Unit 4

Suppose that all banks hold no excess reserves and the reserve requirement is 20%. If Paul the deposit $200 she earn from babysitting in the bank, is a maximum increase in the total money supply

$800

A contractionary monetary policy will have what affect on aggregate demand price level and real output

Aggregate demand decreases price level decreases and real output decreases

A decrease in the supply of money will cause which of the following

And increase and nominal interest rate

If a country is experiencing a recessionary gap which of the following fiscal and monetary policy , combinations would be most likely to move the nation closer the full employment what the minimum change the interest rate

And increase in government spending and the purchase of bonds on the open market

Federal Reserve can increase the money supply by

Buying bonds on the open market

When the US federal reserve engages in open market operations it is

Buying or selling government securities

Assuming the country is experiencing a recessionary gap which of the following actions would the central bank most likely engage in

By bonds and open market operations and decreased the discount rate

All of the following are true regarding money except

Commodity money is use more than fiat money

Which of the following is the best example of the crowding out effect

Deficit spending results and high interest rates and decreases private investment

assume the government decreases its deficit spending what is the likely result in the money market

Demand for money decreases and nominal interest rate to decrease

The Federal Reserve can change the US money supply by changing

Discount rate

If a country is experiencing a significant recessionary gap which of the following combinations of fiscal and monetary policies would be most likely to move the nation toward long run equilibrium

Fiscal policy would be to increase government spending and monetary policy would be to buy government securities in the open market

Which of the following best explains why the money demand curve is downward sloping

Higher interest rates encourage people to exchange money for other interest-bearing assets

If business is predict that the economy will improve and sales will increase in the future which of the following will occur in the loanable funds market

Increase demand for loans increased real interest-rate

If an economy experiences an increase in net capital inflows by a foriegn investor which of the following will be the resulting change in the market for loanable funds and the real interest rate

Increase in demand for loanable funds and decrease in real interest rate

The opportunity cost of holding money in the form of cash increases when

Interest rate increase

If the Federal Reserve raise the discount rate how are interest rates and the real GDP affected

Interest rates increase in real GDP decreases

Which of the following will most likely occur in an economy if more money is demanded than is supplied

Interest rates will increase

Which of the following is true regarding the central bank's use of open market operations

Interest rates would decrease with the central bank buys bonds

Which of the following is true regarding the federal funds rate

Is the interest rate that banks charge each other

The required reserve ratio is 10% and the central bank sells $2 million in bonds to banks. if banks loan out all their excess reserves and there is no leakage what will happen to the money supply

It will decreased by 20 million

Fractional reserve banking mean that banks are required to

Keep part of the demand deposits as reserves

Which of the following policy combinations with foster long run growth of an economy without increasing the price level

Monetary policy would be to sell bonds and fiscal policy would be to decrease government spending

If the reserve requirement increases from 5% to 10% and assuming the general public hold the portion of its money in cash what will happen to the money multiplier and the money supply

Money multiplier decrease and the money supply would decrease by less than half

Which of the following assets would be characterized as having the most liquidity

Paper currency

If you use money as a store of value you you would be

Putting money into a savings account

Assume that there is no anticipated inflation and that wages and prices are flexible what will happen too short run real gross domestic product and the price level in the long run if the Federal Reserve purchases government securities in the open market

Real GDP has no change in price level increases

The shifters of money supply are

Reserve ratio, discount rate, and open market operations

Which of the following is not part of M1

Savings deposits

Which of the following is an appropriate monetary policy used by a central bank to reduce inflation

Selling government securities

The price for a ticket to the Super Bowl is $500 this statement best illustrates money is used as a

Store a value

Which of the following combined policies is most effective in decreasing unemployment

Taxes: decrease discount rate: decreases reserve requirement: decrease

A rightward shift in the aggregate demand curve can most likely be caused by which of the following

The purchase of government securities buy the central bank

Assets: Loans equal 5000 reserves equal 3000 treasury bond equal 2000. liabilities: demand deposit equal 10,000. Assume the bank with above balance sheet hold 1000 in excess reserves which of the following is true of

The reserve requirement is 20%

The term fractional reserve banking refers to which of the following

When bangs holder portion of deposits and loan out excess reserves