econ last final

Suppose that the reserve ratio is 6 percent, and applies only to checkable deposits. A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank

$2 million

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal

$2 million.

If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be

$200 billion

GDPC$ 140$ 150180180220210260240300270 The accompanying schedule contains data for a private closed economy. All figures are in billions. If gross investment is $10 at all levels of GDP, the equilibrium GDP will be

$220.

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

$37,000

ItemBillions of DollarsCheckable Deposits$ 597Small Time Deposits818Currency639Money-Market Mutual Funds Held by Businesses1,045Savings Deposits, Including Money-Market Deposit Accounts2,866Money-Market Mutual Funds Held by Individuals979 Refer to the accompanying table. The size of the M2 money supply is

$5,899 billion.

Ca = 25 + 0.75 (Y − T) Ig = 50 Xn = 10 G = 70 T = 30 (Advanced analysis) The accompanying equations are for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively. Figures are in billions of dollars. The equilibrium level of GDP for this economy is

$530.

Refer to the diagram. If net exports areXn2, the GDP in the open economy will exceed GDP in the closed economy by

BD

What is one significant characteristic of fractional reserve banking?

Banks can create money through lending their reserves.

The level of aggregate expenditures in a mixed open economy consists of

Ca + Ig + Xn + G.

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

Great Depression

Which of the following statements about quantitative easing is most accurate?

Quantitative easing refers to the Fed's use of open-market operations to buy trillions of dollars' worth of medium- and longer-maturity financial assets.

Which of the following is correct?

The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.

After the 2008 financial crisis, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

The increase in excess reserves in the banking system virtually eliminated the need for banks to borrow in the federal funds market.

If the United States wants to increase its net exports, it might take steps to

depreciate the dollar compared to foreign currencies.

Other things equal, the multiplier effect associated with a change in government spending is

equal to that associated with a change in investment or consumption.

An increase in nominal GDP increases the demand for money because

more money is needed to finance a larger volume of transactions.

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

nominal GDP decreases and the interest rate increases

The Fed's response to the zero lower bound problem was

quantitative easing.

The Fed's normalization plan for monetary policy included

raising the interest rate paid on excess reserves.

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

some of the tax increase will be paid out of income that would otherwise have been saved.

When cash is withdrawn from a checkable-deposit account at a bank,

the money supply M1 does not change, but its composition changes.

Interest paid on excess reserves held at the Fed

will incentivize financial institutions to hold more reserves and reduce risky lending.

GDPCSIg$ 100$ 100$ 0$ 802001604080300220808040028012080500340160806004002008070046024080 Refer to the accompanying information for a closed economy. If government now spends $80 billion at each level of GDP and taxes remain at zero, the equilibrium GDP

will rise to $500.

Answer the question based on the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions. AssetsLiabilities & Net WorthReserves$200Checkable Deposits$1,000Securities300Stock Shares400Loans500Property400 The commercial banking system has excess reserves of

zero.

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves.

The functions of money are to serve as a

The functions of money are to serve as a

Checkable deposits are included in

both M1 and M2.

Other things equal, if $100 billion of government purchases ( G) is added to private spending ( C + Ig + Xn), GDP will

increase by more than $100 billion.

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of

liabilities

The claims of depositors of a bank against the bank's assets are called

liabilities.

The transactions demand for money is most closely related to money functioning as a

medium of exchange.

An increase in taxes will have a greater effect on the equilibrium GDP

the larger the MPC.

The currency, or money, of the United States, like those of other countries, is

token money.

Which of the following statements is incorrect?

Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4.

In a mixed open economy, the equilibrium GDP is determined at that point where

Sa + M + T = Ig + X + G.

Refer to the diagram. The sizes of the multipliers associated with changes in investment and government spending in this economy are

both 2.5

(Consider This) Credit card balances are

not a component of M1 or M2.

The increase in excess reserves that occurred as a result of the mortgage debt crisis

rendered open-market operations ineffective.

In a mixed closed economy,

taxes and savings are leakages, while investment and government purchases are injections.

When a bank sells capital stock (equity shares) in return for cash,

the capital stock increases the net worth and the cash increases the assets side.

(Last Word) The greater the leverage in the financial system, all else equal,

the greater the instability of the financial system.

