Econ Midterm 3 Discussion ?s

If the equilibrium interest rate in the money market is 2%, then at the interest rate of 5% . . .

money supplied exceeds the money demanded, and people shift form holding money to interest bearing assets, causing the interest rate to fall

Imagine that John deposits $10,000 of currency into his checking account deposit at Bank A and that the required reserve ratio is 20%. Bank A's reserves immediately increase by?

$10,000

Imagine that John deposits $10,000 of currency into his checking account deposit at Bank A and that the required reserve ratio is 20%. Bank A's required reserves increase by?

$2,000

Imagine that John deposits $10,000 of currency into his checking account deposit at Bank A and that the required reserve ratio is 20%. Checking Account deposits could eventually increase to a maximum of (including the initial deposit)?

$50,000

Imagine that John deposits $10,000 of currency into his checking account deposit at Bank A and that the required reserve ratio is 20%. Of the new reserves, Bank A can loan out a maximum of?

$8,000

If a checking account pays no interest and a Treasury bill pays 1% interest, then the opportunity cost of holding money in checking is . . .

1%

Which of the following could increase unemployment and inflation simultaneously? 1. An increase in oil prices 2. Expansionary monetary policy 3. Contractionary monetary policy 4. A decrease in the real wage

1. An increase in oil prices

Suppose the economy is at point B (on the SRPC and to the left of the LRPC). Which of the following is true? A(5, 3), B(3.8, 5.8), C(6, 1) 1. The expected rate of inflation is 3% 2. The natural rate of unemployment is 3.8% 3. The current unemployment rate is 5% 4. The economy is producing at potential GDP

1. The expected rate of inflation is 3%

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million Tazes of required reserves, 75 million Tazes of excess reserves, have issued 7,500 million Tazes of deposits, and hold 225 million Tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits (checking accounts) and hold no currency in their wallets. Suppose the Bank of Tazi loaned the banks of Tazi 10 million Tazes. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change?

200 million Tazes

Under which of the following scenarios is a given economy experiencing inflation? Economic growth of __%, Growth in the money supply of __% 1. 10, 5 2. 10, 8 3. 10, 10 4. 10, 15

4. Economic growth of 10%, Growth in the money supply of 15%

Consider an economy that is in long run equilibrium. If long run aggregate supply grows at a faster rate than demand, what can the Fed do in order to return to macroeconomic equilibrium? 1. Conduct an open market sale 2. Increase the discount rate 3. Increase the required reserve ratio 4. None of the above

4. None of the above

If an increase in government purchases causes GDP to increase, then the . . . 1. money supply decreases 2. money supply increases 3. money demand decreases 4. money demand increases

4. money demand increases

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million Tazes of required reserves, 75 million Tazes of excess reserves, have issued 7,500 million Tazes of deposits, and hold 225 million Tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits (checking accounts) and hold no currency in their wallets. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve ratio for Tazian Banks?

5%

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million Tazes of required reserves, 75 million Tazes of excess reserves, have issued 7,500 million Tazes of deposits, and hold 225 million Tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits (checking accounts) and hold no currency in their wallets. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

6,900 million Tazes

According to the SRPC, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following? 1. An increase in the unemployment rate to 3.4% 2. A decrease in the unemployment rate to 3.0% 3. A decrease in the demand for labor in the economy 4. A return to the original inflation rate of 1.3%

A decrease in the unemployment rate to 3.0%

A bank will consider a car loan to a customer as an _____ and a customer's checking account as a _________.

Asset; liability

An increase in the required reserve ratio will ________ the money supply, causing the interest rates to ________.

Decrease; increase

When there is a recessionary gap, the Federal Reserve can ________ interest rates to ________ GDP and ________ the price level.

Decrease; increase; increase

Suppose the Federal Reserve increases the money supply by buying Treasury bills from banks. Then in the short run, interest rates ________ and in the long run interest rates ________.

Decrease; return to where they started

Which of the following is included in M2 and in M1? 1. demand deposits (checking accounts) 2. corporate bonds 3. small denomination time deposits 4. money market mutual funds

Demand deposits (checking accounts)

If actual inflation is less than expected inflation, actual real wages will be ___________ expected real wages and unemployment will ____.

Greater than; rise

Suppose expansionary fiscal policy causes inflation to rise above the Federal Reserve's inflation target. Then the Federal Reserve will ________ interest rates in order to ________ inflation.

Increase; decrease

If I withdraw $500 from my savings account and put it in my checking account, M1 will _______ and M2 will ________.

Increase; not change

If workers and firms know that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to ______ and will adjust wages so that the real wage ________.

Increase; remains unchanged

Suppose that the Federal Reserve follows a Taylor rule for monetary policy. When inflation increases, the Federal Reserve will want to ________ the interest rate. So it will ____ treasury bills to/from banks, causing the money supply to ________.

Increase; sell; decrease

If the Phillips curve represents a "structural relationship," then the trade-off between unemployment and inflation ___________.

Is permanent

What impact does monetary policy have on the LRPC?

Monetary policy has no impact on the LRPC.

In an economy with barter, are there more, less, or equal prices in comparison to an economy with money?

More

If a person withdraws $500 from their checking account and holds it in currency, M1 will ________ and M2 will ________.

Not change; not change

If workers and firms raise their inflation expectations, the ____ will shift ______.

SRPC; upward

What should the Federal Reserve do if it wants to move down the SRPC?

Sell Treasury bills

When the Federal Reserve wants to increase the federal funds rate it . . .

Sells treasury bills to banks, decreasing bank reserves, and decreasing the money supply

Consider an economy that is currently in its long-run equilibrium. If the Federal Reserve increases the money supply, then in the long run GDP will be _________ current GDP and the price level will be __________ the current price level.

The same as; higher than

If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve, the SRPC will be _______.

Vertical

In the long run, the Phillips curve is a ___________ at the ___________.

Vertical line; natural rate of unemployment