Econ Chapter 11 and 12

If the desired reserve ratio is 15 percent, then for every dollar that is deposited in the bank, the bank will -keep 15 cents as reserves. -keep 85 cents as reserves. -keep 85 cents as reserves and loan 85 cents. -keep 15 cents as reserves and loan 15 cents. -loan 15 cents.

-keep 15 cents as reserves.

In the above figure, if the interest rate is 8 percent per year, the quantity of money demanded is -less than the quantity of money supplied, and the demand curve for money will shift. -greater than the quantity of money supplied, and the supply curve of money will shift. -greater than the quantity of money supplied, and the interest rate will change. -greater than the quantity of money supplied, and the demand curve for money will shift. -less than the quantity of money supplied, and the interest rate will change.

-less than the quantity of money supplied, and the interest rate will change.

When we keep part of our wealth in a bank checking account, we are using money as a -medium of exchange -unit of currency -store of value -unit of account -barter token

-store of value

The monetary base is the -sum of gold and foreign exchange held by the Fed. -sum of coins, required reserves, and banks' loans. -sum of government securities and loans to banks held by the Fed. -minimum reserve banks must hold to cover any losses from unpaid loans. -sum of coins, Federal Reserve notes, and banks' reserves at the Fed.

-sum of coins, Federal Reserve notes, and banks' reserves at the Fed.

If you shop for a car online and compare car prices across dealerships, money is functioning as a -means of payment. -unit of account. -barter mechanism. -store of value. -medium of exchange.

-unit of account.

The above table has the demand and supply schedules for money. If the Fed increases the quantity of money by $0.1 trillion, the new equilibrium nominal interest rate is -6 percent. -5 percent. -9 percent. -7 percent. -8 percent.

-8 percent.

Mary has $1,000 and is considering purchasing a $1,000 bond that pays 7 percent interest per year. Mary decides not to buy the bond and holds the $1,000 as cash. If the inflation rate is 4 percent, the opportunity cost of holding the $1,000 as money is -$100.00. -$70.00. -$40.00. -$30.00. -$110.00

$70.00.

Every day, ________ changes to make the quantity of money demanded equal the quantity of money supplied. -the nominal interest rate -the inflation rate -the price level -the money supply -real GDP

- the nominal interest rate

The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What is the total amount of deposits in this bank? -$100,000 -$1,600,000 -$180,000 -$5,000 -$1,000,000

-$1,600,000

The FUN Bank has no excess reserves when a new deposit of $20,000 is made. The desired reserve ratio is 5 percent. After the deposit, but before making any loans, how much does The FUN Bank have in excess reserves? -$1,000 -$20,000 -$19,000 -$9,000 -$21,000

-$19,000

A bank has checkable deposits of $1,000,000, loans of $600,000, and government securities of $400,000. If the required reserve ratio is 5 percent, the amount of required reserves is -$30,000. -$80,000. -$100,000. -$50,000. -$20,000.

-$50,000.

Which of the following is a policy tool of the Fed? i. setting the required reserve ratios ii. conducting open market operations iii. quantitative easing -I only -ii only -iii only -I and ii -I, ii, and iii

-I, ii, and iii

As the economy enters a strong expansion in which real GDP increases, which of the following occurs? -The demand for money curve shifts rightward. -The demand for money increases and there is a movement downward along the demand for money curve. -The demand for money decreases and there is a movement upward along the demand for money curve. -The nominal interest rate falls as the demand for money curve shifts leftward. -The demand for money curve shifts leftward.

-The demand for money curve shifts rightward.

In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent? -The value of money rises by 5 percent. -The real interest rate falls and the LRMD curve shifts rightward. -The price level rises by 5 percent and the LRMD shifts leftward. -The value of money falls by 5 percent and there will be a movement down along the LRMD curve. -The nominal interest rate rises by 5 percent.

-The value of money falls by 5 percent and there will be a movement down along the LRMD curve.

