Unit 4 Macroeconomics Study Guide
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 increase its loans is
$80,000
If on receiving a checking deposit of $500 a bank's excess reserves increased by $400, the require reserve must be:
20%
The federal funds rate is the interest rate that
Banks charge one another for short-term loans
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 Demand for Loanable Funds, Decrease Interest Rate
If the supply for loanable funds increases, what will happen to real interest rates and investment?
Decrease Interest Rate, Increase Investment
The Federal Reserve can change the US money supply by changing
Discount Rate
Which of the following is an asset for the ACDC Bank? I. Demand deposits II. Certificates of Deposits issued to ACDC's customers III. Vault cash IV. Money that ACDC has deposited with the Federal Reserve
II, III, and IV only
If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected?
Increase Interest Rates, Decrease Real GDP
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 Quantity Demanded, Decrease Quantity Supplied
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 Fed institutes a policy to reduce inflation, which of the following is most likely to increase?
Interest Rate
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
Interest rates will increase
Fractional reserve banking means that banks are required to
Keep part of their demanded deposits as reserves
If required reserves is 10% and that bank receives a new demand deposit of $300. Which of the following will most likely occur in the bank's balance sheet?
Liabilites will Increase by $300, Required Reserves will Increase by $30
When an economy is at full employmnet, an expansionary monetary policy will lead to
Lower interest rates and more investment
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?
Money Supply Increase, Interest Rate Decrease, Unemployment Rate Decrease
If you use money as a store of value, you would be
Putting money into a savings account
Which of the following is NOT part of M1?
Saving deposits
To eliminate an inflationary gap, the Federal Reserve might
Sell bonds on the open market
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for what purposes?
Speculation
Open market operations refer to which of the following activities?
The buying and selling of government securities by the Federal Reserve
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
If the Federal Reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short-run?
There will be a movement to the left along a short-run Phillips Curve
The price for a ticket to the Super Bowl is $500. This statement best illustrates money used as a
Unit of account
When government spending cause an increase in real interest rates, gross private domestic investment
Will experience crowding out