Loanable Funds
Suppose that the reserve ratio is 5% and that a bank has $1000 in deposits. Its required reserves are
$50
Which of the following is correct?
If the Fed purchases bonds in the open market, then the money supply shifts right. A change in the price level does not shift money supply.
A budget surplus is created if
None of the above (sells more bonds than buys back, spends more than receives, private savings greater than 0)
Which of the following is correct?
The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.
credit cards are
a method of deferring payment
Which of the following is NOT a function of fiat money?
a source of intrinsic value
Lucy wants to start her own psychiatric practice, but her expenditures exceed her income. Lucy is a
borrower who demands money from the financial system
If Microsoft sells a bond they are
borrowing directly from the public
The Federal Reserve decreases the federal funds by
buying government bonds on the open market
When opening a restaurant you may need to buy ovens, freezers, tables and cash registers. Economists call these expenditures
capital investment
A bond is a
certificate of indebtedness
Which list ranks assests from most to least liquid?
currency, stocks, fine art
Suppose that the government were to replace the income tax with a consumption tax. This would make the interest rate
decrease and investment increase.
If the Fed sells gov. bonds to the public, bank reserves tend to
decrease and the money supply decreases
If the government's expenditures exceed its recipients, it would likely
directly sell bonds to the public
If you deposit $100 into a demand deposit at a bank, the action by itself
does not change the money supply
Financial intermediaries are
financial institutions through which savers can indirectly provide funds to borrowers
Institutions in the economy that help to match one person's savings with another person's investment are collectively called
financial system
All of the following are components of the money supply in the US except
gold bullion
When the Fed conducts open market purchases, bank reserves
increase and banks can increase lending
In 1991 the Federal Reserve lowered the reserve requirement from 12% to 10%. Other things the same this should have
increased both the money multiplier and the oney supply
If reserve requirements are increased, the reserve ratio
increases, the money multiplier decreases, and the money supply decreases
A mutual fund
is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.
The source of the supply of loanable funds
is saving and the source of demand for loanable funds is investment
Commercial banks can create money by
lending excess reserves to customers
Fred is considering expanding his dress shop. If interest rates rise he is
less likely to expand. This illustrates why the demand for loanable funds slopes downward.
Other things the same, countries that tax saving less will have
lower interest rates and high investment than other countries
The Federal Reserve does all except which of the following
make loans to individuals
when a country saves a larger portion of its GDP, it will have
more investment, and so have more capital and higher productivity
The supply curve of money is vertical because the quantity of money supplied increases
only if the central bank increases the money supply
Which of the following lists ranks the Fed's monetary policy tools from most to least frequently used?
open market transactions, discount rate changes, reserve requirement changes
People who buy stock in a corporation such as GE become
part owners of GE, so the benefits of holding stock depend on GE's profits
Crowding out refers to the decrease in
private investment due to increased borrowing by the government
The Fed can increase the money supply by conduction open market
purchases and lowering the discount rate
A higher interest rate induces people to
save more, so the supply of loanable funds slopes upward.
Which of the following is not included in M1?
savings deposits
Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?
the demand for loanable funds would shift left
Liquidity refers to
the ease with which an asset in converted to the medium of exchange
Which of the following is most likely to increase if the public decides to increase its holdings of currency?
the interest rate
In the language of macroeconomics, investment refers to
the purchase of new capital
What would happen in the market for loanable funds if the government were to increase the tax on interest income?
the supply of loanable funds would shift left
Which of the following best illustrates the medium of exchange function of money
you pay for your latte using currency
If the nominal interest rate is 5% and the rate of inflation is 2%, then the real interest rate is
3%
The nominal interest rate is 6% and the real interest rate is 2% , what is the inflation rate?
4%
The Federal Open Market Committee is made up of
5 of the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors
If the inflation rate is 2% and the real interest rate is 3% , then the nominal interest rate is
5%
Which of the following equations will always represent GDP in an open economy?
Y=C+I+G+Nx
Members of the Board of Governors
are appointed by the US President, while presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors