Macro 16,17,18
If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as
$12,500
A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to
$50
In an open economy, gross domestic product equals $1,950 billion, government expenditure equals $280 billion, investment equals $500, and net capital outflow equals $280 billion. What is consumption expenditure?
$890 billion
If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has
($40) billion of EXPORTS and $32 billion of IMPORTS
If the price level increased from 120 to 126, then what was the inflation rate?
(126-120)/120 X 100 =5 percent per year.
At any meeting of the Federal Open Market Committee, that committee's voting members consist of
(5) Federal Reserve Regional Bank Presidents and ALL the members of the Board of Governors.
Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?
(8) units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold MORE dollars.
The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?
.04(1 - .20) - .01
If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?
.70 French MP3 players per U.S. MP3 player.
The nominal interest rate is 3.5 percent and the inflation rate is 2 percent. What is the real interest rate?
1.5 percent
If M = 4,000, P = 1.5, and Y= 6,000, what is velocity?
2.25
If the reserve ratio is 5 percent, then the money multiplier is
20
The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $355 million dollars in loans. Given this information you find that the reserve requirement must be
35/400
The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?
4 percent
Over the last 70 years, the average annual U.S. inflation rate was about
4 percent, implying that prices increased about 16-fold.
If the reserve ratio is 2.5 percent, then the money multiplier is
40
If M = 5,000, P = 3, and Y = 10,000, what is velocity?
6
If M = 3,000, P = 2, and Y = 12,000, what is velocity?
8
Which of the following is an example of U.S. foreign direct investment?
A U.S. based restaurant chain opens new restaurants in India.
When deciding how much to save, people care most about
AFTER-tax REAL interest rates
If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per dollar, the dollar has
APPRECIATED. other things the same, it now takes FEWER dollars to buy Kazakhstani goods.
Treasury Bonds are
BOTH liquid and a store of value.
During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.
BOTH the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply DECREASE
The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?
BUY bonds to INCREASE reserves
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
BUYING bonds. This buying would INCREASE reserves.
If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.
BUYS more from overseas then it sells overseas; it has a TRADE DEFICIT
If inflation is higher than what was expected,
CFEDITORS RECEIVE a lower real interest rate than they had anticipated
If an economy used gold as money, its money would be
COMMODITY money, but not fiat money.
The ease with which an asset can be
CONVERTED into the economy's MEDIUM of exchange determines the liquidity of that asset.
If the economy unexpectedly went from inflation to deflation,
CREDITORS would gain at the expense of debtors.
If the reserve ratio is 10 percent, banks do not hold excess reserves, people hold only deposits and no currency, then when the Fed sells $10 million worth of bonds to the public, bank reserves
DECREASE by ($10) million and the money supply eventually DECREASES by $100 million.
For a given real interest rate, an increase in inflation makes the after-tax real interest rate
DECREASE, which DISCOURAGES savings
If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves
DECREASES by $65 million and the money supply eventually DECREASES by ($433.33) million.
When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money
DECREASES, so the quantity of money demanded INCREASES.
When the price level falls, the number of dollars needed to buy a representative basket of goods
DECREASES, so the value of money RISES.
According to purchasing power parity, inflation in the U.S. causes the dollar to
DEPRECIATE relative to currencies of countries that have lower inflation rates.
Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation
DOES NOT CHANGE the real interest rate but REDUCES the after-tax real rate of interest.
During a hyperinflation the real domestic value of a country's currency
FALLS and its nominal exchange rate DEPRECIATES
The value of money rises as the price level
FALLS because the number of dollars needed to buy a representative basket of goods FALLS.
An appreciation of the U.S. real exchange rate induces U.S. consumers to buy
FEWER domestic goods and MORE foreign goods
Wealth is redistributed from debtors to creditors when inflation was expected to be
HIGH and it turns out to be LOW
If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves
INCREASE by $20 million and the money supply eventually INCREASES by $250 million.
For a given real interest rate, a decrease in the inflation rate would
INCREASE the after-tax real interest rate and so INCREASE saving.
In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have
INCREASED BOTH the money multiplier and the money supply.
U.S. international trade has
INCREASED because of an INCREASE in trade of goods with a high value per pound.
At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply
INCREASED. The central bank could have reduced the size of this increase by SELLING bonds.
An open-market purchase
INCREASES the number of dollars in the HANDS of the public and decreases the number of bonds in the hands of the public.
