ECON TEST 2

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.

If the bank faces a reserve requirement of 6 percent, then the bank

is in a position to make new loans equal to a maximum of $18,000.

12. Refer to Figure 3. Which of the following events would shift the demand curve from D1 to D2?

firms become optimistic about the future and, as a result, they planned to increase their purchases of new equipment and construction of new factories

17. Refer to Table 1. The quantity of private saving is

$1 trillion

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

$10,000 of money.

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?

$100(1 + .04)10

Assume the following information for an imaginary, closed economy. For this economy, private saving amounts to

$25,000.

Assuming the only other thing Jaunian banks have on their balance sheets is loans, what is the value of existing loans made by Jaunian banks?

$4,785 million

Suppose the Bank of Jaune loaned the banks of Jaune $30 million. 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?

$600 million

In the nation of Wiknam, the money supply is $80,000 and reserves are $20,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

25.0 percent.

If the nominal interest rate is 8 percent and the inflation rate is 3 percent, then the real interest rate is

5 Percent

The Bank of Cheerton's reserve ratio is

7.0 percent.

Which of the following statements regarding the Federal Open Market Committee is correct?

All regional Fed presidents attend the meetings, but only five get to vote.

Which of the following is not included in either M1 or M2?

Large time deposit

Suppose the interest rate is 8 percent. Consider four payment options:

Option C

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?

Public saving

Which of the following is not included in M1?

Savings deposits

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in his retirement account. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires?

Stan

Suppose private saving in a closed economy is $21b and investment is $8b.

The government budget deficit must equal $13b.

The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. What is measured along the horizontal axis of the graph?

The quantity of loanable funds

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

The supply of loanable funds shifted to the right.

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

This stock is undervalued; you should consider adding it to your portfolio.

The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. A shift of the demand curve from D1 to D2 is called

a decrease in the demand for loanable funds.

1. When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as

a unit of account.

Rory has purchased a product from an insurance company that requires the insurance company to pay him $5,000 each year, and he will continue to receive these payments until he dies. This series of payments is called

an annuity.

Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50. This implies that Thom's

marginal utility diminishes as wealth rises, so he must be risk averse.

Stockholders of ComfortAir Corporation, an air conditioner and furnace manufacturer, are concerned that the company's executives may take on greater risks than stockholders desire. This example illustrates

moral hazard and firm-specific risk.

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

rises and the quantity of loanable funds falls.

On a graph with utility on the vertical axis and wealth on the horizontal axis, diminishing marginal utility of wealth implies that the utility function is

upward-sloping and has decreasing slope.