Modules 22-29
What is a part of the money of the money supply but not part of the monetary base?
checkable bank deposits
The M1 money supply includes what?
checkable deposits
An increase in government spending will shift the demand for the loanable funds to the left and...?
decrease the interest rate
When banks borrow from and lend reserves to each other, they are participating in the _____ market.
federal funds market
Money that the government has ordered be accepted as money is:
fiat money
A share of stock is considered
financial asset
Governments can engage spending when tax revenues are _______ than expenditures
greater
A business will want to borrow to undertake an investment project when the rate of return on that project is:
greater than the interest rate
risk-averse person has?
has an asymmetric view of the value of losses and gains
A financial intermediary that resells shares of a stock portfolio is a
mutual fund
in an open economy, total investment is equal to:
national savings plus capital inflow.
A mutual fund
owns a diversified portfolio.
Capital inflow is equal to:
the total inflow of foreign funds minus the total outflow of domestic funds.
If the equilibrium interest rate in the money market is 5%, at an interest rate of 2%...
there is a shortage of money as money demanded is greater than money supplied
According to the loanable funds model, in the short run, contractionary monetary policy shifts
the supply curve to the left
Which of the following is an example of using money as a unit of account?
Purchasing $10 of candy
What will shift the supply curve for loan-able funds to the right?
capital inflows from abroad
What asset is the most liquid?
cash
All else equal, a 20% increase in the aggregate price level will increase the quantity of money demanded by:
20%
A bond is considered
An asset that is not part of the money supply
What is a task of an economy's financial system?
Enhancing the efficiency of financial markets
The money demand curve shows the relationship between the:
Interest rate and the nominal quantity of money demanded
Traveler's checks and deposits are part of
M1
When a waiter cashes their tips into a savings account
M1 decreases
The primary difference between M1 and M2 is
M2 includes savings deposits and time time deposits, but M1 does not
If the interest rate in the market for loanable funds is above the equilibrium interest rate, we know that:
Savings exceed spending
The Fed's main assets are
U.S. Treasury bills
A decrease in the demand for money would result from
a decrease in real GDP
commodity-backed money
a medium of exchange that has no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods on demand
If Congress places a $5 tax on each ATM transaction, there will likely be:
a shift to the right of the real demand for money curve
What will increase the demand for money?
an increase in RGDP
An increase in the demand for money would result from
an increase in price level
Crowding out is illustrated by what change on the loan able funds market?
an increase in the demand for loanable funds
A bank run can break a bank because:
banks cannot quickly convert illiquid loans into liquid assets without facing a large financial loss.
An economy that lacks a medium of exchange is a
barter system
When the central bank wants to expand the monetary, the most commonly used method is to
buy gov bonds from commercial banks
A decrease in government spending
decreases the interest rate and so investment spending increases.
When a bank borrows from the Federal Reserve, it pays the:
discount rate
If their is a budget surplus interest rates...?
fall
Private savings is equal to:
income less taxes, pus transfers, less consumption
Expansionary monetary policies will decrease interest rates and ______ savings in the short run
increase
When banking regulations were changed so that banks could pay interest on checking accounts, what was the effect on interest rates and the equilibrium quantity of money? Interest rate/Quantity of money a. increase/decrease b. decrease/increase c. increase/increase d. decrease/decrease e. increase/no change
increase no change
To decrease the money supply, the Federal Reserve could
increase reserve requirements sell t bills increase discount rate
The demand for loanable funds downward sloping because investors respond to lower interest rates by _____________ their quantity demanded of loanable funds.
increasing
The federal reserve is charged with not doing what?
insuring bank deposits
The price of the loanable funds market is...?
interest rate
When a corporation borrows money from lenders in exchange for a fixed rate or return and given maturity, the corporation is
issuing bonds
Fiat money derives its values from which of the following?
its official status
A decrease in savings by the private sector will shift the supply of loanable funds to the
left and increase the interest rate
To increase the money supply, the Fed could
lower reserve requirements buy t bills lower the discount rate
If the federal reserve wants to lower the interest rate, it will:
mandate a lower interest rate
In an open economy, savings of foreigners
may be supporting investment spending
When you are using money to purchase something, money acts as a
medium of exchange
The fed isn't responsible for...?
mint bills and coins
The double coincidence of a wants problem, can be solved by
money
People forgo their interest of holding money to
reduce their transaction costs
If there is a budget shortage the interest rates...?
rise
A budget surplus occurs when the government does what?
saves
Which of the following identities is true in a simplified economy with no government and no interaction with other countries
savings=investment spending
At interest rates below equilibrium rate, people will want to:
shift their wealth into money
When money acts as a means of holding purchasing power over time, it is serving which function? a. medium of exchange b. source of liquidity c. store of value d. unit of account e. source of wealth
store of value
If the required reserve ratio rises
the banking system will experience a contraction in its level of bank deposits
Bank reserves are:
the currency held at a bank pis deposits at the Federal Reserve
If real GDP decreases in an economy where the central bank is not changing its monetary policy, one would expect:
the demand for money to be unchanged
The theory of money that states the interest rate is determined by the supply and demand for money, is known as:
the liquidity preference model of the interest rate
An increase in the level of business optimism will generally shift
the loanable funds demand curve to the right
Generally, the more liquid an asset is:
the lower the rate of return
If the Fed increases the discount rate:
the money supply is likely to decrease
The money demand curve is downward sloping because a lower interest rate decreases
the opportunity cost of holding money
The interest rate is
the price borrowers pay for the use of lenders savings