Practice Test 2

assume that all other banks hold only the required 5 percent of deposits as reserves and that people hold only deposits and no currency. if the bank of tampa decides to hold exactly 5% reserves, by how much would the economy's money supply increase

$1,000

if the reserve ratio is 5%, $1000 of additional reserves can create

$20,000 of new money

if banks desire to hold n excess reserves, the reserve ratio is 10 percent, and a bank that was previously just meeting its reserve requirement receives a new deposit of $400, then initially the bank has a

$360 increase in excess reserves and $40 increase in required reserves

if the fed requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does the bank of tampa now hold

$50

assume that the bank of tampa is holding the required percent of deposits as reserves. also assume all other banks hold only the required percent of deposits as reserves and that people hold only deposits and no currency. what is the money multiplier

10

if the bank of tampa has loaned out all the money it wants given its deposits, then its reserve ratio is

10%

if the reserve ratio is 5% the money multiplier is

20

the price level rises from 120 to 150. what was the inflation rate

25%

suppose a bank has $200,000 in deposits and $190,000 in loans. it has loaned out all it can. it has a reserve ratio of

5 percent

The agency responsible for regulating the money supply in the United States is

Fed Reserve

during wars the public tends to hold relatively more currency and relatively fewer deposits. this decision makes reserves

and the money supply decrease

when the fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public, the money supply increases

demand deposits are a type of

checking account

the Fed's primary tool to change the money supply is

conducting open market operations

which of the following is a store of value

currency, U.S. government bonds, fine art

if the reserve ratio is 20 percent, and banks do not hold excess reserves, and people hold only deposits and not currency, then when the Fed sells $40 million of bonds to the public, bank reserves

decrease by $40 million and the money supply eventually decreases by $200 million

as the reserve ratio increases, the money multiplier

decreases

in a fractional reserve banking system, an increase in reserve requirements

decreases both the money multiplier and the money supply

to increase the money supply, the Fed could

decreases the reserve requirement

when the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises

credit cards

defer payments

when prices are falling economists say that there is

deflation

A decrease in the money supply creates an excess

demand for money that is eliminated by falling prices

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

demanded increases

the classical dichotomy refers to the idea that the supply of money

determines nominal variables, but not real variables

liquidity refers to

ease with which an asset is converted to the medium of exchange

current U.S. currency is

fiat money with no intrinsic value

The existence of money leads to

greater specialization and a higher standard of living

an associate professor of economics gets a $100 a month raise. she figures that with her current monthly salary she can't buy as many goods as she could last year

her real salary has fallen and her nominal salary has risen

Which of the following is correct

if the Fed purchase bonds in the open market, then the money supply curve shifts right. a change in the price level does not shift the money supply curve

the principle of monetary neutrality implies that an increase in the money supply will

increase the price level, but not real GDP

when a bank loans out $1000 the money supply

increases

as the price level decreases, the value of money

increases so people want to hold less of it

over one time horizon or another Fed policy decisions influence

inflation and employment

Changes in the quantity of money affect

interest rates, prices, production

when the Fed conducts open market sales

it sells Treasury securities which decreases the money supply

the Fed can directly protect a bank during a bank run by

lending reserves to the bank

The fed Reserve does all except which of the following

make loans to individuals

When the money market is drawn with the value of money on the vertical axis, the price level increases if

money demand shifts left or money supply shifts right

commodity money is

money with intrinsic value

Which of the following executes open market operations

new york federal reserve bank

economic variables whose values are measured in monetary units are called

nominal variables

Inflation can be measured by the

percentage change in the CPI

the Federal Deposit Insurance Corporation

protects depositors in the event of bank failures

if the fed wanted to increase the money supply, it would make open market

purchases and lower the discount rate

economic variables whose values are measured in goods are called

real variables

on a bank's T account

reserves are assets and deposits are liabilities

mia puts money into a piggy bank so she can spend it later. what function of money does this illustrate

store of value

the supply of money increases when

the Fed makes open market purchases

the supply of money is determined by

the Federal Reserve System

the velocity of money is

the average number of times per year a dollar is spent

when the money supply curve shifts from MS1 to MS2

the equilibrium value of money decreases

which of the following is correct

the federal reserve has 12 regional banks, the board of governors has 7 members who serve 14 year terms

if the money supply is MS2 and the value of money is 2,

the quantity of money supplied is greater than the quantity of money demanded

in order to maintain stable prices, a central bank must

tightly control the money supply

the "yardstick" people use to post prices and record debts is called

unit of account

which of the following is a function of money

unit of account, store of value, medium of exchange

which of the following best illustrates the medium of exchange function of money

you pay for your double latte using currency

your boss gives you an increase in the number of dollars you earn per hour. this increase in pay makes

your nominal wage increase. if your nominal wage rose by a greater percentage than the price level, then your real wage also increased