Econ Finance Study Guide
Assume the required ratio is .2. If a bank initially has no Excess Reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is
$80,000
Suppose that all banks hold no bank reserves and the reserve requirement is 20%. If Paula deposits $200 she earned for babysitting in the bank, what is the maximum increase in the total money supply?
$800
Assume the nominal interest rate that a bank charged is 7% and the expected inflation rate was 5%. If the actual inflation rate turned out to be 11%, what is the expected real interest rate and the actual interest rate?
2%/-4%
If on receiving a checking deposit of $500 a bank's excess reserves increased by $400, the require reserve
20%
Which of the following is the best example of fractional reserve banking?
A bank lends out $5000 of its excess reserves
A decrease in the supply of money will cause which of the following?
An increase in nominal interest rates
Which of the following is described as consumers holding money rather than bonds because they expect the interest rate to increase in the future?
Asset demand for money
The federal funds rate is the interest that
Banks charge one another for short term loans
The Federal Reserve can increase the money supply by
Buying bonds on the open market
All of the following are true regarding money except
Commodity money is used more than flat money today
Suppose businesses are fearful that there will be a recession in the near future. Which of the following best describes the impact of this belief on demand for loanable funds interest rate?
Decrease/Decrease
Which of the following combined policies is the most effective in decreasing unemployment?
Decrease/Decrease/Decrease
If the supply for loanable funds increases, what will happen to real interest rates and investment?
Decrease/Increase
Which of the following is the best example of the crowding-out effect?
Deficit spending leads to a higher national debt
Which of the following is true regarding the balance sheet of a commercial bank?
Demand deposits are considered a liability
The Federal Reserve can change the US money supply by changing
Discount rate
Which of the following best explains why the money demand curve is downward sloping?
Higher interest rates encourage people to exchange money for other interest bearing assets
Which of the following is an asset for the ACDC bank
II. Certificates of Deposits issued to ACDC's customers III. Vault cash IV. Money that ACDC has deposited with the Federal Reserve
If required reserves is 10% and that bank receives a new demand deposit of $300. Which of the following will most likely occur in the bank's balance sheet?
Increase by $300/Increase by $30
To eliminate an inflationary gap, the Federal Reserve might
Increase personal income taxes
Assume that a perfectly competitive financial market for loanable funds is in equilibrium. Which of the following is most likely to occur if the quantity demanded and the quantity supplied of loanable funds if the government puts a cap (ceiling) on the interest rate?
Increase/Decrease
If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected?
Increase/Decrease
An open market purchase of bonds by he Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways?
Increase/Decrease/Decrease
If businesses predict that the economy will improve and sales will increase in the future, which of the following will occur in the loanable funds market?
Increase/Increase
Banks may not be able to create the maximum amount of money from a new deposit as a result of
Individuals holding a larger portion of their assets as cash
If the Fed institutes a policy to reduce inflation, which of the following is most likely to increase?
Interest Rates
Which of the following will most likely occur in an economy if more money is demanded than supplied?
Interest rates will increase
Which of the following is true regarding the central bank's use of open market operations?
Interest rats will decrease when the central bank buys bonds
Which of the following is true regarding the federal funds rate?
It is the interest rate that banks charge each other
The required reserve ratio is 10% and the central bank sells $2 million in bonds to banks. If banks loan out all their excess loans and their are no leakages, what will happen to the money supply?
It will increase by $20 million
Fractional reserve banking means that banks are required to
Keep part of their demand deposits as reserves
When an economy is at full employment, an expansionary monetary policy will lead to
Lower interest rates and more investment
If you use money as a store of value, you would be
Putting money into a savings account
Which of the following is NOT part of M1?
Savings deposits
The Federal Reserve can increase the federal funds rate most effectively by
Selling government bonds
Which of the following is an appropriate monetary policy used by a central bank to reduce inflation?
Selling government securities
Open market operations refer to which of the following activities?
The buying and selling of government securities by the Federal Reserve
Which of the following is true for the money market graph?
There is an inverse relationship between the nominal interest rate and the quantity money demanded
If the Federal Reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short-run?
There will be a movement to the left along a short-run Phillips Curve.
"The price for a ticket to the Super Bowl is $500." This statement best illustrates money used as a
Unit of account
