unit 4 test

Assume the required reserve ratio is 0.2. 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 required reserve must be

20%

Under which of the following conditions would a restrictive monetary policy be most appropriate?

A. high inflation

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

The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when

C. people hold a portion of their money in the form of currency.

Suppose that the economy has entered a recession. Which of the following is a monetary policy action a central bank can take to restore full-employment output?

Decreasing the discount rate

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

Demand for loanable funds will decrease and interest rate will decrease

The Federal Reserve can change the U.S. money supply by changing

Discount rate

Cash, a house, bonds, and a savings account are all financial assets. Which of the following rankings lists these assets from the least liquid to the most liquid?

House, bonds, savings account, cash

Which of the following is an asset for the ACDC Bank?

II (Certificates of Deposits issued to ACDC's customers), III (Vault cash), and IV (Money that ACDC has deposited with the Federal Reserve) only

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 rates

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

Interest rates increases and 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 describes the relationship between the nominal interest rate and the quantity of money people want to hold as depicted by the money demand curve?

Inverse, and the money demand curve is downward sloping.

Which of the following is true about the loanable funds market?

Investment is financed by national savings in a closed economy.

Fractional reserve banking means that banks are required to

Keep part of their demand deposits as reserves

Which of the following transactions will keep M1 unchanged?

Leila deposited coins from her piggy bank into her checking account.

If the 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?

Liabilities increase by $300 and required reserves increase by $30

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

Lower interest rates and more investment

Mia transferred $1,000 from her checking account to her savings account. How will M1 and M2 measures of the money supply change

M1 will decrease and M2 will not change.

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 will increase, interest rate will decrease, and unemployment rate will decrease

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

Putting money into a savings account

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 the loanable funds if the government puts a cap (ceiling) on the interest rate?

Quantity demanded will increase and quantity supplied will decrease

Which of the following is adjusted by the actual inflation rate?

Real interest rates

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

Real interest rates will decrease and investment will increase

Which of the following is NOT part of M1?

Savings deposits

To eliminate an inflationary gap, the Federal Reserve might

Sell bonds on the open market

Spencer took a 9 percent one-year fixed-rate loan to buy a new car. He expected to pay a real interest rate of 5 percent. If at the end of the year Spencer only paid a 3 percent real interest rate, which of the following is true?

The actual inflation rate was 6%

Open market operations refer to which of the following activities?

The buying and selling of government securities by the Federal Reserve

Southern City Bank has $100 million in deposits and has $8 million in excess reserves. If the required reserve ratio is 5%, which of the folowing is rue>\?

The money multiplier is 20, and loans can increase in the banking system by a maximum of $160 million.

Northern City Bank keeps no excess reserves. Assume Northern City Bank receives a deposit of $50 million dollars. As a result of the deposit, Northern City Bank's required reserves increase by $10 million. What is the maximum possible change in the money supply in the banking system that could result from the $50 million deposit?

The money supply will increase by a maximum of $200 million.

An increase in the price level will affect the money market and bond market in which of the following ways?

The nominal interest rate rises, and the price of previously issued bonds falls.

The loanable funds market is currently in equilibrium at a real interest rate of r1, An increase in household savings will affect the loanable funds market in which of the following ways?

The supply of loanable funds will increase and the real interest rate will decrease.

Which of 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

Country X's economy is enjoying political stability and attracting foreign financial capital. At the same time Country X's government is borrowing to finance spending. How will these changes affect the loanable funds market in Country X?

There will be an indeterminate effect on the equilibrium real interest rate.

A country's central bank purchased government bonds from the public in the open market. How would this action affect the nominal interest rate and the price level in the short run?

There would be a decrease in the nominal interest rate and an increase in the price level.

"The price of a ticket to the Super Bowl is $500." This statement best illustrates money used as a

Unit of account

in the narrowest definition of money, M1, savings accounts are excluded because they are

not a medium of exchange