unit 4 gov test

If the required reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will be equal to

$120 million

Assume the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited, the maximum amount this bank may increase its loans is...

$8,000

Assume the required reserve ratio is .2. If a bank initially has no Excess Reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may initially increase its loans is

$80,000

Suppose banks have no excess reserves and the reserve requirement is 20%. If Paula deposits $200 she earned for babysitting in the bank, what is the maximum increase in the total money supply?

$800

If, on receiving a checking deposit of $500, a bank's excess reserves increased by $400, the required reserve ratio must be

15%

Assume that the nominal interest rate that a bank charged is 7% and the expected inflation rate was 5%. If the actual inflation rate turned out to be 11%, what is the expected real interest rate and the actual real interest rate?

2% / -4%

Which of the following is the best example of fractional reserve banking?

A bank lends out $5000 of its excess reserves

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

An increase in nominal interest rates

All of the following are true regarding money expect...

Commodity money is used more than fiat money today

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

Deficit spending results in high interest rates that decrease private investment

Which of the following is true regarding the balance sheet of a commercial bank?

Demand deposits are considered a liability

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

Which of the following is an asset for Millikanland Bank?

II, III, and IV only

If the required reserve ratio is 10% and the government sells $2 million in bonds to banks, what will happen to the money supply?

It will decrease by $20 million

Fred Garcia withdraws $1,000 in cash from their savings account. What immediate effect does this have on monetary aggregate measures M1 and M2?

M1 no change, M2 no change

Which of the following is described as consumers holding money rather than bonds because they expect the interest rate to increase in the future?

asset demand for money

The federal funds rate (policy rate) is the interest rate that

banks charge one another for short-term loans

Which of the following is true for bonds but not for stocks

bonds earn interest

The Federal Reserve can increase the money supply by

buying bonds on the open market

Suppose business are fearful that there will be a recession on the near future. Which of the following best describes the impact of this belief on demand for loanable funds and interest rate?

decrease / decrease

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

decrease / decrease / decrease

If the supply for loanable funds increase, what will happen to real interest rates and investment?

decrease / increase

If the supply of money does not change, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

decrease / no change

When an economy is at full employment, an expansionary monetary policy will lead to

higher interest rates and higher prices

Assume that a perfectly competitive financial market for loanable funds is in equilibrium. Which of the following is most likely to occur to the quantity demanded and the quantity supplied of loanable funds if the government puts a cap (ceiling) on the interest rate?

increase / decrease

If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected?

increase / decrease

An open market purchase of bonds by the Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways?

increase / decrease / decrease

If businesses 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 / increase

If required reserves is 10% and that bank receives a new demand (checking account) deposit of $300. Which of the following will most likely occur in the bank's balance sheet?

increase by $300 / increase by $30

To estimate an inflationary (positive) gap, the federal government might

increase personal income taxes

If banks have high levels of reserves, and aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is likely to

increase the interest rate on reserve balances

Banks may not be able to create the maximum amount of money from a new deposit as a result of

individuals holding a larger portion of their assets as cash

If the federal reserve bank institutes a policy to reduce inflation, which of the following is most likely to increase?

interest rates

Which of the following is true regarding the central banks use of open market operations?

interest rates will decrease when the central bank buys bonds

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 federal funds rate (policy rate)?

it is the interest rate that banks charge each other

Fractional reserve banking means that banks are required to

keep part of their demand deposits as reserves

A barter economy is different from a money economy in that a barter economy

lack of partial items creates higher cost for each transaction

If the United States is below full-employment with low inflation, the federal reserve bank is likely to...

lower the discount rate to generate an increase in output

Which of the following is NOT part of M1?

money market accounts

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

putting money into a savings account

Assume the United States has limited reserves in its banking system. To decrease the money supply, the Federal Reserve Bank can do which of the following?

sell government bonds

The Federal Reserve can increase the federal funds rate (policy rate) most effectively by

selling government bonds

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

selling government bonds

Open market operations refer to which of the following activities?

the buying and selling of government securities (bonds) by the Federal Reserve

The federal reserve can change the US money supply by changing...

the discount interest rate

If the federal reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short-run?

the money supply will shift to the right

Which if the following is true for the money market graph

there is an inverse relationship between the nominal interest rate and the quantity of money demanded

A super bowl ticket is worth $500. This statement best illustrates money used as a

unit of account

The price of every item in a supermarket is expressed as the number of dollars needed to buy that item. This describes which function of money

unit of account