Macro Test 3
Suppose that velocity of circulation is 3 and the quantity of money is $500 million. According to the quantity theory of money, GDP equals __________.
$1.5 billion
In June 2018, individuals and businesses held: -$50 billion in currency and no traveler's checks -$1,000 billion in checkable deposits -$5,000 billion in savings deposits -$500 billion in time deposits -$250 billion in money market funds and other deposits In June 2018, banks held: -$450 billion in currency -$100 billion in reserves at the central bank -$800 billion in loans to households and businesses The M1 measure of money is $__________ billion and the M2 measure of money is $_________ billion. The monetary base is $____________ billion. The currency drain ratio is _________ percent and the banks' reserve ratio is _________ percent. The M1 money multiplier is ________ and the M2 money multiplier is ___________
1050 (1+2); 6800 (1+2+3+4+5) 600 (1+6+7) 5% (1/2 x 100); 55% 1.75; 11.33
How many Federal Reserve districts are there?
12
Which of these will shift the money demand curve to the right?
An increase in real GDP
Why are checks, debit cards, and credit cards not money? Choose the correct statement.
Checks and debit cards are not money. They are instructions to the bank to transfer money from one account to another. A credit card is not money. It is an ID card that allows you to take out a loan.
Which of the following is a determinant of exchange rates?
Expected future exchange rate
The central bank of the United States is the ______.
Federal Reserve System
The monetary base is the sum of _______. The monetary base is equal to _______.
Federal Reserve notes, coins, and depository institution deposits at the Fed; the liabilities of the Fed plus coins issued by the Treasury
Which of these predictions can be made using the growth rates associated with the equation of exchange?
If the money supply grows at a faster rate than real GDP, there will be inflation.
Which of these factors could have caused the increase in supply shown in this graph?
Lower U.S. interest rates
The equation of exchange is:
M x V = P x Q
The sum of all currency in the hands of the public, checkable deposits and traveler's checks is the official definition of __________.
M1
The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money.
M1 and M2; are
Calculate the M1 and M2 measures of money using the information on the right. In June 2018, individuals and businesses held: -$50 billion in currency and no traveler's checks - $1,000 billion in checkable deposits - $5,000 billion in savings deposits - $500 billion in time deposits -$250 billion in money market funds and other In June 2018, banks held: -$450 billion in currency -$100 billion in reserves at the central bank -$800 billion in loans to households and businesses
M1 is $1050 billion M2 is $6800 billion
Credit cards are:
Not part of the money supply.
When we say that money serves as a unit of account, we mean that:
Prices are quoted in terms of money.
The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the __________.
Quantity Theory of money
The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.
Seven, 14-year terms, President
Choose the correct statements. 1. The President of the United States is a member of the FOMC. 2. The president of the San Francisco Fed is always a member of the FOMC. 3. The FOMC meets approximately every six weeks. 4. FOMC stands for Federal Open Market Committee.
Statements 3 and 4 are correct.
Which body of the Federal Reserve System sets the majority of U.S. monetary policy?
The Federal Open Market Committee
When is the opportunity cost of holding money higher?
When interest rates are high
A bank's attempts to pursue profit can sometimes lead to bank failure because _______.
a combination of all of the above
Using a commodity as money creates problems because ______.
a commodity is bulky and its value changes over time
If a country has a deficit in its net exports, it means that this country imports __________.
a greater value of goods and services than it exports
Money serves the functions of _______.
a medium of exchange, a unit of account, and a store of value
Sara withdraws $1,000 from her savings account at the Lucky S&L, keeps $50 in cash, and deposits the balance in her checking account at the Bank of Illinois. The immediate change is ______ in M1 of $1,000 and ______ in M2.
an increase; no change
The theory of purchasing power parity states that __________.
arbitrage equalizes the value of monies
The central bank of the United States performs many functions, one of which is that it _______.
controls the quantity of money
Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
In the balance of payment accounts, the sum of exports minus imports, net interest income, and net transfers is called the __________.
current account balance
If the sum of net exports, net interest income received from abroad, and net transfer payments from abroad yields a negative number, we say that a country's __________.
current account is in deficit
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; unplanned reserves
In the long run, an increase in the quantity of money _______ the interest rate.
does not change
Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:
each additional dollar of reserves creates $5 of deposits.