ItemBillions of DollarsCheckable Deposits$ 597Small Time Deposits818Currency639Money-Market Mutual Funds Held by Businesses1,045Savings Deposits, Including Money-Market Deposit Accounts2,866Money-Market Mutual Funds Held by Individuals979 Refer to the accompanying table. The size of the M1 money supply is

$1,236 billion.

Ca = 25 + 0.75 (Y − T) Ig = 50 Xn = 10 G = 70 T = 30 (Advanced analysis) The accompanying equations are for a mixed open economy. The lettersY,Ca,Ig,Xn,G, andTstand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively. Figures are in billions of dollars. If the economy's tax schedule wasT= 0.2Yrather thanT= 30, the equilibrium GDP would be

$387.5.

ItemBillions of DollarsCheckable Deposits$ 597Small Time Deposits818Currency639Money-Market Mutual Funds Held by Businesses1,045Savings Deposits, Including Money-Market Deposit Accounts2,866Money-Market Mutual Funds Held by Individuals965 Refer to the accompanying table. The value of the money included in M2 but not counted in M1 is

$4,649 billion

ItemBillions of DollarsCheckable Deposits$ 597Small Time Deposits818Currency639Money-Market Mutual Funds Held by Businesses1,045Savings Deposits, Including Money-Market Deposit Accounts2,866Money-Market Mutual Funds Held by Individuals979 Refer to the accompanying table. The value of the money included in M2 but not counted in M1 is

$4,663 billion.

C = 26 + 0.75Y Ig = 60 X = 24 M = 10 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. The equilibrium GDP for the open economy is

$400.

Answer the question based on the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions. AssetsLiabilities & Net WorthReserves$200Checkable Deposits$1,000Securities300Stock Shares400Loans500Property400 Suppose the Fed wants to increase the money supply by $1,000 billion to drive down interest rates and stimulate the economy. To accomplish this, it could lower the reserve requirement from 20 percent to

10 percent.

Possible Levels of Domestic Output and Income (GDP = DI)Consumption$ 320$ 320330327340334350341360348370355380362 The table gives data for a private closed economy. The MPS is

3/10.

Which of the following would most likely result from the Fed imposing negative nominal interest rates in response to a financial crisis and recession

Customers would withdraw deposits, banks would have less money to lend, and the money supply and aggregate demand would both fall.

In a mixed open economy, if aggregate expenditures exceed GDP,

Ig + X + G > Sa + M + T.

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the 2008 financial crisis?

The Fed effectively lost the ability to use the target for monetary policy since banks no longer have a problem meeting their reserve requirement.

Which of the following statements is true?

The Federal Reserve does not set the federal funds rate, but historically has influenced it using its open-market operations.

Which of the following would reduce GDP by the greatest amount?

a $20 billion decrease in government spending

Which of the following would increase GDP by the greatest amount?

a $20 billion increase in government spending

Taxes represent

a leakage of purchasing power, like saving

When economists say that money serves as a unit of account, they mean that it is

a monetary unit for measuring and comparing the relative values of goods.

Refer to the diagram. The change in aggregate expenditures as shown from (C +Ig +Xn1) to (C +Ig +Xn2) will produce

an inflationary expenditure gap if 0 B is this nation's full-employment level of GDP.

Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will

decline by $0.5 billion and the money supply will decline by $2.5 billion.

(Last Word) After years of helping terrorist groups launder money, and aiding Iran and North Korea evade sanctions, HSBC bank was:

fined about five weeks' worth of profits.

Restrictive monetary policy since the mortgage debt crisis

has mainly been attempts to "normalize" monetary policy by paying interest on excess reserves and starting QT, quantitative tightening.

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

hold more of those excess reserves in its reserve account at the Fed, reducing the amount it is willing to lend.

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

open-market operations

The goldsmith's ability to create money was based on the fact that

paper money in the form of gold receipts was rarely redeemed for gold.

Beginning in 2008, the Fed was allowed to

pay interest on excess reserves deposited at Fed banks.

Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero. If at the equilibrium income the public sector's budget shows a surplus,

planned investment must exceed saving.

A lump-sum tax causes the after-tax consumption schedule

to be parallel to the before-tax consumption schedule.