Chapter 15/16 Macro Eco

point X.

(Figure: Negative Supply Shock) Refer to the figure. This economy initially begins at point A and a negative supply shock takes it to point Y. If the Fed reacts by increasing money growth by 3%, this would take the economy to: point X. point B. point V. point A.

an inflation rate much greater than 16%.

(Figure: Negative Supply Shock) Refer to the figure. This economy initially begins at point A and a negative supply shock takes it to point Y. Taking the economy back to the LRAS curve would require: an inflation rate of 16%. an inflation rate much greater than 16%. a monetary expansion of 21%. an unemployment rate of -2%

$338,560

(Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it holds only the required reserves? $308,089.60 $30,470.40 $311,475.20 $338,560

$43 million

(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M1 in this country amounts to: $28 million $43 million $55 million $72 million

12.5

For this table, assume that all banks observe the same required reserve ratio requirement. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on.) Also, the bank's balance sheets must always be balanced. (Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, if all banks hold only the required reserves, what is the money multiplier in this country? 5 12.5 10 8

$308,089.60

For this table, assume that all banks observe the same required reserve ratio requirement. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on.) Also, the bank's balance sheets must always be balanced. (Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Third National Bank can make if it decides to hold 1% of deposits as excess reserves? $30,470.40 $308,089.60 $311,475.20 $338,560

boost market confidence

One of the Fed's greatest powers is its ability to boost market confidence. help stabilize commodity prices. perfectly control the supply of M1 and M2. always keep a nation on its LRAS curve

increase by $1,000.

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will decrease by $400. decrease by $1,000. increase by $1,000. increase by $400.

$91 million.

Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M2 in this country amounts to: $115 million $91 million. $123 million $107 million

open market operations, discount rate lending, and paying interest on reserves

The Federal Reserve's major tool(s) to control the money supply is(are): open market operations paying interest on reserves. discount rate lending open market operations, discount rate lending, and paying interest on reserves.

M2 includes some less liquid assets in addition to the assets in M1

The main difference between M1 and M2 is that M1 includes more liquid assets in addition to the assets in M2. M1 includes some less liquid assets in addition to the assets in M2. M2 includes more liquid assets in addition to the assets in M1. M2 includes some less liquid assets in addition to the assets in M1.

systemic risk

The risk that the failure of one financial institution can lead to the failure of other financial institutions is called liquidity risk. moral hazard. solvency risk. systemic risk.

carry out open market purchases and/or lower the discount rate

To increase the money supply in the economy, the Fed would: carry out open market purchases and/or lower the discount rate. increase the discount rate. carry out open market sales. carry out open market sales and/or raise the reserve ratio.

increase.

In the long run, a negative real shock will cause the inflation rate to increase. decrease. become more difficult to predict. remain unchanged.

inflation

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising inflation. unemployment. output growth. Solow growth.

MV

A nominal GDP rule says ______ should always grow at a constant rate. YR M MV P

decrease

In the long run, a negative real shock will cause output growth to: decrease remain unchanged increase become more difficult to predict

8%

For this table, assume that all banks observe the same required reserve ratio requirement. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on.) Also, the bank's balance sheets must always be balanced. (Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, what is the required reserve ratio in this banking system? 92% 20% 10% 8%

illiquid, but solvent

If the total liabilities of Bank A are less than its total assets but its short-term liabilities are greater than its short-term assets, Bank A is illiquid, but solvent. liquid, but insolvent. both illiquid and insolvent. both liquid and solvent.

the AD curve

The Federal Reserve can influence the economy by shifting the SRAS curve. the AD, SRAS, and LRAS curves. the LRAS curve. the AD curve.

increase the growth rate of the money supply.

To offset the effect of negative growth in money velocity (v), the central bank should increase the growth rate of the money supply. decrease the growth rate of the money supply. apply a policy that stabilizes the growth in money velocity. apply a policy that reduce the growth in money velocity.

increase the discount rate.

To reduce the money supply in the economy, the Fed would: carry out open market sales and/or lower the discount rate. carry out open market purchases. increase the discount rate. carry out open market purchases and/or lower the discount rate.

the Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

What is a reason it might be hard for the Fed to restore aggregate demand in the face of a negative demand shock? The Fed might run out of money. Banks usually don't do what the Fed demands of them. The economy responds to the Fed's actions with no lag. The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

the Federal Funds rate

What is the overnight lending rate from one bank to another? the money market rate the money multiplier rate the Federal Funds rate the Federal Reserve rate

discretion

What monetary policy philosophy is against tying the hands of the central bank? inclination discretion rules prudence

checkable deposits

Which asset would you classify as being most liquid? small-time deposits a home gold bullion. checkable deposits

The Fed purchases $50,000 worth of long-term government bonds

Which is an example of quantitative easing by the Federal Reserve? The Fed lowers interest rates. The Fed purchases $100,000 worth of short-term government bonds. The Fed raises the money multiplier. The Fed purchases $50,000 worth of long-term government bonds

increase M; do nothing

some economists argue that the Fed should commit to keeping M + V fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock? increase M; increase M increase M; do nothing decrease M; increase M increase M; decrease M