DSM 8

When we say that money serves as a unit of account, we mean that:

Prices are quoted in terms of money.

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.

Seven, 14-year terms, President

Credit cards are:

not part of the money supply.

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the __________.

quantity theory of money

Which of these predictions can be made using the growth rates associated with the equation of exchange?

If the money supply grows at a faster rate than real GDP, there will be inflation.

Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:

each additional dollar of reserves creates $5 of deposits.

The __________ links the quantity of money, velocity of circulation, price level, and real GDP.

equation of exchange

In the long run, the rate of inflation is determined by the __________.

growth of the money supply

On the balance sheet of commercials banks __________.

loans are the largest asset

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.

low, high

The Fed conducts monetary policy primarily through __________.

open market operations

If the Federal Reserve increases the money supply at 5% a year, in the long run there will be __________.

something less than 5% annual inflation

If real GDP increases:

the money demand curve shifts to the right.

When the interest rate decreases, __________.

there is movement down a stationary money demand curve

Suppose that velocity of circulation is 3 and the quantity of money is $500 million. According to the quantity theory of money, GDP equals __________.

$1.5 Billion

The equation of exchange is:

M x V = P x Q

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.

Monetary policy

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committee

Velocity of circulation is defined as __________.

V = (P x Y) / M

When is the opportunity cost of holding money higher?

When interest rates are high

Which of these will shift the money demand curve to the right?

an increase in real GDP

To increase the money supply, the Fed __________.

buys securities from the public