QUIZ 6

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ multiplied by B.

(cr + 1)/ (cr + rr)

According to the quantity theory of money and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase:

5 percent.

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

7 percent

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase:

nominal interest rates.

If the Fed announces that it will raise the money supply in the future but does not change the money supply today,

both the nominal interest rate and the current price level will increase.

To increase the money supply, the Federal Reserve:

buys government bonds.

Demand deposits are funds held in:

checking accounts

The money supply will decrease if the:

currency-deposit ratio increases.

If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level.

decrease; increase

The demand for real money balances is generally assumed to:

increase as real income increases.

When the Fed increases the discount rate, it:

is likely to decrease the monetary base (B).

When people want to hold _____ money, the income velocity of money increases, and the money demand parameter k ______ .

less; decreases

High-powered money is another name for:

monetary base

The real interest rate is equal to the:

nominal interest rate minus the inflation rate.

To reduce the money supply, the Federal Reserve:

sells government bonds