ECON 101 Chapters 13-15 exam (from the DSM assignments)

Which of these factors contributed to the recession of 2007-2009?

The end of the housing bubble

The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________.

required reserves

if real GDP increases, the money demand curve_________

shifts to the right

Who is the chairperson of the Federal Open Market Committee (FOMC)?

the Chairperson of the Board of Governors

When is the opportunity cost of holding money higher?

when interests rates are high

Which of these factors were primary cause of the recession of 2007-2009?

falling housing prices

All of these will most likely increase as a result of expansionary monetary policy except:

government purchases

What is Commodity Money?

monies that have value outside of their use as money (like beaver skins or salt tablets)

The Fed conducts monetary policy primarily through:

open market operations

One of the primary goals of the Federal Reserve is __________.

price level stability

When we say that money serves as a unit of account, we mean that:

prices are quoted in terms of money

The wealth effect refers to the fact that

when the price level falls, the real value of household wealth rises, and so will consumption

Which of these policies affects the economy through intended changes in the money supply?

monetary policy

How many federal reserve districts are there?

12

Assume that banks are always fully loaned and people hold no cash. Given a required reserve ratio of 10%, an infusion of $100 billion in reserves will result in a maximum of:

$1,000 billion in deposits

Suppose that velocity is 3 and the money supply is $500 million. According to the quantity theory of money, nominal output equals:

$1.5 Billion

When was the Federal Reserve System (the Fed) created?

1913

What are the characteristics of money needed in order to be used efficiently?

Acceptability, Standardized Quality, Durability, Valuable, Divisibility

The Federal Reserve System is the __________of the United States

Central Bank

What is M1?

Currency + Checking Account balances + Traveler's Checks

The Taylor rule for federal funds rate targeting does which of these things?

It links the Fed's target for the federal funds rate to economic variables.

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of:

M1

What is M2?

M1 + Savings Account balances + Small Time Deposits + Money Market Mutual Fund Shares

What are the 4 (four) functions of money?

Medium of Exchange, Unit of Account, Store of Value, Standard of Deferred Payment

The Fed has 3 tools to conduct Monetary Policy. They are:

Open Market Operations, Discount Policy, Reserve Requirements

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.

Seven, 14-year terms, President

How did the FOMC react to the recession of 2007-2009?

The FOMC reduced the target for the fed funds rate steadily in 2008.

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committee

Why would the Fed intentionally use contractionary monetary policy to reduce real GDP?

To reduce real GDP in order to reduce inflation, which occurs if real GDP is above potential GDP.

Velocity is defined as

V = (P × Y)/M

When many depositors decide simultaneously to withdraw their money from a bank, there is __________.

a bank run

Monetarism is a school of economic thought that favors:

a monetary growth rule

An unexpected change in the price of oil would be called __________ by economists.

a supply shock

If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct:

an open market sale

Assets?

are anything that are owned and have value

On the balance sheet of a bank, loans are listed as a(n) _____

asset

The money multiplier for the United States is __________.

between 2 and 3

Stagflation

combination of inflation and a recession

Liabilities?

consist of anything that is owed to another party

In the short run, a supply shock as a result of an unexpected decrease in oil prices will:

decrease the price level but increase real GDP

Because of the __________ in forecasting the economy, many economists believe the Fed __________ take a very active role in trying to stabilize the economy.

difficulties; should not

Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:

each additional dollar of reserves creates $5 of deposits

when the money supply grows at a faster rate than real GDP, there will be ______________

inflation

Fiat Money

it has no value other than its use as money

an increase in real GDP does what to the money demand curve?

it shifts it to the right

when interest rates are lowered, what happens to the AD curve?

it shifts to the right

when the price level increases, the money demand curve does what?

it shifts to the right

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.

low; high

a bank panic occurs when

many banks experience runs at the same time

Contractionary Monetary Policy is when the economy is "doing too well," from a production standpoint meaning our short run AS/AD equilibrium is above potential GDP. There will be inflationary effects on the economy. How is Contractionary monetary policy employed?

the Money Supply is decreased which then increases Interest rates and decreases AD which will then lower inflation. the tradeoff is that GDP will fall and Unemployment will rise.

Which of these factors will cause the long-run aggregate supply curve to shift to the right?

the accumulation of more machinery and equipment

in the long-run, the level of output is:

the full-employment level of output

If the FOMC orders the trading desk to sell Treasury securities:

the money supply curve will shift to the left and the equilibrium interest rates will rise.

Higher domestic price level results in:

higher imports

Suppose that the reserve ratio is 25% and that banks loan out all their excess reserves. If a person deposits $100 cash in a bank, checking account balances will increase by a maximum of:

$400

Which of these is not one of the four main goals of monetary policy? Price stability, high employment, stability of financial markets and institutions, economic growth (GDP), home ownership

Home Ownership

Which of these factors will cause the aggregate demand curve to shift?

a change in the expectations of households and firms

which of these factors will shift the short-run-aggregate-supply to the left?

a decrease in the size of the labor force

To increase the money supply, the FOMC directs the trading desk located at the Federal Reserve Bank of New York to:

buy US security treasuries from the public

If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to:

buy US treasury securities

How can government policies shift the demand curve to the right?

by increasing government purchases

If the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in __________.

contractionary monetary policy

what is NOT part of the money supply

credit cards

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.

monetary policy

As interest rates decline, stocks become a __________ attractive investment relative to bonds, and this causes the demand for stocks and their prices to __________.

more; rise

The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:

on the long-run aggregate supply curve

When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed:

provides funds to troubled banks that cannot find any other source of funds.

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the:

quantity theory of money

The aggregate demand and aggregate supply model explains:

short-run fluctuations in real GDP and the price level

The fact that wages and prices may not rapidly adjust to changes in demand or supply is called:

sticky wages and prices

The 1974-1975 recession was a result of a:

supply shock that caused a leftward shift of the short-run aggregate supply curve

Expansionary Monetary Policy is when the economy is "underperforming." This means that GDP is too low and/or decreasing and Unemployment is too high and/or rising. How is Expansionary monetary policy employed?

the Fed increases the Money supply which lowers interest rates which then will increase AD. Increasing AD will increase GDP and lower unemployment. The price level will also increase

the aggregate demand curve shows the relationship between

the price level and quantity of real GDP demanded

the federal funds rate is

the rate at which banks lend to each other

When the interest rate decreases, __________.

there is movement down a stationary money demand curve