ECO 101-52 Chapter 28
The diagram refers to a private closed economy. In this instance, the equilibrium GDP is:
$180 billion.
If GDP is 3600 and the money supply is 300, what is the velocity?
12
If nominal GDP is 2700 and the money supply is 900, what is velocity?
3
If GDP is 2400 and the money supply is 600, then what is the velocity?
4
If nominal GDP is 1800 and the money supply is 450, then what is velocity?
4
If GDP is 1800 and the money supply is 300, then what is the velocity?
6
The quantitative easing policies adopted by the Federal Reserve are usually thought of as:
temporary emergency measures.
When the central bank lowers the reserve requirement on deposits:
the money supply increases and interest rates decrease.
According to the basic quantity equation of money, if price and output fall while velocity increases, then:
the quantity of money will fall.
According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?
unpredictable rises and falls in nominal GDP
If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP?
a loose monetary policy
Which of the following is considered to be a relatively weak tool of monetary policy?
altering the discount rate
The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?
countercyclical
If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:
create an inflationary increase in price level.
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
discount rate
Which of the following institutions determines the quantity of money in the economy as its most important task?
Central Bank
The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:
Central Bank; safety and stability of the banking system.
____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?
Long and variable time lags
Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?
Northern's loan assets increase by $30 million
Which of the following institutions oversees the safety and stability of the U.S. banking system?
The Federal Reserve
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:
a contractionary monetary policy.
Which of the following events would cause interest rates to increase?
a higher discount rate
The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:
borrow for the short term from the central bank.
A central bank that wants to increase the quantity of money in the economy will:
buy bonds in open market operations.
Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.
expansionary monetary policy
When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?
federal funds rate
If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?
fighting inflation
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:
follow tight monetary policy.
When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:
following a loose monetary policy.
Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?
increase of $1 million in Pacific's loan assets
If the economy is at equilibrium as shown in the diagram, then a contractionary monetary policy will
increase unemployment, but have little effect on inflation.
When the central bank decides to increase the discount rate, the:
interest rates increase.
When banks hold excess reserves because they don't see good lending opportunities:
it negatively affects expansionary monetary policy.
Which of the following is a traditional tool used by the Fed during recessions?
open market operations
A central bank that desires to reduce the quantity of money in the economy can:
raise the reserve requirement.
If the economy is at equilibrium as shown in the diagram, then an expansionary monetary policy will:
reduce unemployment, but have little effect on inflation.
Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?
reserve requirements
When the central bank decides it will sell bonds using open market operations:
the money supply decreases.
The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
the money supply in the economy decreases
