Econ 102 Chapter 8
If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?
$12 trillion
The quantity of money in an economy is $9 million, and the velocity of circulation is 3. Nominal GDP in this economy is
$27 million
When the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals
5
If an economy has a velocity of circulation of 3, then
in a year the average dollar is exchanged 3 times to purchase goods and services in GDP
When the price levels rise, the quantity nominal money demanded will _____ and the quantity of real money demanded will ______.
increase stay the same
In the short run, when the Fed decreases the quantity of money
bond prices fall and the interest rate rises
In the short run, when the Fed increases the quantity of money
bond prices rise and the interest rate falls
Depository institutions do all the following EXCEPT
create required reserve ratios
The monetary base is the sum of
currency and reserves of depository institutions
An increase in the currency drain
decreases the size of the money multiplier
The quantity of real money demanded is
independent of the price level
The required reserve ratio
is the fraction of a bank's total deposits that is required to be held in reserves
The most direct way in which money eliminates the need for a "double coincidence of wants" is through its use as a
medium of exchange
Aside from being a means of payment, the other functions of money are
medium of exchange, unit of account, and store of value
Controlling the quantity of money and interest rates to influence aggregate economic activity is called
monetary policy
According to the quantity theory of money, in the long run changes in the price level are the result of changes in the
quantity of money
Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $20,000. The fact that the price is quoted in dollars is an example of money used as a
unit of account
Which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy?
Federal Open Market Committee
The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?
Securities decrease by $100 million and reserves increase by $100 million
The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?
Securities increase by $100 million and Federal Reserve notes (currency) decrease by $100 million
When the Fed is _______ it is ________.
adjusting the amount of money in circulations; conducting monetary policy
When the Fed lowers the federal funds rate, it can lead to
an increase in lending by banks
The sale of $1 billion of securities to a bank or some other business by the Fed is an example of
an open market operation
Checks are NOT money because they
are merely instructions to transfer money
When the nominal interest rate rises, the opportunity cost of holding money
rises and people hold less money
For a commercial bank, the term "reserves" refers to
the cash in its vaults and its deposits at the Federal Reserve
The opportunity cost of holding money refers to
the interest that could have been earned if the money balances had been changed into an interest-bearing asset
According to the quantity of theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in ______.
the price level
