Macroeconomics unit 4
With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?
Answer chgoice E Interest rate - decrease quantity of money - not change
If aggregate demand is growing faster than long run aggregate supply, the federal reserve is most likely to
Answer choice A increase in the interest rate on reserve balanaces
If an economy is operating with significant unemployment, a decrease in which of the following will most likely cause employment to increase and the interest rate to decrease?
Answer choice A the central bank's administered interest rates
Banks create money when
Answer choice A they make loans
Assume the nominal interest rate on a 15-year fixed-rate mortgage loan is 5 percent. If the expected inflation rate is 2 percent, the expected real interest rate is
Answer choice B
A bank has $800 million in demand deposits and $100 million in reserves. If the reserve requirement is 10 percent, the bank's excess reserves equal
Answer choice B $20 million
Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loan is A) $2,000 B) $8,000 C) $10,000 D) $20,000 E) $50,000
Answer choice B $8,000
The graph above shows two aggregate demand curves. The shift in the aggregate demand curve from ad1 to ad2 could be caused by
Answer choice B A decrease in the money supply
Which of the following would lead to an increase in nominal interest rates?
Answer choice B An expansionary monetary policy accompanied by a decrease in the demand for money
An increase in the price level will most likely cause which of the following?
Answer choice B an increase in the demand for money
Of the following, the most liquid asset is
Answer choice B currency
Nominal interest rates and prices of previously issued bonds will be affected in which of the following ways when money demand exceeds money supply?
Answer choice B nominal interest rates will increase, and bond prices will decrease
which of the following accurately describes the federal funds rate?
Answer choice B the interest rate that banks charge other banks for overnight loans
Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. the legal reserve requirement is 10 percent. if maggie deposits the $100 bill she received as a graduation gift rom her grandmother checking account, the maximum increase in the total money supply will be
Answer choice C $900
Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent, the real interest rate is A) 0.5% B) 2% C) 5% D) 10%
Answer choice C 5%
Assume a country's banking system has limited reserves. in the short run, which of the following would occur to the price of previously issued bonds and interest rates if a central bank bought bonds through open-market operations?
Answer choice C Bond prices- increase interest rates- decrease
In the short run, government deficit spending will most likely
Answer choice C raise nominal interest rates
The purchase of bonds by a central bank will have the greatest effect on real gross domestic product if which of the following situations exists in the economy? A) the banking system has ample reserves, the required reserve ratio is high, and the interest rate has a large effect on investment spending B) the banking system has ample reserves, the requires reserve ratio is high and the interest rate has a small effect on investment spending C) the banking system has limited reserves, the required reserve ratio is low, and the interest rate has a large effect on investment spending D) the banking system has limited reserved, the required reserve ratio is low, and the marginal propensity to consume is low E) the banking system has ample reserves, the marginal propensity to consume is high, and the interest rate has a small effect on investment spending
Answer choice C the banking system has limited reserves, the required reserve ratio is low, and the interest rate has a large effect on investment spending
Which of the following measures the opportunity cost of holding currency?
Answer choice C the forgone interest on alternative assets
Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent?
Answer choice D Bank B can increase its loans by $40
If investors feel that business conditions will deteriorate in the future, the demand for loans and real interest rate in the loanable funds market will change in which of the following ways in the short run?
Answer choice D Demand for loans - decrease Real interest rate - decrease
Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?
Answer choice D people who borrowed funds at the normal interest rate during this time period would lose
Assume that the inflation rate is 10 percent and a bank account effectively yields a real rate of interest of negative 5 percent per year. Would a person be better of keeping money in the bank account or in cash?
Answer choice D the bank account, because the loss is less than it is when holding cash
An increase in investment demand for capital goods accompanied by an increase in household savings will result in which of the following in the market for loanable funds?
Answer choice D the equilibrium quantity of loanable funds will increase, but the impact on the real interest rate is indeterminate
Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess reserves, and that the public holds no currency. If the banking system has limited reserves and hte central bank sells $10,000 worth of government securities to commercial banks, the total money supply will
Answer choice D decrease by $50,000
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?
Answer choice D output-decrease price level-decrease
If businesses become optimistic about the profitability of investments in an economy, which of the folllowing will happen in the loanable funds market in the short run?
Answer choice D the real interest rate will increase
Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does the transaction have on the monetary aggregate measures of M1 and M2?
Answer choice E M1 will not change, M2 will not change
For a country whose banking system has limited reserves, an open-market operation by the country's central bank to reduce the unemployment rate would be to
Answer choice E buy bonds to decrease the interest rate and to increase aggregate demand
Commercial banks can create money by
Answer choice E lending excess reserves to customers
