Macroeconomics Final Exam

Sumit deposits $1,500 cash into his checking accounts. The reserve requirement ratio is 25%. What is the change in his bank's excess reserves?

$1,125

Which of the following will cause the supply of loanable funds curve to shift leftward?

an increase in the government deficit

Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's required reserves?

$375

Assume the reserve requirement ratio is 10% and all banks are fully loaned up. If a new deposit of $10,000 is made into Bank X, with this deposit Bank X can make new loans of:

$9,000

If the reserve requirement ratio is 20%, the money multiplier is:

5

The _____ is the central bank of the United States.

Federal Reserve System

Which of the following is NOT a policy tool of the Federal Reserve?

Fiscal policy

Which action is the Fed most likely to take to curb inflation (decrease AD)?

The Fed will sell securities in the open market

Which of the following will increase aggregate demand?

a decrease in taxes

Quantitative easing refers to the process whereby the Federal Reserve:

buys securities to stimulate the economy

M1 includes:

cash, demand deposits, and other checkable deposits

In the short run, changes in the money supply will NOT change output according to:

classical economists

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price:

falls to $875

Institutions that acquire funds from savers and then lend those funds to borrowers are called:

financial intermediaries

In counteracting a negative supply shock, the Fed could achieve _____ by using _____ monetary policy.

full employment but not price stability, expansionary

What are the tools for Fiscal Policy?

government spending, taxes, transfer payments

What are the monetary policy lags?

implementation lag, decision lag, information lag

What does Monetary policy involve?

increases in interest rates, banks reserves, buying securities

A lower reserve requirement;

increases the ability of banks to make loans

Which of the following measures is an example of an expansionary fiscal policy?

increasing unemployment compensation

What is a period of during which overall prices rise and are sustained?

inflation

Money:

is anything that is accepted in exchange for goods and services or for payment of a debt

M2 is _____ smaller in dollar value than M1; it also contains _____ assets.

larger, less liquid

The financial Panic and credit freeze in late 2008 pointed to the Fed's important roles as a:

lender of last resort

Generally, economists believe that monetary policy should focus on price stability in the _____ run and output or income in the _____ run.

long, short

What are the basic functions of money?

medium of exchange, unit of account, measure of value

In a liquidity trap:

monetary policy is ineffective in changing income and output

What is the Civil Adult population?

must be over 16, not in military or in mental hospital

The main tool of monetary policy is:

open market operations

Which of the following is the LEAST liquid?

picasso painting

Role of Financial institutions:

reduce information costs, transaction costs, and diversify assets

A reduction in the interest rate causes consumption and investment to _____, which shifts the aggregate demand curve _____.

rise, rightward

When the Fed wants to decrease the money supply, it will:

sell bonds

If the Fed wants to raise the interest rate, it will _____ bonds, which _____ bond prices.

sell, lowers

If there is a general rise in fear of the financial system:

the actual multiplier will fall

When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that:

the economy tends to full employment in the long run

In the equation of exchange, if M= $2 trillion, P= 1.5, and Q= $8 trillion:

the velocity of money (v)= 6

What is the unemployment rate equation?

unemployed divided by labor force

What are the primary functions of money?

unit of account, medium of exchange, store of value

What is the yield on a bond sold for $1,850 and paying $25.50 in interest annually?

1.38%

Using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and the level of output (real GDP) is $6 trillion, then the velocity of money is _____.

3

_____ occurs when a central banks sets a target inflation rate and adjusts monetary policy to keep inflation within that range.

Inflation targeting

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true?

M1 went down by $5,000, but M2 was unchanged

In the equation of exchange, if M = $1.5 trillion, V = 7, and P = 1.05, then:

Q= $10 trillion

The use of money as a medium of exchange helps reduce the inefficiencies inherent in:

a barter economy

Fiat money:

does not necessarily have any intrinsic value but has been declared by a government to be money

In times of economic downturn the Fed will engage in _____ monetary policy by ______ bonds.

expansionary, buying

Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $100,000 bond. The money supply:

increases by a maximum of $500,000