4.4,4.5,4.6 macro quiz

Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be

$900

Assume that the reserve requirement is 10 percent. Marwa deposits $1 million in cash into her checking account at First Bank. The deposit will initially increase excess reserves at First Bank by

$900,000

Suppose that the central bank buys $100 worth of bonds on the open market in a country whose banking system has limited reserves. Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and there are no cash leakages. After banks have made all adjustments, reserves, demand deposits, and loans will increase by which of the following?

100,1000,900

Ms. Smith withdraws 1000 from her safe and deposits the money in a bank. If the bank holds no excess reserves and the reserve requirement is 10 percent, how will this deposit increase the bank's required reserves and the bank's loans?

100,900

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 is most likely to occur if the central bank engages in open market operations to reduce inflation?

A decrease in reserves in the banking system

Which of the following will most likely result in an increase in aggregate demand?

A decrease in the central bank's administered interest rates

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

Administered interest rates

If currently at full employment, which of the following would most likely cause the United States economy to fall into a recession?

An increase in administered interest rates

Which of the following will lead to a decrease in a nation's money supply in a country where the banking system has limited reserves?

An increase in reserve requirements

If the Federal Reserve lowers its administered interest rates, which of the following would most likely occur?

Businesses will purchase more factories and equipment.

Country H's current domestic output is lower than its potential domestic output. Assume that the central bank now decreases its administered interest rates. What will be the short-run effects of the central bank's action on cyclical unemployment and real income?

Cyclical unemployment will decrease, and real income will increase.

Which of the following is a monetary policy used to counter the effect on employment of a negative supply shock in the short run?

Decreasing administered interest rates

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

Decreasing the administered interest rates lowers nominal interest rates, which increases investment.

Assume a country's banking system has limited reserves. To counter a recession, the central bank might pursue which of the following actions?

Decreasing the discount rate and buying securities on the open market

Which of the following accurately describes the difference between how open market operations are used in a banking system with limited reserves compared to a banking system with ample reserves?

In a banking system with limited reserves, open market operations are used to indirectly influence the nominal interest rate by changing the money supply, whereas in a banking system with ample reserves, open market operations are used to maintain sufficient reserves.

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

Increasing administered interest rates

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

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy?

Interest rates increase, investment and consumption spending decrease, aggregate demand decreases, and output and prices decrease.

Assume that the reserve requirement is 15 percent and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet?

Liabilities: Increase by $200 Required Reserves: Increase by $30

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

Lowering the interest rate paid on reserves

Which of the following occurs as investment becomes more responsive to changes in the interest rate?

Monetary policy becomes more effective at changing real gross domestic product.

Nominal interest rates and prices of previously issued bonds will be affected in which of the following ways when money demand exceeds money supply?

Nominal interest rates will increase, and bond prices will decrease.

Which Federal Reserve action can shift the aggregate demand curve to the left?

Raising interest on reserves

The economy is currently operating at long-run equilibrium. The central bank engages in expansionary monetary policy. How will the central bank's action affect the economy's real output and the price level in the short run? Responses

Real output will increase, and the price level will increase.

Assuming a banking system with limited reserves, which of the following is a monetary policy action a central bank would implement to control inflation?

Sell government bonds to the public

Assuming a banking system with limited reserves, 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

Open market operations refer to which of the following activities?

The buying and selling of government securities by the central bank

Assume the banking system in Nation K has limited reserves. Which of the following would most likely lead to a decrease in nominal interest rates in Nation K?

The central bank in Nation K buys government securities.

Assume a country's banking system has limited reserves. Which of the following results when the central bank sells bonds to commercial banks?

The money supply decreases.

Assume a country's banking system has limited reserves. 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 amount of money that the public wants to hold is $10 billion. With a monetary base of $2 billion and a money multiplier of 4, which of the following will most likely occur?

The nominal interest rate will increase.

Which of the following is true when interest rates rise?

The opportunity cost of holding cash increases.

Assume a country's banking system has limited reserves. Which event would have caused the shift of the money supply curve from S1 to S2 in the money market shown above?

The purchase of government bonds on the open market by the central bank

In the short run, an increase in the policy rate will cause

a leftward shift in the aggregate demand curve

In the short run, a tight monetary policy tends to cause

an increase in interest rate and a decrease in private investment

If the Federal Reserve lowers administered interest rates, which of the following would most likely occur?

businesses will purchase more factories and equipment

For a country whose banking system has limited reserves, an open-market operation by the country's central bank to reduce the unemployment rate would be to

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

A central bank can increase the money supply by

buying government bonds on the open market

which of the following will lead to an increase in nominal interest rates?

contractionary monetary policy accompanied by an increase in the demand for money

Assume that the reserve requirement for demand deposits is 20 percent, that banks hold no excess reserves, and that the public holds no currency. If the banking system has limited reserves and the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will

decrease by $50,000

Assuming a banking system with limited reserves, which of the following represents an expansionary monetary policy action?

decrease in the required reserve ratio

if the federal reserve is concerned because the actual unemployment rate is greater than the natural rate of unemployment, which policy action could they take?

decrease interest on reserves

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?

decrease money supply, increase in interest rates, decrease in aggregate demand

Assuming the banking system has limited reserves, an increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output?

decrease, increase

Assume that the public holds part of its money in cash and the rest in checking accounts. The banking system has limited reserves. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will

increase by less than double

An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run?

increase decrease

The aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?

increase, increase, decrease

Which of the following represents a contractionary monetary policy action for a central bank operating in a banking system with ample reserves?

increasing administered interest rates

Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run?

interest rate: decrease investment: increase

which of the following will most likely occur in an economy if more money is demanded than is supplied?

interest rates will increase

which of the following is true of the quantity of money demanded?

it falls when interest rates rise becuase the oppurtunity cost of holding money increases

Under a fractional reserve banking system, banks are required to

keep part of their demand deposits as reserves

If the central bank raises the required reserve ratio in a banking system with limited reserves, the money multiplier and the money supply will change in which of the following ways?

money multiplier:decrease money supply:decrease

When a central bank conducts open-market bond sales in a banking system with limited reserves, the money supply, interest rate, and aggregate demand will change in which of the following ways in the short run?

money supply: decrease interest rate: increase aggregate demand: decrease

An increase in administered interest rates will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

nominal interest rate: increase aggregate demand:decrease

Changes in which of the following will change the money supply?

open market operations

The money demand curve is downward sloping because

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

For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to decrease its administered interest rates?

unemployment rate:5% inflation rate:10%