econ 202 exam 2
The federal reserve has how many regional federal reserve banks?
12
Suppose the Consumer Price Index is 143.6. What does that number mean?
143.6-100 Prices rose 43.6 percent over the reference base period, on average.
The Federal Reserve has how many members of the Board of Governors?
7
Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?
A lower real interest rate makes more investment projects profitable.
_______ real GDP increases the demand for money
Increasing
________ real GDP increases the demand for money and ________ the nominal interest rate decreases the quantity of money demanded.
Increasing; increasing
The Federal Open Market Committee (FOMC) is composed of
Presidents of 5 Federal Reserve regional banks and the Board of Governors.
The quantity of money that people choose to hold depends on which of the following?
The price level Financial innovation
Which of the following affects the amount of money a person is willing to hold?
The price level rises from 103 to 107. The use of credit cards increases. The interest rate that you earn on your savings account increases.
Federal Reserve Assets
U.S. government securities mortgage-backed securities
Which of the following decreases the demand for money?
a decrease in real GDP
a shift left to the money money demand curve illustrates the effect of
a decrease in real GDP.
Modern U.S. commercial banks perform all of the following functions
accept savings deposits. make loans to households and business firms. accept checking deposits.
All the following statements about the Federal Reserve are true EXCEPT the fact that it
accepts checking deposits from the nation's residents.
In a system with fractional-reserve banking:
all banks must hold reserves equal to a fraction of their deposits.
When the actual real interest rate is less than the equilibrium real interest rate
borrowers find it difficult to borrow. here is a shortage of loanable funds.
If the real interest rate is below the equilibrium real interest rate
borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise.
The Federal Reserve System is the
central bank of the United States.
The monetary base does NOT include
checking accounts at commercial banks.
The commodity substitution bias is that
consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls.
The Bank of Japan is Japan's central bank. As part of its duties, the Bank of Japan would
control the quantity of money in circulation in Japan.
The Federal Reserve System
controls the amount of currency in circulation.
true statements regarding the Federal Reserve
controls the quantity of money. is a public authority. regulates a nation's depository institutions.
a decrease in the nominal interest rate will
create a movement downward along the money demand curve
A rise in the real interest rate
creates a movement upward along the demand for loanable funds curve.
Which of the following is NOT an asset of the Federal Reserve?
currency
Which of the following is a liability of the Federal Reserve?
currency
The monetary base is the sum of
currency and reserves of depository institutions.
The monetary base consists of:
currency held by the public, plus reserves held by banks.
when the money demand line shifts left there is a
decrease in real GDP
An increase in the real interest rate ________ the quantity of loanable funds demanded.
decreases
In the loanable funds market, as the interest rate rises the quantity of loanable funds demanded
decreases
When the Fed makes an open-market sale, it:
decreases the monetary base (B).
________ the nominal interest rate decreases the quantity of money demanded.
decreasing
Commercial banks do NOT
determine what assets are money.
The Federal Open Market Committee (FOMC)
determines the Fed's monetary policy.
Financial innovations can have the effect of
either increasing or decreasing the demand for money depending on what the innovation is.
If the real interest rate is above the equilibrium real interest rate
enders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall.
When the interest rate is above the equilibrium interest rate there is an
excess quantity of money and people will buy bonds.
Which of the following is NOT a monetary policy tool?
federal funds rate
Money that has no value other than as money is called ______ money.
fiat
Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is
greater than 15 percent.
The higher the nominal interest rate, the
greater the opportunity cost of holding money. lower the quantity of money demanded.
People use money as a store of value when they:
hold money to transfer purchasing power into the future.
An increase in the real interest rate ________ the quantity of loanable funds supplied
increases
In the loanable funds market, as the interest rate rises the quantity of loanable funds supplied
increases
When the interest rate falls in the money market, the quantity of money demanded ________ and the quantity of money supplied ________.
increases; stays the same
if people demand less money that the quantity supplied then
interest rate will fall and bond prices will rise
An example of the new goods bias in the CPI is the
introduction of hybrid automobiles, vehicles that were not made until recently.
Modern U.S. commercial banks perform all of the following functions EXCEPT
issue paper currency.
An increase in the nominal interest rate
leads to an upward movement along the demand for money curve.
Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a ________ shift in the ________ loanable funds curve.
leftward; demand for
Commercial banks do
make loans to creditworthy individuals and businesses. accept deposits from their customers. buy U.S. government Treasury bills.
In a fractional-reserve banking system, banks create money when they:
make loans.
Money's liquidity refers to the ease with which:
money can be converted into goods and services.
When real GDP increases, people demand
more real money.
Which of the following is an asset of the Fed?
mortgage-backed securities
An increase in the opportunity cost of holding money creates a ________ the money demand curve
movement up along
An increase in the nominal interest rate creates a ________ the money demand curve, and an increase in real GDP creates a ________ the money demand curve.
movement up along; rightward shift of
An increase in the opportunity cost of holding money creates a ________ the money demand curve and an increase in real GDP creates a ________ the money demand curve.
movement up along; rightward shift of
The demand for money is ________ related to the nominal interest rate.
negatively
If the price level rises, the quantity of
nominal money people demand increases.
Monetary policy tools:
open market operations last resort loans required reserve ratio
Which of the following means that the CPI overstates the actual inflation rate?
outlet substitution bias new goods bias quality change bias
The quantity of money that people choose to hold is
positively related to real GDP.
The currency-deposit ratio is determined by:
preferences of households about the form of money they wish to hold
The major role of a commercial bank is to
receive deposits and make loans.
In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:
remains the same.
Which of the following is NOT an asset of the Federal Reserve System?
reserves of depository institutions
an increase in real GDP creates a ________ the money demand curve.
rightward shift
As disposable income decreases...
saving decreases.
The quantity of ________ by households will be less ________.
saving; the lower is the real interest rate
a decrease in real GDP will
shift the money demand curve left
a decrease in the monetary base will
shift the money supply curve left
an increase in the monetary base will
shift the money supply curve right
An increase in real GDP
shifts the demand for money curve rightward.
For a commercial bank, the term "reserves" refers to
the cash in its vaults and its deposits at the Federal Reserve.
Which of the following measurements of inflation strips out volatile food and fuel prices?
the core PCE
The interest rate banks charge other banks for overnight loans is
the federal funds rate.
Other things remaining the same, the greater the expected profit
the greater the amount of investment.
If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.
the money supply
There is a movement along the demand for money curve if
the nominal interest rate rises.
The opportunity cost of holding money is
the nominal interest rate.
The demand for money curve is the relationship between ________ and ________, other things remaining the same.
the quantity of real money demanded; the nominal interest rate
A movement downward along the demand for loanable funds curve occurs when
the real interest rate falls.
If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then
the real interest rate will fall.
Which of the following tools is NOT a policy tool of the Fed?
the tax rate on interest income
Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then
there is a surplus of loanable funds.
In October of 2015, the interest rate on money market accounts was about 0.2 percent. In 2007, the interest rate on money market accounts was about 4.0 percent. What has been the impact on the demand for money curve from this fall in the interest rate?
there was an downward movement along the demand for money curve
People use money as a unit of account when they:
use money as a measure of economic transaction
People use money as a medium of exchange when the
use money to buy goods and services