Econ Module 4
Institutions that help to match one person's saving with another person's investment are collectively called the
financial system.
If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate
$10,000 of money.
A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. Its reserves amount to
$70.
The nominal interest rate is 6 percent and the real interest rate is 4 percent. What is the inflation rate?
2 percent
If the reserve ratio is 4 percent, then the money multiplier is
25
Which of the following lists is included in what economists call "money"?
Cash
A bank loans Danuta's Ice Cream $190,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is
an asset for the bank and a liability for Danuta's Ice Cream. The loan increases the money supply.
Crowding out occurs when investment declines because a budget
deficit makes interest rates rise.
If there is a shortage of loanable funds, then the quantity of loanable funds
demanded is greater than the quantity of loanable funds supplied and the interest rate will rise.
When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the price level increases if money demand shifts
left and decreases if money supply shifts left.
Katleen is considering expanding her dress shop. If interest rates rise she is
less likely to expand. This illustrates why the demand for loanable funds slopes downward.
An increase in the government's budget surplus means public saving is
positive and increasing.
The slope of the supply of loanable funds curve represents the
positive relation between the interest rate and saving.
In a closed economy, private saving is
the amount of income that households have left after paying for their taxes and consumption.
The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?
3 percent
If the nominal interest rate is 8 percent and the inflation rate is 3 percent, then the real interest rate is
5 percent.
Hideo and Hannah decide to go on a vacation. As a result, they withdraw $5,000 from their savings account to purchase $5,000 worth of traveler's checks. As a result of these changes,
M1 increases by $5,000 and M2 stays the same.
In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?
Public saving
Which of the following policies can the Fed follow to increase the money supply?
Reduce the interest rate on reserves
Which of the following is included in M2 but not in M1?
Small time deposits
Suppose private saving in a closed economy is $21b and investment is $8b.
The government budget deficit must equal $13b.
When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as
a unit of account.
If the Federal Open Market Committee decides to increase the money supply, it
creates dollars and uses them to purchase government bonds from the public.
If the Fed raised the reserve requirement, the demand for reserves would
increase, so the federal funds rate would rise.
Other things the same, when the interest rate rises, people would want to lend
more, making the quantity of loanable funds supplied increase.
If the reserve requirement is 7 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $200, it
must increase required reserves by $14.
In a closed economy, national saving equals
private saving plus public saving.
At the broadest level, the financial system moves the economy's scarce resources from
savers to borrowers.
When conducting an open-market sale, the Fed
sells government bonds, and in so doing decreases the money supply.
If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a
shortage and the interest rate is below the equilibrium level.
You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______.
store of value, unit of account, medium of exchange
Cash, fine art, and silver are all
stores of value.
