Econ test 3 10/25
The quantity of loanable funds supplied by ___ is____ related to the real interest rate
savers; positively
Near monies includes
savings deposits
If the Fed wants to raise the federal funds rate, it will ___ bonds which _____ bond prices
sell bonds; lowers
Which of the following lists represents monetary poilcy actions that are consistent with one another
sell gov't bond, raise reserve requirements, rate the discount rate.
Which action i the Fed ost likely to take to curb inflation
sell securites in the open market
The fed Board of Governors consists of ____ members who are appointed by the ___ and confirmed by the _____
seven; president; senate
When a financial insititution accepts funds from savers and pools this money into a portfolio of diversifies financial instruments, It is?
spreading risk
Keynesian theory
states that open market operations and increase in te money supplu lead people to buy bond causing bond prices to rise and interst rates to flal and increase the investment componenmt of aggregate demand
The taylor rule
targets the federal funds rate
Which of the following items is NOT one of the primary tools of the FED?
tax rates
An interest rate that is low only for a short time is called
teaser rate
If bank increase excess reserves to increase their ability to absorb a higher rate of defaults
the actual multiplier will fall
The reasons bond prices and interest rates are inversely related is that
the coupon payment is fixed for the life of a bond
If monetary policies is tight
the dollar will rise
Monetarists and classical economist agree that
the economy is self stabilizing long ru
If the Fed lowers the reserve requirement
the money multiplier will rise
Monetary targeting is setting a steady growth rate in
the money supply
In may 2013 said the central bank had the autonomy to what was needed to tame inflation
tight fall cheaper
When the FED sells bonds it is
tight money policy
Why did the EU central bank take extraodinary actions to prevent member countries from defaulting on their debt
to prevent a loss of confindence in the ero
If you are estimating the amount you plan to spend on a vacation, money is serving as a
unit of account
The actual money mulitplier is
usually smaller than the potential money mulitplier
In the equation of exchange
v=6
If the gov't decrees that bottle tops will be treated as money, then a bottle top:
will not function well as a unit of account
This banks reserve ratio is
.1
If the potential money multiplier is 4 then the reserve requirement is
.25
If the reserve requirement is 2.5% and a bank initially receives 30,000 in deposits from the Fed, the the maximum amount of money that the banking system can create is
1.2 milliion
What is the amount of this banks reserves?
10000
Suppose the ZZZ corporation sells a one year coupon bond for 1000. Its coupon payment is 100 for the year. In this example the yield is ____ percent. If instead the price of the bond is 500 the yield is ____
10;20%
Sumit deposits 1500 cash into his hecking account. The reserve requirement is 25% what is the chnage in his banks excess reserves
1125
Federal Reserve board members serve for ___ years but the chair serves for ___
14; 4
About how many US depository institutions are bound by the Fed reserve requirement?
15,000
How many prices must a customer know in a barter economy that produces exactly 20 goods
190
The federal Reserve system was established in
1913
If the reserve requirement is 10% and a bank initially receives 20,0000 in deposits, then the maximum amount of money that the banking system can create is
200,000
Suppose a bank has 1 mil in deposits a reserve requirement of 10% and the bank reserves of 300,000 the bank has excess reserves of:
200,000
Suppose a bank has 1 mil in deposits, a reserve requirement of 20% and bank reserves of 400,000 the bank has excess reserves of
200,000
If a person borrows 2000 at 5%interest and never makes any payments, how much will the loan balance be after two years
2205
Using the equation of exchange i the money supply is 4 tril and the price level is 2 and the upper level of outot is 6 trillion the velocity of money is
3
Sumit deposits 1500 cash into his checking account. The reserve requirement is 25% what is the hange in his banks required reserves?
