Econ Exam #1

Identify whether each of the following examples belongs in M1 or M2. If an example belongs in both, be sure to check both boxes.Raphael has $2,500 in a savings account.Susan has $9,000 in a six-month certificate of deposit (CD).Larry has $1,200 in a checking account.

-M2 -M2 -M1, M2

Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. A- The Fed cannot prevent banks from lending out required reserves. B- The Fed cannot control the amount of money that households choose to hold as currency. C- The Fed cannot control whether and to what extent banks hold excess reserves.

-The Fed cannot control whether and to what extent banks hold excess reserves. -The Fed cannot control the amount of money that households choose to hold as currency.

Identify whether each of the following examples belongs in M1 or M2. If an example belongs in both, be sure to check both boxes. 1. Sam has 25,000 in a money market account 2. Lorenzo has a roll of quarters that he withdrew from the bank for laundry 3. Teresa has 8,000 in a two year CD

1. M2 2. M1 & M2 3. M2

Felix has saved $30 per week to buy a new Blu-Ray player. He compares two different models: a Panaview that is priced at $130 and a Zony model that is priced at $140. Felix decides to purchase the Zony Blu-Ray player for $140.Identify what role money plays in each of the following parts of the story.1. Felix can easily determine that the Panaview model has a lower price than the Zony model.2. Felix saved $30 per week.3. Felix pays $140 for the Blu-Ray player. Options: Medium of exchange, Unit of account, Store of Value.

1. Unit of account 2. Store of value 3. Medium of exchange

How many federal reserve regional banks are there?

12

Inflation Tax is ___________ A. is the increase in real income taxes due to lack of indexation in income tax rules B. is a tax on everyone who holds money C. transfers wealth from the government to households D. All of the above are correct

B. is a tax on everyone who holds money

A higher inflation rate will (Increase/decrease) the after tax real interest rate when the government taxes nominal interest income. This tends to (discourage/promote) saving, thereby, (decreasing/increasing) the quantity of investment in the economy and (decrease/increase) the economies long run growth rate

Decrease Discourage Decrease Decrease

In order to decrease the number of dollars in the U.S. economy (the money supply), the Federal Reserve will

Sell government bonds

The Federal Reserve's role as a lender of last resort involves lending to which of the following financially troubled institutions -US State Govt when they run short on taxes -US Banks that cannot borrow elsewhere -Govts in developing countries during currency crises

U.S. banks that cannot borrow elsewhere

The unanticipated change in inflation arbitrarily benefits lenders or borrowers?

borrowers

The Federal Reserve's primary tool for changing the money supply is the

open market operation