Sheri, a U.S. citizen, builds and operates a bookstore in Spain. This action is an example of
INVESTMENTS for sheri and US foreign DIRECT investments
The Federal Reserve
IS responsible for conducting the nation's monetary policy, AND it plays a role in regulating banks.
A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 800 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 720,000 yen and the exchange rate is 900 yen per dollar. Which country has purchasing-power parity with the U.S.?
JAPAN but NOT Belgium
Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is
LOWER then she had expected, and the real value of the loan is LOWER than she had expected.
The money supply increases when the Fed
LOWERS the discount rate. The increase will be larger the SMALLER the reserve ratio is.
Given the following information, what are the values of M1 and M2? Small time deposits $650 billion Demand deposits and other checkable deposits $300 billion Savings deposits $750 billion Money market mutual funds $600 billion Traveler's checks $25 billion Large time deposits $600 billion Currency $100 billion Miscellaneous categories in M2 $25 billion
M1 = $425 billion, M2 = $2, 450 billion.
Which of the following does the U.S. president appoint and the U.S. Senate confirm?
MEMBERS of the Board of Governors BUT NOT the regional Federal Reserve Bank Presidents.
When inflation rises, people tend to go to the bank
MORE often, giving rise to SHOELEATHER costs
Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?
NEITHER interest income nor capital gains.
In the U.S., taxes on capital gains are computed using
NOMINAL gains. This is one way by which higher inflation DISCOURAGES saving.
To increase the money supply, the Fed could
NOT!!!!none of the above is correct.
If a country has Y > C + I + G, then it has
POSITIVE net capital outflow and POSITIVE net exports
If a country has a trade deficit then
S<I and Y<C+I+G
Mark, a U.S. citizen, buys stock in a British Shipping company. This purchase is an example of
SAVING for Mark and U.S. foreign PORTFOLIO investment.
The money supply decreases if the Fed
SELLS Treasury bonds. The SMALLER the reserve requirement, the larger the decrease will be
A decrease in the money supply might indicate that the Fed had
SOLD bonds in an attempt to INCREASE the federal funds rate
If the money supply is MS2 and the value of money is 2, then there is an excess
SUPPLY of money that is represented by the distance between points A and B
On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store
The $80 is a NOMINAL variable. The quantity of shoes is a REAL variable
An open economy's GDP is always given by
Y = C + I + G + NX.
The law of one price states that
a good must sell at the same price at all locations
You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced
a nominal gain, but NO real gain, and you paid taxes on the NOMINAL gain.
The term hyperinflation refers to
a period of very high inflation.
Most financial assets other than money functions as
a store of value, BUT NOT a unit of account nor a medium of exchange
A country sells more to foreign countries than it buys from them. It has
a trade SURPLUS and POSITIVE net exports
The classical dichotomy argues that changes in the money supply
affect NOMINAL variables, but NOT real variables.
Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for
all of the above are correct
To decrease the money supply, the Fed could
all of the above are correct
A double coincidence of wants
all of the above is correct
Money
all of the above is correct
The New York Federal Reserves Bank
all of the above is correct
Interest rates adjusted for the effects of inflation
are REAL variables; inflation is a nominal variable.
Bank runs
are a problem because banks only hold a fraction of deposits as reserves.
The members of the Federal Reserve's Board of Governors
are appointed by the president of the US and confirmed by the US Senate
If purchasing-power parity holds, a dollar will buy
as many goods in foreign countries as it does in the United States.
During the Great Depression in the early 1930s,
bank runs closed many banks
The federal funds rate is the interest rate
banks charge each other for short-term loans of reserves.
When the Federal Reserve conducts open-market operations to increase the money supply, it
buys government bonds from the public
Which of the following is a store of value?
cash and stocks
Higher inflation
causes firms to change prices MORE frequently and makes relative prices MORE variable.
Demand deposits are a type of
checking account
When prisoners use cigarettes or some other good as money, cigarettes become
commodity money AND function as a unit of account.
When inflation causes relative-price variability,
consumer decisions are distorted AND the ability of markets to efficiently allocate factors of production is impaired.
If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve
creates dollars and uses them to purchase GOVERNMENT BONDS from the public.
As the reserve ratio increases, the money multiplier
decreases
credit cards
defer payments
When prices are falling, economists say that there is
deflation
Which of the following is included in both M1 and M2?
demand deposits
Relative-price variability is "automatic" when
firms changes prices only once in a while
High and unexpected inflation has a greater cost
for SAVERS in high income tax brackets than for savers in low income tax brackets.