375
If the reserve requirement is 25% the potential money multiplier is
4
If the reserve requirement is 2.5 the potential money multiplier is
40
If the reserve requirement is 20% the money multiplier is
5
If the reserve requirement is 18.5% what is the money multiplier
5.4
If this bank is subject a reserve requirement is 5% what is that amount of its excess reserves
5000
If this bank is subject to a reserve requirement of 5% how much more can it loan out if it wants to be fully loaned up
5000
Callie Withdraws 600 from her bank account. If the reserve requirement is 15% by how many dollars must her bank reduce its lending
510
Consider this t- account Your banks reserve ratio is
57.14
Sumit deposits 1500 cash into his checking account. The reserve requirement is 25% How much money can the banking system create
6000
If a person borrow 3000 at an 8% interest and never makes any payments, how much will the loan balance be after 10 years
6476.77
How much is a bond worth if it pay 55$ per year in interest and the market interest rate is 8'%
687.50
If a perpetuity bond has an interest payment of 80 and your required yield is 10% the most you would be willing to pay for the bond is
800
(table) From the Information in the table, M2 for June 2010 was
A 8624.1 bil
Which one of the following is NOT a function of money
A double coincidence of wants
The most important function of money is
A medium of exchange
Market for Loanable Funds 2 If households decide to save a larger portion of their income because they fear job loss due to a recession, the loanale funds supply curve will shift from ___ to _____ and the new equilibrium will be at point holding demand constant at D0
A. S0; S1 b
(Market for loanable funds 2) If business taxes increase, the demans for loanable funds curve will shift from ___ to ___ and the new equilibrium will be at point _____ holding supply constant at S0
A. d1; D0 ; A
The fractional reserve banking system
All of the abov
M2 includes
All of the above
Federal reserve banks are located in all of these cities EXCPET
Augusta
The quantity of loanable funds demanded by _____ is______ related to the real interst rate
Borrowers; negatively
An economist notices that M1 is rapidly rising. One conclusion she might draw is that
Consumers are preparing to make more purchases
Which agency does Not regulate financial markets?
Council of Economic Advisers
M1 is equal to
Currency +demand deposits+ travlers checks+ oter checkable deposits
If abigail withdraws 300 cash from her checking account, then her banks assets:
Fall by 300 and liabilities fall by 300
Suppose a perpetuity bond with a face value of 1000 has a coupon rate of 8% if the market interest rates rise to 12% the price of the bond
Falls to 666.67
Kim recently purchased a perpetual bond for 1000. The bong pays 50 in interest per year. Suppose market interest rates rise to 7% after the purchase the price of the bond falls
Falls to 714
The ___ rate is the rate at which banks charge each other for overnight loans, while the ___ rate is the rate at which regional Federal Reserve banks charge depository institutions for Short Term Loans
Federal Funds; Discount
The ____ oversee the main tool of monetary policy
Federal Open Market Commitee
Which of the following is NOT a financial intermdiary
Federal Reserve Bank
What is the interest rate for moeny borrowed to satisfy daily reserve requirements?
Federal funds rate
Institutions that acquire funds from savers and then lend those funds to borrowers are called
Financial intermediaries
The Fed will increse the money supply by a set percentage every year at a level consistent with long term price stability and economic growth
Friendmans monetary rule
Assume the reserve requirement is 10% If the Federal Open Market Commitee buys a 10,000 bond from bank A Bank A's reserves
Increase by 10,000
Which of the following measures would decrease the money supply?
Increasing the reserve requirement
In September 2013 ...... this wait for accurate data to be collected is known as the
Information lag
The demand curve for loanable funds represents ___ and is ____
Investors; downwards sloping
Jose is putting money for college in a savings account. The bank makes the money availble to business borrowers. in essence
Jose is supplying loanable funds for business investment
All of the following are included in the definition of M2 EXCEPT
Large time deposits
M2 includes all of the following Except
Large-denomination time deposits
m1 is the most ___ of all assets because as a medium of exchange it requires no conversion
Liquid
If the Fed wanted to use all three of its primary tools to increase money supply, It should
Lower the reserve requirement, lower the discount rate, and conduct an open market purchase.
Currently ___ is equal to roughly 2.5 trillion and it is the most liquid part of the money supply
M1
Checking accounts as part of
M1 and M2
For defining money ________ and also includes ____
M2 includes M1 ; near money
The quantity theory of equation
MV=PY
Money used to purchase goods or services is functioning as a
Medium of exchange
Which of the following statements about monetary rules is correct
Monetary rules assumes the economy is inherently stable
____ are near money
Money Market deposit accounts
What occurs during a negative demand shock
Output and price level decrease
The Fed engineered a recession to reduce ut of control inflation under
Paul Volker
Assume that market interest rates are 6% and the bondholders receives a 60$ coupon payment per year on a bond with a face value of 1000. If the market interst rate falls to 4% the bond price
Rises to 1500
If the government offers firms investment tax credits for building new factories, the after tax rate of return ___ causing the loanable funds_____ curve to shift ___ leading to _____ interest rates
Rises; demand; Rightward; lower
The supply curve for loanable funds represent ___ and is _____
Savers; upward sloping
When the Fed wants to decrease the money supply it will
Sell Bonds
The discount rate is the interest rate
The FED charges depository institutions to borrow reserves from a regional FED banks.
