EC 309 MC

If the Fed announces that it will raise the money supply in the future but does not change the money supply today,

both the nominal interest rate and the current price level will increase.

To increase the monetary base, the Fed can:

conduct open-market purchases.

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent.

5; 5

Which is NOT a role money plays in the economy?

factor of production

Most hyperinflations end with _____ reforms that eliminate the need for _____.

fiscal; seigniorage

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation:

increases by 1 percent

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:

inflation of 1 percent and the nominal interest rate of 1 percent.

When the Fed increases the discount rate, it:

is likely to decrease the monetary base (B).

In the United States, the money supply is determined:

jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.

A bank's total assets relative to the bank owners' equity is the

leverage ratio

In a fractional-reserve banking system, banks create money when they:

make loans

Variables expressed in terms of money are called ______ variables.

nominal

An example of fiat money is

paper bills

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same

Compared to typical open-market operations, when engaging in quantitative easing operations conducted by the Federal Reserve between 2007 and 2011, Federal Reserve purchases tended to be _____ securities.

riskier and longer-term

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoe leather costs.

Which is NOT a variable determining the supply of money?

the marginal propensity to save

The opportunity cost of holding money is

the nominal interest rate

The income velocity of money tells us

the number of times a dollar bill enters someone's income in a given time period

The ex post real interest rate will be greater than the ex ante real interest rate when the:

actual rate of inflation is less than the expected rate of inflation.