A commercial bank is defined as -the institution that sets regulations for commercial activities. -a firm that obtains funds by selling shares and then buys U.S. Treasury bills. -a firm that is chartered to accept deposits and make loans. -any institution that accepts deposits. -any institution that makes loans.

-a firm that is chartered to accept deposits and make loans.

In the long run, an increase in the quantity of money leads to -an equal percentage increase in the real interest rate. -a smaller percentage increase in the real interest rate. -no effect on the price level or on real GDP. -a smaller percentage increase in the price level. -an equal percentage increase in the price level.

-an equal percentage increase in the price level.

In the above figure, a movement from point B to point C represents an increase in the quantity of money demanded. -an increase in the demand for money that might be the result of an increase in real GDP. -an increase in the demand for money that might be the result of a fall in the price level. -a decrease in the demand for money that might be the result of an increase in real GDP. -a decrease in the quantity of money demanded.

-an increase in the demand for money that might be the result of an increase in real GDP.

An increase in the price level leads to ________ in the demand for money, and an increase in real GDP leads to ________ in the demand for money. -no change; an increase -an increase; an increase -a decrease; a decrease -a decrease; an increase -an increase; a decrease

-an increase; an increase

As the central bank, the federal reserve system provides banking services to -the government and the stock market -individuals and controls the quantity of money -foreign corporations and determines the exchange rate -banks and determines how much the us government will borrow -banks and regulates financial institutions and markets

-banks and regulates financial institutions and markets

The Federal Reserve System provides banking services to ________ because ________. -FDIC insured banks; they are the ones that have paid their membership fees and the only ones the U.S. central bank guarantees -banks and businesses; it is a central bank with the primary purpose of regulating financial institutions and markets -no one; it is a central bank with the primary purpose of regulating financial markets -consumers and businesses; it is a central bank with responsibilities to the entire U.S. population -commercial banks; it is a central bank with the primary purpose of regulating financial institutions and markets

-commercial banks; it is a central bank with the primary purpose of regulating financial institutions and markets

A commercial bank's reserves are equal to the amount of only the currency in its vault. -the bank's loans. -currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank. -the bank's deposits. -the bank's government securities.

-currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank.

If the Fed is worried about inflation and wants to raise the interest rate, in the short run it can -directly raise the interest rate without affecting either the demand for money or the supply of money. -increase the demand for money. -decrease the demand for money. -increase the quantity of money. -decrease the quantity of money.

-decrease the quantity of money.

When the nominal interest rate falls, the opportunity cost of holding money -decreases and the demand for money curve shifts leftward. -increases and the demand for money curve shifts rightward. -increases and there is a movement upward along the demand for money curve. -decreases and the demand for money curve shifts rightward. -decreases and there is a movement downward along the demand for money curve.

-decreases and there is a movement downward along the demand for money curve.

As more and more businesses accept credit cards, the -supply of money decreases. -demand for money increases. -quantity of money demanded increases. -demand for money decreases. -quantity of money demanded decreases.

-demand for money decreases.

Riley's deposits $4k cash in her checkable deposit at the bank. if the desired reserve ratio is 5 percent, the bank's__ -desired reserves increase by $200 and its excess reserves increase by $3800 -assets and liabilities change in opposite directions -excess reserves increase by $4k -desired reserves increase by $4k -liabilities do not change but its assets increase

-desired reserves increase by $200 and its excess reserves increase by $3800

Actual reserves are equal to -excess reserves plus liabilities -desired reserves plus excess reserves -government securities plus cash in the banks vault -required reserves plus fractional deposits -minimum balances plus desired reserves

-desired reserves plus excess reserves

If the quantity of money supplied ________ the quantity demanded, in the long run the value of money ________. -is less than; does not change unless the Fed increases the money supply -is less than; falls as people spend their surplus money -exceeds; falls as people spend their surplus money -equals; equals zero -exceeds; rises as people buy bonds

-exceeds; falls as people spend their surplus money

Barter requires the -use of fiat money as a medium of exchange. -the triple non-coincidence of wants. -use of money as a unit of account. -exchange of goods and services directly for other goods and services. -use of commodity money as a medium of payment.