Which of the following statements is correct?
The Federal reserve is considered to be an independent central bank
Which of the following is NOT one of the criteria for a commodity to serve as money?
The commodity must be issued as currency or coin
Which of the following statements lists contractionary policies
The fed sells bonds, raises the discount rate, and raises the reserve requirement
As the real interest rate falls
The quantity supplied of loanable funds decreases
The federal Reserve rarely uses control of
The reserve requirement
A deferment on a college loan means that ____ will pay it off
The student, beginning at a later time
Which of the following is NOT true
The supply of funds to the loadable funds market is inversely related to the interest rate
Serving as a ____ is a function of money that gives us a yardstick by which we can measure and compare the values of a wide variety of goods and services.
Unit of account
What are the primary functions of money?
Unit of account, medium of exchange, store of value
In which city is the Federal Reserves Board of Governors
Washington DC
Starting at the equiulibrium
a
There are two ways for money to be initially deposited into the banking system. They include
a cash deposit by a bank customer and an electronic reserve deposit by the government
Successful barter in a primitive economy necessitates
a double coincidence of wants
Which is NOT one of the three basic functions of money?
a means to collect tazes
Another term for a unit of account is
a measure of value
_____ keeps the growth of money stocks, such M1 and M2 on a steady path, following the equation of exchanege
a monetary rule
Which is an example of money being used as a unit of account
a resturants profits for the week of October 3rd to October 10 are $1250
One of the key factors leading to the last economis crisis was
a worldwide savings glut
The feds monetary policies, like fiscal policy are subject to ____ lags
all of the above implementation, decision, information
Monetary policy is LEAST effective in reversing
an adversesupplu shock
Which one of the following will cause the demand for loanable funds curve to shift leftward
an end to a program that provides investment tax credits
Which one of the following will cause the supply of loanable funds curve to shift leftwards
an increase in the gov't deficit
According to the Taylor Rule, the two most important factors influencing the Federal Reserves changing the federal funds rate are
an inflation rate different from the Fd target and output different from potential GDP
M1 includes:
banknotes and coins
The direct exchange of goods and services is called
barter
The use of money as a medium of exchange helps reduce the inefficiencies inherent in
barter
Financial intermediaries match:
borrowers with savers
If the economy is a short run equil. point b
c further increase, increase
Which of the economists believe that changes in the money supply lead only to price changes
classical economics
The most common type of short term debt is
credit card debt
Starting at the equilibrium
d
equilbrium point b
d
If a person borrows 3000 at 8 percent interst and never makes any payments, how much will the loan balance be after three years
d.3779.14
Tighter lending standards tend to ____ the money multiplier, making it ___ for the Fed to use its tool effectively?