The __________ links the quantity of money, velocity of circulation, price level, and real GDP.
equation of exchange
The graph shows the demand for money curve. Draw a point to show the interest rate and quantity of money demanded when the interest rate is 5 percent a year. Draw an arrow to show the effect of an increase in the interest rate above 5 percent a year. Label it 1. Draw an arrow to show the effect of a decrease in the interest rate below 5 percent a year. Label it 2. When the interest rate falls, other things remaining the same, the opportunity cost of holding money ______ and ______.
falls; the quantity of money demanded increases
In this graph, as the dollar depreciates __________.
fewer dollars are supplied
A __________ is one where the government or central bank determines their exchange rate by intervening in the foreign exchange market.
fixed exchange rate
A __________ is where a government or central bank intervenes in currency exchange markets and buy or sell currency in order to keep an exchange rate fixed or on a determined path.
fixed exchange rate or a crawling peg
A country that allows demand and supply to determine the value of its currency is said to have a __________.
flexible exchange rate
In the long run, the rate of inflation is determined by the __________.
growth of the money supply
The Fed is the lender of last resort, which means _______.
if depository institutions are short of reserves, they can borrow from the Fed
If consumers in the United States decrease their demand for imports, the result will be to __________.
increase the exchange rate of the U.S. dollar
From 1991 to 2006, the U.S. current account deficit
increased dramatically
Lowering the required reserve ratio ______, which ______ the quantity of loans that China's banks can make and the quantity of money created.
increases unplanned reserves; increases
A central bank _______. A commercial bank _______.
is a bank's bank; is a firm that takes deposits from households and firms
Barter ______ a means of payment. When trading on e-Bay, barter _______.
is; is not as efficient as money because barter requires a double coincidence of wants
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage increase in the _______.
long run; increase in the price level
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.
low, high
The Federal Open Market Committee is the _______.
main policy-making organ of the Federal Reserve System
Banks create money by ______.
making loans
Something is money if it is a commodity or token that is generally acceptable as a ______.
means of payment
The demand for money is the relationship between the quantity of money demanded and the _____, when all other influences on the amount of money that people wish to _____ remain the same.
nominal interest rate; hold
When the dollar appreciates against the yen, __________.
one dollar will buy more yen
The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________.
required reserves
The main functions of the Federal Open Market Committee are to _______.
review the state of the economy and determine the monetary policy actions to be taken by the N.Y. Fed
When the real exchange rate decreases, a country's net exports will __________.
rise or increase
To shrink its balance sheet, the Fed would _______. As a result, the monetary base and bank reserves _______ .
sell Treasury bonds or mortgage-backed securities; decrease
A recession in the United States will __________.
shift the supply curve of dollars to the left
If the Federal Reserve increases the money supply at 5% a year, in the long run there will be __________.
something less than 5% annual inflation
If real GDP increases:
the money demand curve shifts to the right.
When the interest rate decreases, __________.
there is movement down a stationary money demand curve
The monetary base is equal to ______.
the Fed's liabilities together with coins issued by the Treasury
Excess reserves are a bank's _____ reserves minus its _____ reserves.
actual; desired
Reserves consist of the currency in the _____ plus the balance on its _____ account at _____.
bank's vaults; reserve; a Federal Reserve Bank
The Fed has two liabilities, which are _______.
currency, which is the dollar bills that we use in our daily transactions, and the reserves of depository institutions
An open market purchase ______ the monetary base. An open market sale ______ the monetary base.
increases; decreases
The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.
