Macro test 3

Currency held by the public outside banks is included in A. both M1 and M2 B. M2 only C. M1 only D. neither M1 or M2

A. both M1 and M2

If the economy is facing inflationary pressures, the Fed will tend to: A. raise taxes B. raise interest rates C. lower interest rates D. decrease govt. spending

B. raise interest rates

if inflationary expeditures decrease, the Phillips curve will A .shift to the right B. shift to the left C. become vertical D. become upward sloping

B. shift to the left

nominal GDP divided by the stock of money, M, is the A. money multiplier B. velocity of money C. real GDP D. GDP deflator

B. velocity of money

The Republic Bank has $2 mill in deposits and $250,000 in resereves. If the required reserve ratio is 10%, excess reserves are equal to: A. $200,000 B. $50,000 C. zero D. $450,000

B> $50,000

Tightening monetary policy causes interest rates to ____ and aggregate ___________ to _______. A. Fall, Demand, Increase B. Rise, Supplu, Decrease C. Rise, Demand, Decrease D. Fall, Supply, increase

C. Rise, Demand, Decrease

An idividual bank can, at most, lend out all of it's: A. checkable deposits B. excess reserves C. reserves D. deposits

A. Checkable deposits

The central bank of the US is known as the A. Federal reserve bank B. Federal deposit insurance corporation C. Department of treasury D. Federal savings and loan insurance co.

A. Federeal Reserve Bank

A reduction in the interest rate causes consumption and investment to _____. Which shifts the aggregate demand curve ______. A. Rise, Rightward B. rise, leftward C. fall, rightward D. fall, leftward

A. Rise, rightward

To ensure that paper money will be accepted, the US govt. implicitly promises the public that : A. it will not print money so fast that it will lose its value B. it will not change the rate at which the dollar is exchanged for other currencies C. it will not change currency denominaton so that the paper currencies US citizens will have will continue to be used for exchanges D. the US monetary system will always be backed by a precious petal.

A. it will not print money so fast that it will lose its value

among the assets of a commercial bank are A. loans B. demand deposits C. savings deposits D. all the above

A. loans

The phenomenon that interest rates may be so low that increases in the money suple will have no impact on aggregate demand is called? A. the liquidity trap B. the quantity theory of money C. the sterilization of money D. monetary incapacitation

A. the liquidity trap

A decrease in the required reserve ratio: A. will increase money supply B. will decrease money supply C. will not change money supply D. will decrease the discount rate

A. will increase money supply

If the reserve requirement is 1%, what is the money multiplier? A.100 B.10 C.1 D.0

A.100

Suppose that banks desire to hold no excess reserves. If the reserve requirement is 5% and one bank recieves a new customer deposit of $400, the economy's money supply would expand by A. $8000 B. $7600 C. $4000 D. 3800

B. $7600

If nominal GDP is $700 billion and the oney supply is $100 billion, the velocity of money is A. 0.7 B. 7 C. 3.5 D. 3

B. 7

The Federal Reserve is an agency of the US Dept. of Treasury. A. True B. False

B. False

According to the Phillips curve analysis, if the economy is a potential output, actual inflation A. is greater than expected inflation B. equals expected inflation C. is less that expected inflation D. equals the natural rate of unemployment

B. equals expected inflation

The money multiplier: A. Is equal to the reserve requirement multiplied by the money supply B. measures the maximum amount the money supply can increase when new deposits enter the banking systems C. works only for increases in the money supply and never for decreases D. demonstrates that small changes in reserves have a negligable impact on the total money

B. measures the maximum amount the money suppky can increase when new deposits enter the banking systems

the interest rate that commercial banks charge each other for borrowing and lending reserves is called: A. the commercial rate B. the price interest rate C. the federal funds rate D. the discount rate

C.