-exchange of goods and services directly for other goods and services.

In the money market, if the quantity of money supplied exceeds the quantity of money demanded, the nominal interest rate will ________ and the prices of assets will ________. -fall; decrease -rise; increase -rise; decrease -fall; not change -fall; increase

-fall; increase

High inflation makes money ________ because ________. -function better as a store of value; the money gains value and therefore has greater purchasing power -function less well as a store of value; the money loses value and therefore has less purchasing power -function less well as a store of value; it decreases the price level and increases the buying power of money -function better as a store of value; it leads to a more accurate allocation of resources -function better as a unit of account; money never loses value but it does gain purchasing power in some regions

-function less well as a store of value; the money loses value and therefore has less purchasing power

Money is any commodity or token that is -generally accepted as a means of payment. -backed by gold. -issued by the government. -generally accepted as a means of measurement. -a store of value.

-generally accepted as a means of payment.

If the Fed increases the discount rate, commercial banks pay a ________ interest rate if they borrow money from the Fed and will therefore ________. -higher; borrow less money from the Fed and make fewer loans to consumers -lower; borrow less money from the Fed and make fewer loans to consumers -higher; borrow more money from the Fed and make more loans to consumers -higher; deposit more money into their reserves at the Fed -lower; borrow more money from the Fed and make more loans to consumers

-higher; borrow less money from the Fed and make fewer loans to consumers

The Fed influences the interest rate by using which of the following tools? i.open market operations ii.taxes on bank accounts iii.changes in required reserve ratios -iii only -ii and iii -ii only -i, ii and iii -i only

-ii and iii

Which of the following shifts the demand for money curve? i.change in the nominal interest rate ii.change in real GDP iii.change in the price level -ii only -ii and iii -i, ii, and iii -i only -iii only

-ii and iii

The required reserve ratio is 10 percent and Charlie deposits $3,000 in her checking account. The bank must -not change its reserves until Charlie decides to withdraw her funds. -decrease reserves by $3,000. -increase reserves by $3,000. -increase reserves by $300. -decrease reserves by $300.

-increase reserves by $300.

The required reserve ratio is 10 percent and Charlie deposited $3000 in her checking account. The bank must -decrease reserves by 3000 -increase reserves by 3000 -increase reserves by 300 -decrease reserves by 300 -not change its reserve until Charlie decides to withdraw her funds

-increase reserves by 300

In the money market, in the short run in order to decrease the nominal interest rate, the Fed must -directly lower the interest rate and not change either the demand for money or the supply of money. -increase the quantity of money. -decrease the demand for money. -increase the discount rate. -decrease the quantity of money.

-increase the quantity of money.

When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________. -increase; increases -do not change; increases -increase; decreases -decrease; decreases -decrease; increases

-increase; increases

The discount rate is the -interest rate paid on US government securities -interest rate banks charge the fed when the fed borrow from the banks -name of the interest rate banks charge their most credit-worthy borrowers -banks real interest rate -interest rate at which the fed will loan reserves to commercial banks

-interest rate at which the fed will loan reserves to commercial banks

If the Fed makes an open market purchase of $1 million of government securities, the monetary base -will increase by a multiple of $ 1 million over time -is increased by $ 1 million -is decreased by $1 million -is unchanged in size, though its composition changes -will decrease by a multiple of $1 million over time

-is increased by $ 1 million

The "value of money" -is directly related to the price level. -is the quantity of goods and services that a unit of money can buy. -increases during inflationary periods. -is determined by Fed regulations. -increases during economic expansions.

-is the quantity of goods and services that a unit of money can buy.

