Exam 3 Econ

The most common method employed by the Fed to increase the money supply is the

purchase of US government bonds

If congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the fed will

reduce interest rates by increasing money supply

An increase in the money supply will

reduce interest rates, increasing investment and aggregate demand

When a bank loans out $1,000 the money supply

increases

Aggregate quantity of goods and services demanded changes as the price level rises because

real wealth falls, interest rates rise, and the dollar appreciates

If price level falls, the real value of a dollar

rises, so people want to buy more

In recent years, the federal reserve has conducted policy by setting a target for

the federal funds rate

If the stock market crashes, then

aggregate demand decreases, which the Fed could offset by purchasing bonds.

If stock market booms, then

aggregate demand increases, which the Fed could offset by decreasing the money supply by selling bonds

The initial impact of an increase in an investment tax credit is to shift

aggregate demand right

In a fractional-reserve banking system, an increase in reserve requirements

decreases both the money multiplier and money supply

If the Fed conducts open-market sales, the money supply

decreases causing aggregate demand shift to the left

Other things the same, wehn price levels fall, interest rates

fall so firms increase investment

When price level increases, real value of money holdings

falls, so people buy less

Under a fractional-reserve banking system banks

generally lend out a majority of the funds deposited

If R represents the reserve ratio for all banks in the economy then the money multiplier is

1/R

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy, what could it do?

Buy bonds, increasing money supply, to lower interest rate

List of assets from most to least liquid

Currency, demand deposits, money market mutual funds

Other things same, when government spends more, the initial effect is that

aggregate demand shifts right

The federal funds rate is the interest rate that

banks charge one another for loans

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually

because unemployment is high, wages will be bid down and short-run aggregate supply will shift right

Suppose there were a large decline in net exports. If the fed wanted to stabilize output, it could

buy bonds to lower interest rates

The primary difference between commodity money and fiat money is that

commodity money has intrinsic value but fiat money does not

If an economy used gold as money, its money would be

commodity money, not fiat money

When the dollar depreciates, each dollar buys

less foreign currency, and so buys fewer foreign goods.

In the short-run an increase in the cost of production makes

output fall and prices rise

When in France you notice that prices are posted in euros, this best illustrates money's function as

unit of account

The aggregate supply curve is

vertical in the long run and slopes upward in the short run

When the Fed sells government bonds, the reserves of the banking system

decrease, so money supply decreases

In the short run, an increase in the money supply causes interest rates to _____ and shift the aggregate demand curve ______

Decrease, right

Suppose a stock market crash makes people feel poorer, the decrease in wealth would induce people to

decrease consumption, shifting aggregate demand to the left

Suppose there is a tax increase, to stabilize output the Federal Reserve will

increase the money supply

Aggregate demand shifts right when federal reserve

increases money supply

When the interest rate increases, the opportunity cost of holding money

increases, so quantity of money demanded decreases

Which of the following is not a tool of monetary policy

increasing the government budget deficit

To decrease the money supply, the Fed can

sell government bonds or increase the discount rate

Increase in taxes will

shift ad to the left

Short run aggregate _______ shifting ____ would cause prices to fall and output to rise.

supply, right

The rate at which the Fed lends money to banks is

the discount rate