quiz 8

A nominal GDP rule says _____ should always grow at a constant rate. Mv YR P M

Mv

The Federal Reserve can influence the economy by shifting: the SRAS curve. the LRAS curve. the AD curve. the AD, SRAS, and LRAS curves.

The AD curve

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will: decrease by $400. increase by $1,000. decrease by $1,000. increase by $400.

increase by 1000

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising: Solow growth. unemployment. output growth. inflation.

inflation

What is the overnight lending rate from one bank to another? the money market rate the Federal Reserve rate the Federal Funds rate the money multiplier rate

the federal funds rate

One of the Fed's greatest powers is its ability to: help stabilize commodity prices. always keep a nation on its LRAS curve. perfectly control the supply of M1 and M2. boost market confidence.

boost market confidence

The main difference between M1 and M2 is that: a M1 includes more liquid assets in addition to the assets in M2. b M1 includes some less liquid assets in addition to the assets in M2. c M2 includes some less liquid assets in addition to the assets in M1. d M2 includes more liquid assets in addition to the assets in M1.

M2 includes some less liquid assets in addition to the assets in M1.

What is a reason it might be hard for the Fed to restore aggregate demand in the face of a negative demand shock? The economy responds to the Fed's actions with no lag. The Fed must operate in real time, when a lot of the data about the state of the economy are unknown. Banks usually don't do what the Fed demands of them. The Fed might run out of money.

The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

In the long run, a negative real shock will cause output growth to: remain unchanged. become more difficult to predict. increase. decrease.

decrease

What monetary policy philosophy is against tying the hands of the central bank? prudence discretion rules inclination

discretion

If the total liabilities of Bank A are less than its total assets but its short-term liabilities are greater than its short-term assets, Bank A is: both illiquid and insolvent. liquid, but insolvent. illiquid, but solvent. both liquid and solvent.

illiquid, but solvent

In the long run, a negative real shock will cause the inflation rate to: become more difficult to predict. increase. decrease. remain unchanged.

increase

Some economists argue that the Fed should commit to keeping M + V fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock? increase M ; do nothing increase M ; increase M increase M ; decrease M decrease M ; increase M

increase M ; do nothing

To offset the effect of negative growth in money velocity, the central bank should: a apply a policy that reduces the growth in money velocity. b decrease the growth rate of the money supply. c apply a policy that stabilizes the growth in money velocity. d increase the growth rate of the money supply.

increase the growth rate of the money supply.

In the absence of monetary intervention following a negative shock to aggregate demand: a inflation and real growth will decrease, but nominal wage growth will stay the same. b inflation, real growth, and nominal wage growth will all decrease. c inflation will decrease, but real growth and nominal wage growth will increase. d inflation will increase, real growth will decrease, and nominal wage growth will stay the same.

inflation, real growth, and nominal wage growth will all decrease.

The risk that the failure of one financial institution can lead to the failure of other financial institutions is called: liquidity risk. systemic risk. moral hazard. solvency risk.

systematic risk

If the reserve ratio is 4%, the money multiplier is: 20. 16. 25. 4.

25

Which asset would you classify as being most liquid? small-time deposits gold bullion demand deposits a home

Demand deposits

Which is an example of quantitative easing by the Federal Reserve? The Fed lowers interest rates. The Fed purchases $50,000 worth of long-term government bonds. The Fed raises the money multiplier. The Fed purchases $100,000 worth of short-term government bonds.

The Fed purchases $50,000 worth of long-term government bonds.

To increase the money supply in the economy, the Fed would: increase the discount rate. carry out open market sales. carry out open market sales and/or raise the reserve ratio. carry out open market purchases and/or lower the discount rate.

carry out open market purchases and/or lower the discount rate.

To reduce the money supply in the economy, the Fed would: carry out open market sales and/or lower the discount rate. carry out open market purchases and/or lower the discount rate. increase the discount rate. carry out open market purchases.

increase the discount rate

The Federal Reserve's major tool(s) to control the money supply is(are): a paying interest on reserves. b open market operations, discount rate lending, and paying interest on reserves. c discount rate lending. d open market operations.

open money operations, discount rate lending, and paying interest on reserves