In the long run, an increase in the quantity of money ________ the value of money and ________ the price level. -raises; raises -lowers; does not change -lowers; lowers -raises; does not change -lowers; raises

-lowers; raises

Banks create money by -making loans and creating deposits, a process that is limited by the size of banks' excess reserves. -printing money up to their required reserve limit. -buying U.S. government securities with cash. -creating deposits without limit. -printing dollar bills without limit.

-making loans and creating deposits, a process that is limited by the size of banks' excess reserves.

When you use currency to buy lunch, money is performing which function? -barter token -unit of currency -store of value -unit of purchase -medium of exchange

-medium of exchange

The functions of money are -medium of exchange, the ability to buy goods and services, and the ability to pay off debts. -store of value, use as a barter mechanism, and unit of account. -medium of exchange, the ability to buy goods and services, and checking accounts. -credit cards, checking accounts, currency, and coins. -medium of exchange, unit of account, and store of value.

-medium of exchange, unit of account, and store of value.

If the federal reserve lowers the required reserve ratio, people will end up taking out ____ because the interest rates ____. -the same number of loans; will not change -more loans; will fall -more loans; will rise -fewer loans' will rise -few loans; are controlled by the economic conditions alone

-more loans; will fall

The opportunity cost of holding money is the: -time it takes to go to the ATM or bank. -nominal interest rate. -real interest rate. -inflation rate. -growth rate of real GDP.

-nominal interest rate.

Open market operations are the -purchase or sale of government securities by the fed -purchase or sale of gold by the fed -borrowing of reserves by the fed from the banking system -minimum percentage of loans that banks must retain as reserves in the open market -lending of reserves to the banking system by the fed

-purchase or sale of government securities by the fed

The amount of loans that a bank can create is limited by -a directive from the federal reserve system, which takes into account the banks financial stability -the real interest rate -the banks government securities -a law enacted by congress -the banks excess reserves

-the banks excess reserves

Fiat money means -moneys value does not change -the government has declared something money -the money can be converted into gold -Italian currency -only currency counts as money

-the government has declared something money

In the money market, if the nominal interest rate is below the equilibrium level the demand for money curve will shift leftward. -asset prices will rise. -the quantity of money supplied exceeds the quantity of money demanded. -the quantity of money demanded exceeds the quantity of money supplied. -the supply of money curve will shift leftward.

-the quantity of money demanded exceeds the quantity of money supplied.

When money is used to compare the relative price of a burrito and a taco, money is being used as a -medium of exchange. -token of bartering. -unit of account. -store of value. -measurement of inflation.

-unit of account.

The word "fiat" is -another word to mean the "double coincidence of wants." -used to describe money from when Kings ruled by decree or fiat. -Latin for "backed by gold." -the term used to define the concept of barter. -used to describe today's money because it is money set by law.

-used to describe today's money because it is money set by law.

The supply of money curve is -horizontal because interest rates are fixed at any one moment. -downward sloping, showing the negative influence of the interest rate. -vertical because the quantity of money is fixed at any one moment. -upward sloping, showing the influence of the interest rate. -horizontal because the Fed controls the quantity of money supplied.

-vertical because the quantity of money is fixed at any one moment.

An increase in real GDP affects the demand for money because -at the higher price level, it takes more dollars to make expenditures. -tax payments rise because more income is earned. -when real GDP increases, more money is needed to make expenditures. -there is an inverse relationship between the quantity money demanded and nominal GDP. -the larger real GDP, the higher the real interest rate.

-when real GDP increases, more money is needed to make expenditures.

If the inflation rate is 2.5 percent and the nominal interest rate is 10 percent, then the real interest rate is -7.5 percent. -2.5 percent. 12.5 percent. 7.5 percent. 2.5 percent.

7.5 percent.

Which of the following are assets of commercial banks? i.reserves ii.loans iii.deposits -i only -ii only -ii and iii -I, ii, and iii -i and ii

i and ii