Macro Final Ch.14-20
Assume a simplified banking system in which all banks are subject to uniform required reserve ratio of 30% and checkable deposits are the only form of money. A bank receives new loans up to the maximum of
$7,000
Which of the following is correctly the money multiplier?
1/(the required reserve ratio)
If a bank has total deposits of $100,000 with $10,000 set aside to meet reserve requirements of the Fed, its required reserve ratio is
10%
If an increase of $100 in excess reserves in a simplified banking system can lead to a total expansion in bank deposits of $400, the required reserve ratio must be
25%
If the nominal GDP is $7 trillion, and the money supply is $2 trillion, then what is the velocity of money?
3.5.
If total deposits at Last Bank and Trust are $100 million, total loans are $70 million, and excess reserves are $20 million, then which of the following is the required reserve ratio?
30%
Which of the following defines the "unit of account" function of money?
A common measurement of the relative value of different goods and services
Keynes gave which of the following as a motive for people holding money?
All of the answers above are correct (transactions demand, speculative demand, precautionary demand)
Which of the following is not an issue in the Keynesian-monetarist debate?
All of the issues above are part of the debate (the importance of monetary vs fiscal policy, the importance of a change in the money supply, the importance of a crowding-out effect)
The V in the equation of exchange represents the
Average number of times per year a dollar is spent on final goods and services
Which of the following correctly describes fractional reserve banking?
Banks can loan out all but a fraction of its own money, but must hold all money deposited at the bank on reserve in bank values
If the Fed reduces the discount rate, which of the following are most likely to result?
Both answers a and c above are correct (The money supply curve shifts rightward, and the equilibrium interest rate falls in the money market + Investment spending rises, causing the aggregate demand curve to shift rightward, increasing equilibrium real GDP and thus accelerating the economy)
Suppose the Fed makes a $100 billion open market sale of Treasury bonds, and the money multiplier is 6. Which of the following impacts are most likely to result?
Both answers a, and c are correct ( The money supply shifts inward, and the equilibrium interest rate rises in the money market + investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy)
If the Fed decides to engage in an open market operation to increase the money supply, what will it do?
Buy Treasury bonds, bills, or notes on the bond market
Which of the following is not part of M1?
Coins
Which of these institutions has the responsibility for controlling the money supply?
Commercial checks
Which of the following is not one of the functions of the Federal Reserve?
Controlling the money supply
Which of the following is not part of the Federal Reserve System?
Council of Economic Advisors
Which of the following is part of the M2 definition of the money supply, but not part of the M1?
Currency in circulation
In a simplified banking system in which all banks are subject to a 25% required reserve ratio, a $1,000 open sale by the Fed would cause the money supply to
Decrease by $4,000
The cost to a member bank of borrowing from the Federal Reserve is measured by the
Discount rate
A decrease in the interest rate, other things being equal, causes a (an)
Downward movement along the demand curve for money
Assume the demand for money curve is fixed an the Fed decreases the money supply. The result is a temporary
Excess quantity of money demanded
The Best National Bank operates with a 10% required reserve ratio. One day a depositor withdraws $400 from his or her checking account at the bank. As a result, the bank's excess reserves
Fall by $360
The major protection against sudden mass attempts to withdraw cash from banks is the
Federal Reserve
The M1 definition of the money supply consists of
Federal Reserve notes and bank loans
In a simplified banking system in which all banks are subject to a 20% required reserve ratio, a $1,000 open market purchase by the Fed would cause the money supply to
Increase by $5,000
Assume the demand for money curve is stationary and the Fed increases the money supply. The result is that people
Increase the demand for bonds, thus driving down the interest rate
The Monetarist transmission mechanism through which monetary policy affects the price level, real GDP, and employment depends on the
Indirect impact of changes in the money supply on aggregate demand
Which of the following is a problem with barter?
Individuals' wants must coincide in order for there to be exchange
Keynesians reject the influence of monetary policy on the economy. One argument supporting this Keynesian view is that the
Investment demand curve is nearly vertical
Which of the following is not a relative characteristic of money?
It is always backed by something of high intrinsic value such as gold or silver
___________ plus ______________ plus ________________ equals ____________
Loans, required reserves, excess reserves, total deposits
Assume the economy is in a recession, classical economists predict that
Lower wages will shift the short-run aggregate supply curve rightward
Which definition of the money supply includes credit cards, or "plastic money"?
M2
Which of the following correctly gives us the equation of exchange?
MV = PQ
Based on the equation of exchange, the money supply in the economy is calculated as
MV=PQ
Which of the following is not a store of value?
Money market mutual fund share
Which of the following defines the "medium of exchange" function of money?
Money that is widely accepted in exchange for goods and services
Th easier it is to convert an asset directly into goods and services without loss, the
More liquid it is
Which of the following is in charge of the buying and selling of government securities by the Fed?
None of the answers above are correct (NOT president, FOMC, or Congress)
Assume the economy is operating at a real GDP below full-employment real GDP. Keynesian economists would prescribe which of the following policies
Noninterventionist
What establishes the value of fiat economy?
Our collective trust and confidence that the central government, which decrees that money cannot be refused as payment for debt
Using the aggregate supply and demand model, assume the economy is in equilibrium on the intermediate portion of the aggregate supply curve. The decrease in the money supply will decrease the price level and
Raise the interest rate and lower real GDP
Assume the demand for money curve is fixed and the Fed increases the money supply. The result is that the price of bonds
Rises
Which of the following items is not included when computing M1?
Savings accounts
If a society were to use a widely accepted, easily measurable, but highly perishable food product as its money, which of the following functions of money would be most impaired?
Store of value
Starting from an equilibrium at E1 in Exhibit 12, a rightward shift of the money supply curve from MS1 to MS2 would cause an excess
Supply of money, leading people to buy bonds
Assume the economy is in short-run equilibrium at a real GDP above its potential real GDP. According to Keynesian, which of the following policies should be followed?
The Federal Reserve should use open market operations and buy U.S. government securities
Which of the following defines the "store of value" function of money?
The ability of money to hold value over time
Which of the following is the velocity of money?
The average number of times per year that a given dollar of the money supply is spent
Assume the economy is in short-run equilibrium at a real GDP. According to classical self-correction theory, which of the following policies should be followed?
The federal government should increase spending
M1 refers to
The smallest dollar amount of the money supply definitions