James deposits $1500 cah into the checking account. the reserve requirement is 25%. How many dollars worth of loans can the banking system create? A.$1,500 B.0 C.$4,500 D.$6,000

C. $4,500

Appointments to the Federal reserve Board are staggered so that one expires every other year. This provision was enacted to ensure: A. the Federal Reserve Board members would serve their entire term B. that the Fed would be accountable to Congress C. stability, continuity, and independence of the Board D. that regional considerations would not impact the Board's decisions

C. Stability, Continuity, and independence of the Board

which of the following leads to an increase in the interest rate? A. a decrease in the price level B. a decrease in aggregate demand C. a sale of governmental securities by the Fed D. a decrease in the discount rate

C. a sale of govt. securities by the Fed

Which of the following activities is one of the resposibilities of the Federal Reserve? A. issuing new bonds to finance the federal budget deficit B. loaning money to other contries that are friendly to the US C. assisting banks that are in a different financial position D. auditing the various agencies and departments of the federal govt.

C. assisting banks that are in a different financial position

John transfers $1000 from his checking account to his savings account. This transaction will A. Decrease both M1 and M2 B. not cange M1 and decrease M2 C. decrease M1 and not change M2 D. increase both M1 and M2

C. decrease M1 and not change M2`

Refer to figure 11.3. An increase in the money supply will: A. increase the equilibrium interest rate and decrease money holdings B. increase the equilibrium interest rate without changing money holdings C. decrease the equilibrium interest rate and increase money holdings D. decrease the equilibrium interest rate without changing money holdings

C. decrease the equilibrium interest rate and increase money holdings

According to the equation of exchange, nominal GDP will double if the money supplu is A. reduced by one-half B. reduced threefold C. doubled D. tripled

C. doubled

Money demand refers to: A. the total quantity of finacial assets that people want to hold B. how much income people want to earn per year C. how much wealth people want to hold in liquid form D. how much currency the Federal Reserve decides to print

C. how much wealth people want to hold in liquid form

The Phillips curve depicts the relationsup between A. output and the price level B. aggregate demand and aggregate expeditures C. inflation and unemployment D. money supply and interest rate

C. inflation and unemployment

Which of the following is a characteristic of the quantity theory of money? A. it is focused on the short run B. it assumes that prices and interest rates are fixed C. it is a product of the classical school of economics D. is assumes that an increase in the money supplu will lower velocity

C. it is a product of the classical school of economics

When you pay $12 for the pizza you ordered for dinner, you are using money as a(n): A. store of value B. investment good C. medium of exchange D. unit of account

C. medium of exchange

The discount rate is: A. the interest rate commercial banks charge each other for borrowing funds B. the interest rate commercial banks charge their new customers C. the interest rate the Fed charges commercial banks for borrowing funds D. none of the above

C. the interest rate the Fed charges commercial banks for borrowing funds

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 25%. If the Fed buys $5 million worth of govt. bonds from the banks, the change in the money supply will be: A. -$20 mill B. -$12.5 mill C. $12.5 mill D. $20 mill

D. $20 mill

Which of the following is NOT a policy tool of the Federal Reserve? A. Reserve requirements B. the discount rate C. open market operations D. Fiscal policy

D. Fiscal policy

which of the following is the most liquid? A. a house B. a picasso painting C. a corporate bond D. money

D. Money

which action is the Fed most likely to take to curb inflation? A. Lower the discount rate B. lower reserve requirements C. Raise taxes D. sell securities to the open market

D. Sell securities in the open market

An open-market sale of Treasury bonds by the Fed results in _____ in the reserves and _______ in the supply of money A. increase, decrease B. increase, increase C. a decrease, increase D. a decrease, decrease

D. decrease; decrease

If there is fear withing the financial system such that banks hold excess reserves: A.the potention multiplier will rise B. the potential multiplier will fall C. the actual multiplier will rise D. the actual multiplier will fall

D. the actual multiplier will fall

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: A. zero B. larger C. the same D. smaller

D.smaller