MacroEcon Final study guide 3

If nominal GDP is $600 billion and on the average each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be

$200 billion bih

A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1000 at the price of $10,000. If the interest rate in the economy is now 12.5% a year and you want to sell the bond, the maximum price that you can get it for is:

$8,000

The problem of cyclical asymmetry refers to the idea that:

A restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply

Assume that the required reserve ratio is 25 percent. If the federal reserve sells $120 million in government securities to the general public, the money supply will immediately

A. Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million

Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 4 percent. What should the Fed do to achieve a non inflationary full employment level of real GDP?

A. Increase the money supply from $75 to $150 billion

Reserves must be deposited in the Federal Reserve Banks by:

All depository institutions that is all commercial banks and thrift institutions

Open market operations change:

B. Commercial bank reserves but not the size of the monetary multiplier

An increase in nominal GDP increases the demand for money because

Interest rates will rise

Monetary policy is thought to be

More effective in controlling demand pull inflation than in moving the economy out of a recession

Which of the following tools of monetary policy is considered the most important on a day to day basis?

Open market operations

Which of the following is a tool of monetary policy?

Open-Market Operations

Which of the following actions by the Fed would cause the money supply to increase?

Purchases of government bonds from banks

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective?

Raise interest rates and restrict the availability of bank credit

The equilibrium rate of interest in the market for money is determined by the intersection of the:

Supply of money curve and the total demand for money curve

If the quantity of money demanded exceeds the quantity supplied:

The interest rate will rise

The purchase of government securities from the public by the fed will cause:

The money supply to increase

The commercial banking system borrows from the federal reserve banks. As a result the checkable deposits

of commercial banks are unchanged, but their reserves increase