Module 8 (Chapter 16) Marcoeconomics

The asset demand for money is most closely related to money functioning as a:

store of value

The four main tools of monetary policy are:

the discount rate, the reserve ratio, the term auction facility, and open-market operations.

The asset demand for money is downsloping because:

the opportunity cost of holding money increases as the interest rate rises.

Answer the next question on the basis of the information in the following table. Refer to the above table. The equilibrium interest rate in this economy is:

4 percent.

Refer to the above table. The equilibrium interest rate is:

8 percent.

Refer to the above market for money diagrams. The asset demand for money is shown by:

D2

Refer to the above diagram for the Federal funds market. If the Fed wants the Federal funds rate to be i1, what quantity of reserves do they need to make available to banks?

Qf1.

Answer the next question on the basis of the following table: Answer the next question on the basis of the following table,At equilibrium in the above market for money, the total amount of money demanded is:

S curve would shift rightward and the equilibrium interest rate would fall.

The purpose of an expansionary monetary policy is to shift the:

aggregate demand curve rightward.

Reserves must be deposited in the Federal Reserve Banks by:

all depository institutions, that is, all commercial banks and thrift institutions.

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the MPC for the economy described by the figures is 0.8:

an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.

The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits:

and reserves of commercial banks both decrease.

Refer to the above table. Suppose the legal reserve requirement is 10 percent and initially there are no excess reserves in the banking system. If the Fed wished to reduce the interest rate by 1 percentage point, it would:

buy $10 of government bonds in the open market.

Refer to the above market for money diagrams. If the interest rate was at 8 percent, people would:

buy bonds, which would cause bond prices to rise and the interest rate to fall.

Refer to the above table. An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

fall by 2 percentage points.

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 4 percent and the Fed desires to reduce or eliminate demand-pull inflation, it should:

increase the interest rate from 4 percent to 6 percent.

Refer to the above diagram for the Federal funds market. If the Fed wants the Federal funds rate to fall from i1 to i2, it can use open market operations to:

increase the supply of Federal funds.

Refer to the above market for money diagrams. Curve D1 represents the:

transactions demand for money

Refer to the above diagram of the market for money. The downward slope of the money demand curve Dm is best explained in terms of the:

transactions demand for money.

The opportunity cost of holding money:

varies directly with the interest rate.

The asset demand for money:

varies inversely with the rate of interest.

Answer the next question on the basis of the following table: Answer the next question on the basis of the following table,At equilibrium in the above market for money, the total amount of money demanded is:

$460.

Refer to the above table. The amount of investment that will be forthcoming in this economy at equilibrium is:

$500.

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 8 percent and the goal of the Fed is full-employment output of Qf, it should:

decrease the interest rate from 8 to 6 percent.

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If aggregate demand is AD3 and the monetary authorities desire to reduce it to AD2, they should:

decrease the money supply from $120 to $100.

Refer to the above diagram of the market for money. The equilibrium interest rate is:

i2.

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should:

increase the money supply from $80 to $100

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is full-employment output of Qf, it should:

maintain the interest rate at 6 percent.

The transactions demand for money is most closely related to money functioning as a:

medium of exchange

Refer to the above market for money diagrams. If each dollar held for transactions is spent four times per year on the average, we can infer that the:

nominal GDP is $800.

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits:

of commercial banks are unchanged, but their reserves increase.

Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts?

open market operations

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS1 to MS3?

purchases of U.S. securities by the Fed in the open market

The discount rate is the interest:

rate at which the Federal Reserve Banks lend to commercial banks.

The desire to hold money for transactions purposes arises because:

receipts of income and expenditures are not perfectly synchronized.

Refer to the above market for money diagrams. If the interest rate was at 3 percent, people would:

sell bonds, which would cause bond prices to fall and the interest rate to rise.

Open-market operations refer to:

the purchase or sale of government securities by the Fed.

Refer to the above diagram of the market for money. The vertical money supply curve Sm reflects the fact that:

the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.

Refer to the above table. An interest rate of 2 percent is not sustainable because:

the supply of bonds in the bond market will rise and the interest rate will rise.

Refer to the above market for money diagrams. The total demand for money is shown by:

D3