Practice Test 2
assume that all other banks hold only the required 5 percent of deposits as reserves and that people hold only deposits and no currency. if the bank of tampa decides to hold exactly 5% reserves, by how much would the economy's money supply increase
$1,000
if the reserve ratio is 5%, $1000 of additional reserves can create
$20,000 of new money
if banks desire to hold n excess reserves, the reserve ratio is 10 percent, and a bank that was previously just meeting its reserve requirement receives a new deposit of $400, then initially the bank has a
$360 increase in excess reserves and $40 increase in required reserves
if the fed requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does the bank of tampa now hold
$50
assume that the bank of tampa is holding the required percent of deposits as reserves. also assume all other banks hold only the required percent of deposits as reserves and that people hold only deposits and no currency. what is the money multiplier
10
if the bank of tampa has loaned out all the money it wants given its deposits, then its reserve ratio is
10%
if the reserve ratio is 5% the money multiplier is
20
the price level rises from 120 to 150. what was the inflation rate
25%
suppose a bank has $200,000 in deposits and $190,000 in loans. it has loaned out all it can. it has a reserve ratio of
5 percent
The agency responsible for regulating the money supply in the United States is
Fed Reserve
during wars the public tends to hold relatively more currency and relatively fewer deposits. this decision makes reserves
and the money supply decrease
when the fed decreases the discount rate, banks will
borrow more from the Fed and lend more to the public, the money supply increases
demand deposits are a type of
checking account
the Fed's primary tool to change the money supply is
conducting open market operations
which of the following is a store of value
currency, U.S. government bonds, fine art
if the reserve ratio is 20 percent, and banks do not hold excess reserves, and people hold only deposits and not currency, then when the Fed sells $40 million of bonds to the public, bank reserves
decrease by $40 million and the money supply eventually decreases by $200 million
as the reserve ratio increases, the money multiplier
decreases
in a fractional reserve banking system, an increase in reserve requirements
decreases both the money multiplier and the money supply
to increase the money supply, the Fed could
decreases the reserve requirement
when the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises
credit cards
defer payments
when prices are falling economists say that there is
deflation
A decrease in the money supply creates an excess
demand for money that is eliminated by falling prices
When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money
demanded increases
the classical dichotomy refers to the idea that the supply of money
determines nominal variables, but not real variables
liquidity refers to
ease with which an asset is converted to the medium of exchange
current U.S. currency is
fiat money with no intrinsic value
The existence of money leads to
greater specialization and a higher standard of living
an associate professor of economics gets a $100 a month raise. she figures that with her current monthly salary she can't buy as many goods as she could last year
her real salary has fallen and her nominal salary has risen
Which of the following is correct
if the Fed purchase bonds in the open market, then the money supply curve shifts right. a change in the price level does not shift the money supply curve
the principle of monetary neutrality implies that an increase in the money supply will
increase the price level, but not real GDP
when a bank loans out $1000 the money supply
increases
as the price level decreases, the value of money
increases so people want to hold less of it
over one time horizon or another Fed policy decisions influence
inflation and employment
Changes in the quantity of money affect
interest rates, prices, production
when the Fed conducts open market sales
it sells Treasury securities which decreases the money supply
the Fed can directly protect a bank during a bank run by
lending reserves to the bank
The fed Reserve does all except which of the following
make loans to individuals
When the money market is drawn with the value of money on the vertical axis, the price level increases if
money demand shifts left or money supply shifts right
commodity money is
money with intrinsic value
Which of the following executes open market operations
new york federal reserve bank
economic variables whose values are measured in monetary units are called
nominal variables
Inflation can be measured by the
percentage change in the CPI
the Federal Deposit Insurance Corporation
protects depositors in the event of bank failures
if the fed wanted to increase the money supply, it would make open market
purchases and lower the discount rate
economic variables whose values are measured in goods are called
real variables
on a bank's T account
reserves are assets and deposits are liabilities
mia puts money into a piggy bank so she can spend it later. what function of money does this illustrate
store of value
the supply of money increases when
the Fed makes open market purchases
the supply of money is determined by
the Federal Reserve System
the velocity of money is
the average number of times per year a dollar is spent
when the money supply curve shifts from MS1 to MS2
the equilibrium value of money decreases
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
if the money supply is MS2 and the value of money is 2,
the quantity of money supplied is greater than the quantity of money demanded
in order to maintain stable prices, a central bank must
tightly control the money supply
the "yardstick" people use to post prices and record debts is called
unit of account
which of the following is a function of money
unit of account, store of value, medium of exchange
which of the following best illustrates the medium of exchange function of money
you pay for your double latte using currency
your boss gives you an increase in the number of dollars you earn per hour. this increase in pay makes
your nominal wage increase. if your nominal wage rose by a greater percentage than the price level, then your real wage also increased
