Macroeconomics Chapter 8 University of Iowa

Réussis tes devoirs et examens dès maintenant avec Quizwiz!

Choose the correct statement.

Deposits are money, checks are not money, and credit cards are not money.

The central bank of the United States is the ________.

Federal Reserve System

The liabilities of the Fed are ________, and these liabilities along with ________ make up the monetary base.

Federal Reserve notes held by households and businesses and reserves of depository institutions; coins issued by the Treasury

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

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; excess reserves

The Bank of America's total assets ________ and its total liabilities ________.

do not change; do not change

A fall in the price level ________ the nominal interest rate in the short run.

lowers

A decrease in real GDP ________ the nominal interest rate in the short run. A decrease in the money supply _________ the nominal interest rate in the short run.

lowers; raises

Money is any commodity or token that is generally acceptable as a _______.

means of payment

When the nominal interest rate rises, the opportunity cost of holding money _______ and the quantity of real money demanded ________.

rises; decreases

Suppose an increase in the monetary base of $200,000 increases the quantity of money by $400,000. Calculate the money multiplier.

2

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

The equation of exchange is _________ and it is true ________.

MV = PY; by definition

Categorize the following items as either an asset of the Fed or a liability of the Fed.

U.S. government securities--asset Federal Reserve notes--liability Loans to depository institutions--asset Depository institution deposits--liability

Indicate whether the following items are money or not money in the United States today.

Your loan to pay your school fees--not money The check you have just written to pay for your rent--not money U.S. dollar bills in your wallet--money Cash in Citibank's cash machines--not money

According to the quantity theory of money, in the long run an increase in the quantity of money of 5 percent brings _______ in the price level.

a 5 percent increase

A problem with using a commodity as money is ________.

a commodity's value changes over time

Suppose that Sara withdraws $1,000 from her savings account at the Lucky S&L, keeps $50 in case, 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 Fed's policy tools include all of the following except _________.

changing government expenditure

The deposits of the following three types of depository institutions make up the nation's money: __________.

commercial banks, thrift institutions, and money market mutual funds

The Fed makes an open market sale of securities to a bank. The monetary base _________ and the Fed's assets _________. The bank's total assets _________, its reserves _________.

decrease; decrease are the same; decrease

When the interest rate falls, other things remaining the same, the opportunity cost of holding money __________ and _________.

falls; the quantity of money demanded increases

A depository institution takes deposits from ________ and earns most of its income by _________.

households and firms; making loans and buying securities that earn a higher interest rate than that paid to depositors

The Fed is the lender of last resort, which means _______.

if depository institutions are short of reserves, they can borrow from the Fed

A bank manager tells you that she doesn't create money. She just lends the money that people deposit. The bank manager is _______ because _______.

incorrect; every new loan creates a new deposit

Suppose the Fed buys $50 million of government securities from the Bank of America. The Fed's total assets ________ and its total liabilities ________.

increase by $50 million; increase by $50 million

An open market purchase ________ the monetary base. An open market sale ________ the monetary base.

increases; decreases

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

A central bank performs all of the following functions except _________.

it is responsible for paying all government employees

To increase its assets to $2.3 trillion in 2008, the Fed used _________.

last resort loans

The money multiplier is the ratio of the change in the quantity of ________ to the change in the quantity of _________.

money; monetary base

The demand for money is the relationship between the quantity of real money demanded and the _________ when all other influences on the amount of money that people wish to hold remain the same.

nominal interest rate

An open market operation is the __________.

purchase or sale of government securities by the Federal Reserve System in the loanable funds market

In the long run, an increase in the quantity of money _________.

raises the price level and lowers the value of money

In the short run, _______ and ______ adjusts to achieve equilibrium.

real GDP determines the demand for money curve and the Fed determines the quantity of real money supplied; the nominal interest rate

A _________ is a depository institution that accepts savings deposits and makes mostly home-purchase loans. A ________ is a depository institution owned by a social or economic group such as a firm's employees that accepts savings deposits and makes mostly personal loans.

savings bank; credit union

The monetary base is equal to ________.

the Fed's liabilities together with coins issued by the Treasury

When the Fed buys securities from a bank, ________.

the bank's reserves increase but its deposits do not change

The velocity of circulation is the average number of times a dollar of money is used annually to buy ________. The formula used to measure the velocity of circulation, V, is ________, where P is the price level, Y is real GDP, and M is the quantity of money.

the goods and services that make up GDP; V = (P x Y) / M

The quantity of money that the banking system can create is limited by ________.

the monetary base, desired reserves, and desired currency holdings


Ensembles d'études connexes

Chapter #2 - Measures of Central Tendency

View Set

U.S history- Chapters 10&11 civil war and reconstruction review

View Set

Human Geography- Pakistan & Bangladesh

View Set

Ch 4 The NASAA Stmts of policy & model rules

View Set

Ch. 7. Single-Dimensional Arrays

View Set

AP Biology: Unit 2 Topic Questions Formative Assessment Part 1

View Set