Economics-Mod. 7 WS2: Money, Monetary Policy
If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.
reduce; lower
The major assets on a bank's balance sheet are it
reserves, loans, and holdings of securities.
Suppose the Fed decreases the money supply. In response households and firms will ________ short term assets and this will drive ________ interest rates
sell; up
The money supply curve is vertical if
the Fed is able to completely determine the money supply
The velocity of money is defined as
the average number of times each dollar is used to purchase goods and services
An increase in the price level causes
the money demand curve to shift to the right
Refer to Figure 15-1. In the figure above, the money demand curve would move from Money demand1 to Money demand2 if
the price level increased
The more excess reserves banks choose to keep,
the smaller the deposit multiplier
Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is
$1,800
Refer to Table 14-1. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of
$3,600
Refer to Table 14-2. Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of
$7,200
If the required reserve ratio is RR, the simple deposit multiplier is defined as
1/RR
According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be
4%
If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is
5
The quantity theory of money predicts that, in the long run, inflation results from the
money supply growing at a faster rate than real GDP
The quantity equation states that the
money supply times the velocity of money equals the price level times real output
The money demand curve has a
negative slope because an increase in the interest rate decreases the quantity of money demanded
Which of the following are goals of monetary policy?
price stability, economic growth, and high employment
Refer to Figure 15-1. In the figure, the money demand curve would move from Money demand1 to Money demand2 if
real GDP increased
Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
decrease
An increase in the money supply will
decrease the interest rate
An increase in interest rates
decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports
The required reserves of a bank equal its ________ the required reserve ratio
deposits multiplied by
In an attempt to bring lenders and borrowers together following the financial crisis of 2008, the Federal Reserve made a large amount of new funds available to financial markets. Any of these new funds that are loaned out by banks would be classified as ________ of the banks
excess reserves
When the price of a financial asset ________ its interest rate will ________.
falls; rise
In an attempt to bring lenders and borrowers together following the financial crisis of 2008, the Federal Reserve made a large amount of new funds available to financial markets. The Fed expected this to increase the money supply and the total amount of lending because of the multiplier effect, in which a given amount of new reserves results in a multiple increase in
bank deposits
Which of the following best describes how banks create money?
Banks create checking account deposits when making loans from excess reserves
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives
Expansionary monetary policy refers to the ________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates
Refer to Figure 15-3. In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will
buy Treasury bills
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDP
Suppose you decide to borrow money from an online peer-to-peer lending site. On the T-account for the lending site for this transaction, the funds from the investor who chooses to fund the loan would be classified as ________, and the loan made to you would be classified as ________.
a liability; an asset
An increase in the interest rate causes
a movement up along the money demand curve
Banks can continue to make loans until their
actual reserves equal their required reserves
A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.
an asset; a liability
Refer to Figure 15-4. In the figure above, a movement from point A to point B would be caused by
an increase in the interest rate.
Refer to Figure 15-2. In the figure above, the movement from point A to point B in the money market would be caused by
an open market sale of Treasury securities by the Federal Reserve
Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency. Using the money demand and money supply model and assuming everything else is held constant, the equilibrium interest rate should
increase
An increase in the interest rate
increases the opportunity cost of holding money
Banks can make additional loans when required reserves are
less than total reserves.