Macro Quiz Answers
Dollar Bank is currently loaned up. If the required reserve ratio is lowered,
Dollar Bank will have excess reserves that it can lend out.
As a measure of the money supply, M1 differs from M2 in that
M2 includes M1 plus savings accounts, money market accounts, and other near monies.
There is a negative relationship between the amount of money you should hold and the interest rate because:
1. the lower the interest rate, the smaller the incentive you have to put your money in an interest-bearing account. 2. the higher the interest rate, the greater the incentive you have to put your money in an interest-bearing account. 3. a high interest rate means the opportunity cost of holding money is high due to the interest lost by not moving deposits to an interest-bearing account.
Assuming there is no foreign trade in the economy, the economy is in equilibrium when
I + G = S + T.
What institution has formal responsibility for setting U.S. monetary policy?
The FOMC (Federal Open Market Committee)
If the Fed sells government securities, then there is
a decrease in the supply of money.
Aggregate output is always equal to
aggregate income
All of the following changes shift the consumption function except:
an increase in income.
If output is less than planned aggregate expenditure, there will be
an unplanned decrease in inventories.
An open-market purchase of securities by the Fed results in ________ in reserves and ________ in the supply of money.
an increase; an increase
The Fed uses open market operations to
buy or sell government securities
Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?
buying government securities in the open market
How will an increase in the interest rate will most likely affect the quantity of money demanded?
decrease in the quantity of money demanded
When the interest rate rises, bond values
fall.
Banks borrow not only from the Fed but also from each other. What is the interest rate in this market called?
federal funds rate
The opportunity cost of holding money is the
forgone interest from holding bonds
According to the "paradox of thrift," as individuals increase their saving
income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.
As the MPS decreases, the multiplier will
increase
If aggregate expenditure falls short of real GDP
inventories will accumulate and real GDP and aggregate income will fall in future.
To ensure that paper money will be accepted, the U.S. government implicitly promises the public that
it will not print money so fast that it loses its value.
The development of money as a medium of exchange has facilitated the expansion of trade because
money eliminates the "double coincidence of wants" problem.
The multiple by which total deposits can increase for every dollar increase in reserves is the
money multiplier.
If interest rates increase to a very high level, people will most likely hold
more money in savings accounts and less cash.
As the interest rate falls, people hold ________ money in non-interest-bearing checking accounts instead of savings accounts because the opportunity cost of holding money has ________.
more;fallen
How are the demand for money and the interest rate related?
negatively related.
How are the price of bonds and the interest rate related?
negatively related.
When the aggregate price level (P) is multiplied by real aggregate income (Y), the result is
nominal income.
The treasury bill rate is the interest rate paid
on government securities that mature in less than a year.
If autonomous consumption increases, the size of the multiplier would
remain constant.
If the head of the Central Bank of Brazil wanted to decrease the supply of money in Brazil in 2015, which of the following would do it? This action will ____________.
sell government securities in the open market; reduce credit availability and lower the money supply
If household wealth increases, the consumption function
shifts upward since, for the same level of income, individuals can spend more.
Assume that banks become more conservative in their lending policies and start holding some excess reserves. Compared to a situation in which banks are not holding excess reserves, the size of the money supply will be
smaller
The interest rate that commercial banks charge each other for borrowing and lending reserves is called
the federal funds rate.
Which of the following instruments is not used by the Federal Reserve to change the money supply?
the federal tax code
the MPS is equal to
the fraction of additional income that is saved
The MPC is
the slope of the consumption function
Which of the following is considered a liability to a bank?
time deposits
aggregate income equals the
total income received by all the factors of production in a given period
aggregate output is equal to the
total quantity of goods and services produced in an economy during a given period
The demand for money depends ________ on the size of total transactions in a period and ________ on the interest rate.
positively; negatively