EC 309 Exam 2

Assume that the currency-deposit ratio is 0.2 and the required reserve ratio is 0.1. The Federal Reserve carries out open-market operations, selling $1 million worth of bonds from banks. This action will __________ the money supply by ______________ million.

decrease, $4

A technology innovation makes online payment easy. This may ______ the currency-deposit ratio and ______ the money supply.

decrease, increase

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving ______ and private saving ______.

decrease, increase

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation:

increase by 1 percent

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:

inflation of 1 percent, nominal interest rate of 1 percent

When people want to hold _____ money, the income velocity of money increases, and the money demand parameter k ______

less, decrease

Banks tend to hold ____________ reserves during a recession, which ____________ the money multiplier

more, decrease

In the classical model, according to the quantity theory of money and the Fisher equation, an increase in money growth increases:

nominal interest rate

Suppose V is constant, M is growing 5% per year, Y is growing 3% per year, and r = 4, where V is velocity, M is the quantity of money, and Y is real output. Suppose the growth rate of Y falls to 2% per year. To keep inflation constant the Fed must __________ the money growth rate by __________ percentage point per year.

reduce, 1

. In the neoclassical model with fixed income, if the government raises lump-sum taxes on income by $100 billion, and the marginal propensity to consume is 0.6, national saving:

rises by 60 million

The amount of capital in an economy is a(n) ______, and the amount of investment is a(n) ___

stock, flow

The Fed can reduce the money supply by reducing

the monetary base

The money supply is $10 million, currency held by the nonbank public is $2 million, and the required reserve ratio is 0.2. Bank reserves are equal to

1.6 million

if the money multiplier is 10, the purchase of $1 billion of securities by the Fed on the open market causes a

10 billion increase in the money supply

Vault cash in banks is equal to $2 million, deposits by banks at the Fed are $1 million, the monetary base is $15 million, and bank deposits are $35 million. Currency held by the nonbank public is __

12 million

The money supply is $6 million, currency held by the nonbank public is $2 million, and the required reserve ratio is 0.1. The monetary base is equal to

2.4 million

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

3

Which one of the following will lead to a decrease in the money supply?

An increase in the interest rate paid on the bank reserves

Which one of the following is an example of commodity money?

gold