for the central government.

true

The federal open market committee makes most of the key decisions influencing the direction and size of changes in the money supply.

true

if the fed buys bonds in an open market operation, and the seller deposits the payment in her bank account, the money supply will increase and lead to an increase in the banks reserves.

true

if the money supply increases and the velocity of money does not change, the result will be higher prices (inflation), greater real output of goods and services, or a combination of both.

true

if velocity changes but moves in fairly predictable pattern, the connection between money supply and GDP is still fairly predictable

true

the cause of hyperinflation is excessive money growth

true

velocity = nominal GDP divided by the money supply.

true

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

unit of account

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

weakening; less

What would lead to an increase in the money supply?

your bank gives you a $10,000 loan by adding $10,000 to your checking account