Unit 4: Financial Sector - Quiz #1 - Study Guide

Based on the table above, what is the value of , a measure of the money supply?

$1,120 million

The real value of the United States dollar is determined by

the goods and services it will buy

If the federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result?

Interest rates will decrease.

All of the following changes will shift the investment demand curve to the right EXCEPT

an increase in the real interest rate

An open-market operation by a country's central bank to reduce the unemployment rate would be to

buy bonds to decrease the interest rate and to increase aggregate demand

The amount of money that the public wants to hold in the form of cash will

decrease if interest rates increase

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?

demand for loans: decrease real interest rate: decrease

All of the following are components of the money supply in the United States EXCEPT

gold bullion

Assume the nominal interest rate on a -year fixed-rate mortgage loan is percent. If the expected inflation rate is percent, the expected real interest rate is

3%

Which of the following is NOT a function of fiat money?

A source of intrinsic value

Which of the following changes in the loanable funds market will decrease the equilibrium real interest rate?

An increase in foreign financial capital inflows

Which of the following changes would most likely cause an increase in interest rates in the short run?

An increase in government spending financed by borrowing

An increase in the price level will most likely cause which of the following?

An increase in the demand for money

Which of the following would most likely cause the United States economy to fall into a recession?

An open market sale by the Federal Reserve

Which of the following will lower the prices of a country's outstanding government bonds?

An outflow of financial capital to other countries

If the loanable funds market is in equilibrium, then which of the following must be true?

Borrowing equals lending.

Which of the following is a monetary policy that can be used to counteract a recession?

Buying bonds in the open market

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

Checkable deposits (demand deposits)

Which of the following is most likely to increase the real interest rate in Country Z ?

Country Z is viewed as having increased political and economic risk.

When an economy is operating below the full-employment level of output, an appropriate monetary policy would be to increase which of the following?

Open market purchases of government bonds

Which of the following will lead to an increase in the money supply?

Open-market purchase of securities by the central bank

If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following?

Rising price levels

Which of the following government policies can reduce the rate of inflation in the short run?

Selling bonds on the open market

Which of the following is a monetary policy aimed at increasing the equilibrium interest rate in the money market?

Selling bonds on the open market

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

Which of the following will most likely result in a lower real interest rate in a nation?

The citizens of the nation increase their savings for retirement; The nation is experiencing political instability and economic risk.

If the central bank buys government bonds from individuals on the open market and banks do not loan out any excess reserves created by the open market purchase, which of the following will happen?

The money supply will increase.

The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by

a decrease in the money supply

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to

lower the discount rate and buy bonds on the open market to generate an increase in output

In the short run, government deficit spending will most likely

lower the inflation rate

The money demand curve is downward sloping because

people hold less money as the opportunity cost of holding money rises

Assume that the government finances its spending by borrowing from the public. If the government increases deficit spending, the price of previously issued bonds and the real interest rate will change in which of the following ways?

price of bonds: decrease real interest rate: increase

If the interest rate on short-term government bonds declined as a result of open market operations by a central bank, the central bank must have

purchased government bonds

The loanable funds market is best described as bringing together

savers and borrowers

If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to

sell securities on the open market

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

smaller money supply

Pat deposits a portion of her wages into a personal savings account every week. The saved money can be considered to be primarily a

store of value