Chapter 8 Econ 102

Depository institutions do all the following except?

create required reserve ratios

The monetary base is the sum of?

currency and reserves of depository institutions

In figure above, if the interest rate is 4%, there is a $0.1 trillion excess of?

demand for money and bond prices will fall

When price levels rise, the quantity of nominal money demanded will ... and the quantity of real money demanded will ...?

increase, stay the same

Aside from being a means of payment, the other functions of money are?

medium of exchange, unit of account, and store value

Controlling the quantity of money and interest rates to influence aggregate economic activity is called?

monetary policy

Credit cards are?

not part of money because they represent a loan of money to the user

The table above gives the quantity of money demand schedules. Suppose that the interest rate is equal to 3 percent. The effect of this interest rate in the money market is that?

people sell bonds and the interes rate rises

In the above figure, suppose the economy is at point a. If there is an increase in real GDP, there is a movement to point such as?

point D

According to the quantity theory of money, in the long run, changes in the price level are the result of changes in the?

quantity of money

The fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?

securities decrease by $100 million and reserves increase by $100 million

In the figure above, a decrease in the monetary base would create a change such as a?

shift from the supply of money curve MS1, to the supply of money curve MS0

The larger the public's currency drain from the banking system, the?

smaller is the money multiplier

In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of an increase in the use of credit cards?

the demand for money curve would shift leftward to MD0

The opportunity cost of holding money refers to?

the interest that could have been earned if the money balances had been changed into an interest-bearing asset

Frank spends saturday afternoon at the dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29000. The fact that the price is quoted in dollars is an example of money used as a?

unit of account

Suppose bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20%. How many deposits can Bank A create?

zero, because bank A has no excess reserves

If velocity is 6 and the quantity of money is $2trillion, what is nominal GDP?

$12 trillion

The above table gives the initial balance sheet for mini bank. If the bank's desired reserve ratio is 10%, how much does this bank have in excess reserves?

$60

According to the table above, the value of M1 is ... and the value of M2 is...

$910 billion, $2490 billion

the above table presents the balance sheet of the TBK commercial bank. What is the bank's actual reserve ratio?

20%

When the monetary base increases by $2billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals?

5

In the short run, when the Fed decreases the quantity of money?

Bond prices fall and the interest rate rises

The sale of $1billion of securities to a bank or some other business by the Fed is an example of?

an open market operation

When a bank has excess reserves?

both answers A and B are correct