High and unexpected inflation has a greater cost
for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
An Italian company builds and operates a pasta factory in the United States. This is an example of Italian
foreign DIRECT investment that INCREASES Italian net capital outflow
Net exports of a country are the value of
goods and services EXPORTED - the value of the goods and services IMPORTED
The existence of money leads to
greater specialization AND to a higher standard of living
You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency
has NO intrinsic value. The exchange IS NOT an example of barter.
Fiat money
has no intrinsic value
If an economy uses silver as money, then the economy's money
is commodity money
Governments may prefer an inflation tax to some other type of tax because the inflation tax
is easier to impose
A country's trade balance
is greater than zero only if EXPORTS are greater than IMPORTS
The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?
it DECREASES BY $250,000
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserves requirement to 20 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?
it falls by ($45) billion
According to purchasing power parity which of the following would happen if a country raised its money supply growth rate?
its NOMINAL exchange rate would FALL
The Fed can directly protect a bank during a bank run by
lending reserves to the bank.
You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?
medium of exchange
The price level rises if either
money demand shifts LEFTWARD or money supply shifts RIGHTWARD this rise in the price level is associated with a FALL in the value of money.
Which of the following items is included in M2?
money market mutual funds
U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of
neither interest income nor capital gains.
Other things the same, if a country saves less, then
net capital outflow FALLS, so net exports FALL
Other things the same, if a country saves more, then
net capital outflow RISES, so net exports RISE
You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced
nominal LOSS and a real GAIN
If the real exchange rate is greater than 1, then the
nominal exchange rate x U.S. price >>>>foreign price. The dollars required to purchase a good in the U.S. would BUY MORE then enough foreign currency to buy the same good overseas.
When the money supply curve shifts from MS1 to MS2
none of the above is correct
Which tool of monetary policy does the Federal Reserve use most often?
open-market operations
To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the
quantity theory of money
Economic variables whose values are measured in goods are called
real variables
In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,
reserves INCREASED by $100 million and the money supply increases (by MORE) than $100 million.
Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
store of value
Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?
the FOMC
A problem that the Fed faces when it attempts to control the money supply is that
the Fed DOES NOT CONTROL the amount of money that households choose to hold as deposits in banks
If the money multiplier decreased from 20 to 12.5, then
the Fed INCREASED the RESERVE RATIO from 5 percent to 8 percent
The supply of money increases when
the Fed makes open-market purchases.
The agency responsible for regulating the money supply in the United States is
the Federal Reserve
According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?
the NOMINAL exchange rate, but NOT the real exchange rate
The president of each regional Federal Reserve Bank is appointed by
the U.S. president with the approval of the Senate.
The velocity of money is
the average number of times per year a dollar is spent.
Menu costs refers to
the cost of more frequent price changes induced by higher inflation.
You are staying in London over the summer and you have a number of dollars with you. If the dollar depreciates relative to the British pound, then other things the same,
the dollar would buy FEWER pounds. The depreciation would DISCOURAGE you from buying as many British goods and services.
In recent years the Federal Open Market Committee has focused on a target for
the federal funds rate
Today, bank runs are not a major problem for the U.S. banking system because
the federal government now guarantees the safety of deposits at most banks.
Net capital outflow measures
the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets BOUGHT by foreigners.
The discount rate is
the interest rate the Fed charges banks
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
the price level AND nominal wages
Money demand depends on
the price level AND the interest rate.
When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases? Question 2 options:
the quantity of money DEMANDED BUT not the quantity of money supplied
If the money supply is MS2 and the value of money is 2, then
the quantity of money SUPPLIED is greater than the quantity DEMANDED; the price level will RISE.
If a dollar buys more potatoes in the U.S. than in France, then
the real exchange rate is LESS than 1; a profit might be made by buying potatoes in the U.S. and selling them in France.
If the current money supply is MS1, then
there is no excess supply or excess demand if the value of money is 2.
In an economy that relies upon barter,
there is no item in the economy that is widely accepted in exchange for goods and services.
One surprising thing about the US money stock is that
there is so MUCH currency per person
Economists use the term "money" to refer to
those types of wealth that are regularly accepted by sellers in exchange for goods and services
In order to maintain stable prices, a central bank must
tightly control the money supply.
During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent . This difference between actual and expected inflation
transferred wealth from YOU to the borrower and caused your after-tax real interest rate (TO BE) 0.5 percentage points lower than what you had expected.
When we measure and record economic value, we use money as the
unit of account
Nominal exchange rates
vary SUBSTANTIALLY over time
The measure of the money stock called M1 includes
wealth held by the people in their CHECKING accounts
