Eco121 Quiz 7
When the interest rate falls,
people shift out of holding interest-yielding bonds into holding money.
When the Federal Reserve sells government bonds to the public, it:
reduces the M1 money supply and decreases the reserves of the commercial banking system.
If the economy is inflationary, the Fed would most likely:
restrict bank lending by selling government securities.
In Keynes's view, an excess quantity of money demanded causes people to:
sell bonds and the interest rate rises.
Assume the Fed decreases the money supply and the demand for money curve is fixed. In response, people will:
sell bonds, thus driving up the interest rate.
While the classicists believed that both velocity and output are stable, Keynesians believe:
velocity and output are both variable.
Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n):
$200,000 expansion of the money supply.
"Monetary instability has been the major cause of economic instability in this country. Expansion in the money supply has been the source of every major inflation. Every major recession has been either caused or perpetuated by monetary contraction." Who among the following would most likely adhere to this view?
Monetarists.
If at the prevailing interest rate the quantity of money demanded is $2 trillion, and the supply of money is $1.5 trillion, then which of the following is true?
There is shortage of money, and consequently interest rates must rise in order to achieve an equilibrium in the money market.
The difference between an inside lag and an outside lag is best described as:
an inside lag is the time between when a policy change is needed and when the Fed identifies the problem and solution, while an outside lag is the time between a policy decision and its effect on the economy.
Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would:
fall by 50 percent
As shown in Exhibit 20-1, assume the money supply curve shifts leftward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:
lower investment, lower real GDP, and lower price level.
In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD1 to AD2?
lower the discount rate
If total deposits at Last Bank and Trust are $100 million, total loans are $70 million, and excess reserves are $20 million, then which of the following is the required reserve ratio?
10 percent.
The required reserve ratio in Exhibit 19-4 is:
20 percent.
If the required reserve ratio is a uniform 25 percent on all deposits, the money multiplier will be:
4.00
If the Fed decides to engage in an open market operation to increase the money supply, what will it do?
Buy Treasury bonds, bills, or notes on the bond market.
In Exhibit 20-6, if the Fed believes the economy is at AD3, how might it engineer a decline in the price level?
By decreasing the money supply, the interest rate rises, investment falls, and aggregate demand falls, causing the price level to fall.
When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?
It purchases U.S. government securities.
The Fed's power to set the required reserves of commercial banks:
allows the Fed to control the lending ability of commercial banks and, thereby, control the money supply.
Which of the following would appear on the liability side of a commercial bank balance sheet?
checkable deposits
The federal funds market is the market where:
commercial banks with excess reserves make loans to commercial banks seeking reserves.
Starting from an equilibrium at E1 in Exhibit 20-1, a leftward shift of the money supply curve from MS1 to MS2 would cause an excess:
demand for money, leading people to sell bonds.
Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:
increases $500,000.
The quantity theory of money assumes that the velocity of money:
is constant.
According to monetarists, which of the following would be most important for the control of inflation?
keeping the growth rate of the money supply low and steady
The discount rate is the interest rate:
the Federal Reserve charges banking institutions for borrowing its funds.
Real-world accuracy of the money multiplier can be affected by:
the way the public divides its holding of M1 between currency and certificates of deposit.
Keynes called money people hold to make routine day-to-day purchases the:
transactions demand for holding money.
Keynesians identify three principal motives for demanding money. They are the:
transactions demand, speculative demand, and precautionary demand.
