Macroeconomics Unit 4 Progress Check

Based on the data provided, what is the value of total reserves held by depository institutions?

$2,500 million

A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is

$3,000

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

$8,000

Assume the nominal interest rate on a 15-year fixed-rate mortgage loan is 5 percent. If the expected inflation rate is 2 percent, the expected real interest rate is

3%

In the country of Agronomia, banks charge 10 percent on all loans. If the general price level has been increasing at the rate of 4 percent per year, the real rate of interest in Agronomia is

6%

Which of the following would lead to an increase in nominal interest rates?

A contractionary monetary policy accompanied by an increase in the demand for money

Assuming a banking system with limited reserves, which of the following set of events is most likely to follow when a central bank sells securities in the open market?

A decrease in the money supply, an increase in the interest rates, and a decrease in aggregate demand

Assume a country's banking system has limited reserves. If the central bank sells a significant amount of government securities in the open market, which of the following will occur?

A total amount of loans made by commercial banks will decrease.

If currently at full employment, which of the following would most likely cause the United States economy to fall into a recession?

An increase in administered interest rates

Which of the following will increase the supply of loanable funds?

An increase in household saving

An inflationary gap can be eliminated by all of the following EXCEPT

An increase in the money supply

If the public's desire to hold money as currency increases, what will the impact be on the banking system?

Banks would be less able to expand credit

If the Federal Reserve lowers its administered interest rates, which of the following would most likely occur?

Businesses will purchase more factories and equipment

Assume a country's banking system has limited reserves. To counteract a recession, the central bank should

Buy securities on the open market and lower that discount rate

Country H's current domestic output is lower than its potential domestic output. Assume that the central bank now decreases its administered interest rates. What will be the short-run effects of the central bank's action on cyclical unemployment and real income?

Cyclical unemployment will decrease, and real income will increase.

Expansionary monetary policy can affect the economy through which of the following chains of events?

Decreasing the administered interest rates lowers nominal interest rates, which increases investment

Which of the following would be included as a liability on a commercial bank's balance sheet?

Demand deposits

If investors feel that business conditions will deteriorate in the future, the demand for loans and real interest rate in the loanable funds market will change in which of the following ways in the short run?

Demand for loans will decrease. Real interest rate will decrease.

An increase in the demand for loanable funds could be best explained by which of the following?

Firms are optimistic about the future performance of a country's economy.

All of the following are components of the money supply in the United States EXCEPT

Gold bullion

Under which of the following conditions would a restrictive monetary policy be most appropriate?

High inflation

An increase in government spending with no change in taxes leads to a

Higher interest rate

If the Federal Reserve institutes a policy to reduce inflation, which of the following is most likely to increase?

Interest rates

Which of the following will most likely occur in an economy if more money is demanded than is supplied?

Interest rates will increase

Which if the following is true of the quantity of money demanded?

It falls when interest rates rise, because the opportunity cost of holding money increases.

Under a fractional reserve banking system, banks

Keep part of their demand deposits as reserves

Commercial banks can create money by

Lending excess reserves to customers

Assume that the reserve requirement is 15 percent and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet?

Liabilities: Increase by $200 Required Reserve: Increase by $30

Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?

Nominal interest rates will increase. Bond prices will decrease.

Changes in which of the following will change the money supply?

Open market operations

If the Federal Reserve purses a contractionary monetary policy, output and the price level will change in which of the following ways in the short run?

Output will decrease. Price level will decrease.

Assuming the banking system has limited reserves, an increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output?

Real interest rates will decrease. Real output will increase.

The Federal Reserve can cause an increase in the interest rates in an attempt to

Reduce inflation

The demand for money increases when national income increases because

Spending on goods and services increases

The purchase of bonds by a central bank will have the greatest effect in real gross domestic product if which of the following situations exists in the economy?

The banking system has limited reserves, the required reserve ratio is low, and the interest rate has a large effect on the investment spending.

Open market operations refer to which of the following activities?

The buying and selling of government securities by the central bank

An increase in investment demand for capital goods accompanied by an increase in household savings will result in which of the following in the market for loanable funds?

The equilibrium quantity of loanable funds will increase, but the impact on the real interest rate is indeterminate

The real value of the United States dollar is determined by

The goods and services it will buy

The federal funds rate is the interest rate that

banks charge one another for short-term loans

Assume a country's banking system has limited reserves. If the reserve requirement is 25 percent and the banks hold no excess reserves, an open market sale of $400,000 of government securities by the central bank will

decrease the money supply by up to $1.6 million