Monetary Policy
FDIC insurance helps to minimize the cost of bank failure by _______.
limiting the loss of each deposit to amounts over $250,000
In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
On the balance sheet of commercials banks __________.
loans are the largest asset
The Fed conducts monetary policy primarily through __________.
open market operations
The Fed's three policy tools are _______.
open market operations, last resort loans, and the required reserve ratio
Starting from a short-run equilibrium, when the Fed increases the quantity of money, _______. The price of a bond ______ and the interest rate in the short run ______.
people enter the loanable funds market and buy bonds rises; falls
Depository institutions balance risk and return by _______.
placing some funds into safe low interest-earning assets and other funds into high-interest risky assets
An open market operation is the ____________.
purchase or sale of government securities by the federal reserve system in the loanable funds market.
In September 2007 before the financial crisis and recession, the Fed had assets of $800 billion, mainly short-term government securities. In June 2012 after two rounds of quantitative easing, the Fed's assets totaled $2,600 billion. Many of those assets were long-term securities and not all of them were government securities. The Fed increased its assets to $2,600 billion in 2012 by _______. Between 2007 and 2012 the monetary base _______.
purchasing long-term government securities and long-term private securities from banks. The Fed paid for some of its new assets by increasing the balances on reserve accounts held by banks. increased
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate ______.
supports the quantity theory, but the correlation is not perfect
The Federal Reserve System is __________.
the central bank of the United States
The part of the balance of payments that records a country's exports and imports of goods and services is __________.
the current account
The federal funds rate is the _____ rate on _____ loans.
interest; interbank
The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
FDIC insurance brings _______ stability to the banking system because _______.
more; depositors know that money they have deposited with a bank will be repaid making bank runs less likely
The quantity of desired reserves depends on the level of deposits and is determined by the desired reserve ratio - the ratio of _____ to _____ that the _____ plan to hold.
reserves; deposits; banks
In March 2017, M1 was $3,452 billion; M2 was $13,412 billion; checkable deposits owned by individuals and businesses were $2,004 billion; time deposits were $350 billion; and money market funds and other deposits were $689 billion. Currency and traveler's checks held by individuals and businesses were $__________ billion Savings deposits were $_________ billion
1448; 8921
If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _____.
2.5
The table shows the amounts held as the various components of M1 and M2. Item $billions Savings deposits 375 Checking deposits 100 Time deposits 260 Money market mutual funds and other deposits 240 Currency and traveler's checks 100 The value of M1 is $______ billion. The value of M2 is $_______ billion.
200; 1075
In the year to August 2018, M1 grew by ______ percent and M2 grew by _______ percent. Over the year to August 2018, the fastest growing component of M1 was __________________________________ . Over the year to August 2018, the fastest growing component of M2 was ___________________________________.
3.9; 4; currency and traveler's checks; small time deposits
Suppose an increase in the monetary base of $200,000 increases the quantity of money by $1,000,000. The money multiplier is ______
5
If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 100 yen, the price level in the United States is 90 and the price level in Japan is 100, what is the real exchange rate?
90
Choose the correct statement.
A check is an instruction to transfer money, but it is not money.
Choose the correct statements. 1. Most people know the price of gum comma so it could serve as money because it is a unit of account. 2. Gum does not serve as money because it is not a good store of value. 3. Gum does not serve as money because it is not generally accepted in exchange for goods and services. 4. Because most people buy gum comma it can be used as money because it is a useful tool in barter.
Statements 2 and 3 are correct
The Fed has two main assets, which are _______.
U.S. government securities, which are Treasury bonds, and mortgage-backed securities
Velocity of circulation is defined as __________.
V = (P x Y) / M
To increase the money supply, the Fed __________.
buys securities from the public
A depository institution is a financial firm that takes deposits from _____.
households and firms
During times of uncertainty, it might be necessary for a bank to hold large cash reserves and to have a large percentage of its assets purchased by its own capital because ______.
its depositors may decide to make large withdrawals
When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed __________.
lends to banks that are short of reserves and cannot find any other source of funds
We call the leakage of bank reserves into currency the currency drain, and we call the ratio of _____ to _____ the currency drain ratio.
currency; deposits
An increase in banks' reserves with no change in deposits _____ banks' reserve ratio and _____ the money multiplier.
increases; decreases