decrease; harder
Financial Institutions greatly increas the flow of funds to the economy by
decreasing information costs
Which of the following assets is the MOST liquid
demand deposits
an inrease in the intrest rate causes the aggregat _____ curve to shift to ____
demand; leftward
If the real interest rate were below the equilibrium real interest rate in the loanable funds market, an excess _____ for loanable funds would exist and the real interest rate would ____
demand;rise
If the spread of ATMS made it more likely for people to hold their money in banks, the potential money multiplier probably ___ and the actual money multiplier probably, ceteris paribus
did not change; rose
During the last financial crisis the fed was criticized for overstepping its authority and excercising powers it had not been granted. Which was not one of the auses of the critisims
didnt explain why it was taking certain actions
Fiat Money
does not necessarily have any intrinsic value but has declared by a gov't to be money
The twin goals of monetary policy ar
economic growth with low unemployment and stable prices with moderate long term interst rates
An individual bank can, at most lend out all of its
excess reserves
When the Federal Reserve increase excess reserves to reduce interest rates and stimulatins spending it is said to engage in
expansionary monetary policy
When interest rates ____ exports ____
fall rise
When the value of the dollar exports ___ and imports _____
fall rise
During the 2007-2009 recession, the money multiplier
fell less than 1
Which of the following is Not a policy tool of the Federal Reserve
fiscal policy
The idea that banks hold only a portion of deposits and lend the rest out is called the
fractional reserve banking system
Open Market Operations involve the purchase and sale of
gov't securities
If the reserve requirement is 20% then a 1$ decrease in deposits means that the money suppy
has the potential to decrease by 5$
If the reserve requirement is 10% than a 6000 decrease in deposits means that the money supply
has the potential to decrease by 60,0000
If the reserve requirement is 25% then a 500 increase in depoits means that the money supply
has the potential to increase by 2000
If the reserve requirement is 25% then a 1$ increase in deposits means that the money supply
has the potential to increase by 4$
According to the Taylor rule, the higher the inflation rate, other things equal the
highr the Federal funds target rate
The fractional reserve banking system refers to a system in which banks
hold reserves equal to a fraction of their deposit liabiities
The existence of a liquidity trap implies that an
increase in the money supply leads to inflation
When current real output exceeds potential real output, the FED will ___ interst rates iin an effore to fight
increase; inflation
Monetary policy involves all of the following except
increases in personal taxes
a lower reserve requirement is
increases the ability of banks to make loan
Assume the reserve requirement is 20% and the Federal Open Market Comittee buys a 10,000 bond. The impact on the banking system is an
injection of 10,000 in new reserves
The fed announced in Sept. 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases
interest rates will rise
The reward for saving is called ______ and this variable is placed on the ____ axis of the loanable funds market graph
interest; vertical
The Federal Open Market Commitee
is composed of the Board of Governors and five other regional Reserve Bank presidents
To say that the FED is transparent means that he FED
is open regarding its monetary policy
If a bank has assets of 5bil and liabilities of 4.8 bil
its equity equals 200 mil
The national economic objectives that the Fed attempts to achieve include all the following actions EXCEPT
keeping tax rates low
Which economists believe that fiscal policy is effective, while monetary policy may be ineffective
keynesians
In the long run, when the economy is at ful employment, any chnage in the money supply
leads to a change i nprices
The financial panic and credit freeze in the late 2008 pointed to the Feds important role as a
lender of last resort
Bonds are considered to be ___ than stocks because _____
less risky; bondholders are less affected by a firms bankruptcy
When the interst rate falls, american bonds become ___ attractive to forein investors often leading to __ in the value the US dollar in forign echange markets
less' decrese
Some analysts blame the last economic crisis on FED policy they argue that
low interst rates encourage excessive mortgage borrowing, leading to the housing bubble
Which of the following measures did the European Central Bank take to prevent the financial crisis on individual countrie from collapsing the EURO
making loans to troubled countries
Money is considered a ____ because it is general accepted as payment for goods and services
medium of exchange
If the fed sets a fixed rate for moeney supply growth it is usin
monetary targeting
Which of the following assets is MOST liquid
money
Suppose the economy is in full employment equilibrium. The a positive supply shock, cause by a fall in oil prces, hits the economy. A contracionary monetary policy will
move rhe ecoomy back to full employment but a much liwer price
If a bank is subject to a reserve requirement of 10% and if its reserve ratio is 33% the all of the following are true Except that is
must limit withdrawls
Savings deposits are
not part of M1 but are part of M2
Roth Indivisual Retirement Accounts are tazex
only when you make contributions
The federal Open Market Committee is responsible for
overseeing the buying and selling of gov't securities in the open market
Financial institutions
reduce information costs, reduce transaction costs, and diversify assets
When a financial institution provides a standardized financial product such as a mortgage, It is
reducing transaction costs
a policy of transparency in the Federal reserve
requires the federal reserve to explain why it acted or chose not to at in certain situations
The formula for calculating the reserve ratio is
reserves divided by total deposits
a monetary rule would make it difficult to
resond to unforeen events
If the FED is buying bonds, then it wants bond prices to ___ and the federal funds rate to
rise; fall