Macro unit 4

Assume that the reserve requirement is 20 percent. If a bank initially nas no excess reserves and 10,000 casn is deposited in the bank, the maximum amount by which this bank may increase its loans

$8,000

If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000

$9,000

During a mild recession, if policymakers want to reduce unemployment by increasing investment which of the following policies would be most appropriate?

A decrease in administered interest rates

Assuming a banking system with limited reserves, which of the following set of events is most likely to follow when a central bank sells securities in the open market?

A decrease in the money supply, and increase in interest rates, and a decrease in aggregate demand

Which of the following most undermines the ability of a nation's currency to store value?

A decrease in the purchasing power of the currency

The required reserve ratio is 0.2 and the central bank sells $1 million in securities. Assuming the banking system has limited reserves, there are no leakages, and banks do not hold excess reserves, then which of the following is the change in the money supply?

A decrease of $5 million

The federal funds rate is the interest rate that

Banks charge one another for short term loans

Assume a country's banking system has limited reserves. To counteract a recession, the central bank should

Buy securities on the open market and lower the discount rate

A central bank can increase the money supply by

Buying government bonds on the open market

Which of the following constitutes the largest component of the United States money supply (MI)?

Checkable deposits(demand deposits)

If the Federal Reserve pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run?

Decrease; decrease

Expansionary monetary policy can affect the economy through which of the following chains of events?

Decreasing the administered interest rates lowers nominal interest rate

Under which of the following circumstances would increasing the money supply be most effective in increasing real gross domestic product?

INTEREST RATES: high EMPLOYMENT: less than full BUSINESS OPTIMISM: high

Assuming a banking system with limited reserves, which of the following actions by the central bank reduces the ability of the banking system to create money

Increasing the reserve requirement

Assuming a banking system with limited reserves, when the central bank buys government securities on the open market. which of the following will decrease in the short run?

Interest rates

The purchase of bonds by a central bank will have the greatest effect on real gross domestic product if which if the following situations exists in the economy

The banking system has limited reserves, the required reserves ratio is low, and the interest rate has a large effect on investment spending

Open market operations refer to which of the following activities?

The buying and selling of government securities by the central bank

An inflationary gap can be eliminated by all of the following EXCEPT

an increase in the money supply

If investors feel that business conditions will deteriorate in the future, the demand for loans and real interest rate in the loanable funds market will change in which of the following ways in the short run?

decrease; decrease

An increase in government spending with no change in taxes leads to a

higher interest rate

Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?

increase, decrease

If the Federal Reserve institutes a policy to reduce inflation, which of the following is most likely to increase?

interest rates

Commercial banks can create money by

lending excess reserves to customers

When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes?

speculation

The demand for money increases when national income increases because

spending on goods and services increases