Macro Midterm Module 6

Money serves as a store of value when:

It is a means of holding wealth

Based on the information in the table, what total quantity of reserves would the Federal Reserve have had to inject into the economy in 1932 to prevent the money supply from falling, given that the public increased the amount of currency it held and that banks increased the reserve-deposit ratio?

$0.66 billion

If the desired reserve/deposit ratio equals .10, then every dollar of currency in bank vaults supports ______________ of the money supply, while every dollar of currency held by the public contributes ______________ to the money supply.

$10; $1

There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:

$20,000,000

Based on the following information, the value of the M1 measure of the money supply is ______________ and the value of the M2 measure of the money supply is ______________.

$530 billion; $4,230 billion

If the money supply equals 1,000, velocity equals 5, and real GDP equals 2,500, then the price level equals:

2

If real GDP equals 3,500, nominal GDP equals 5,250, and the price level equals 1.5, then what is velocity if the money stock equals 2,100?

2.5

The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve-deposit ratio is 0.25. Bank reserves equal ______________.

200

If the money supply grows by 5 percent per year, velocity grows by 1 percent per year, and real GDP grows by 3 percent per year, then the rate of inflation is approximately ______________ percent per year.

3

In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10%, deposits in Macroland equal ______________ and the money supply equals ______________.

50,000,000; 55,000,000

Money is:

An asset used to make purchases

The reserve-deposit ratio equals:

Bank reserves divided by bank deposits

When an individual deposits currency into a checking account:

Bank reserves increase, which allows banks to lend more and increases the money supply.

The two main responsibilities of the Federal Reserve System are to ______________ and to ______________.

Conduct monetary policy; oversee financial markets

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

Conducting open-market operations

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, the money supply will:

Decrease

In Macroland there is $1,000,000 in currency that can either be held by the public or used by banks as reserves. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______________.

Decrease

Liabilities of the commercial banking system include:

Deposits

If a bank's desired reserve/deposit ratio is .33 and it has deposit liabilities of $100 million and reserves of $50 million, it:

Has too many reserves and will increase its lending

One of the serious drawbacks of the deposit insurance system instituted in the United States is that:

If insured intermediaries make bad loans, the taxpayers may be responsible for covering the losses.

If the public switches from using cash for most transactions to using checks instead, then all else equal, the money supply will:

Increase

When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:

Increases by more than $1,000,000

Money serves as a unit of account when:

It is used as a basic measure of economic value

Money serves as a medium of exchange when:

It is used to purchase goods and services

Extremely rapid rates of money growth are usually the result of:

Large government budget deficits

Velocity is determined by:

Payments methods and technology

The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming the values of the currency held by the public and the desired reserve/deposit ratio do not change, if the Central Bank of Macroland wishes to increase the money supply to 3,000, then it should conduct an open-market ______________ government bonds to/from the public.

Purchase of 50

Assets of the commercial banking system include:

Reserves and loans

In an open-market sale the Federal Reserve ______________ government bonds and the supply of bank reserves ______________.

Sells; decreases

The amount of money in the United States is determined by:

The combined behavior of commercial banks and the public, and actions of the Federal Reserve.

According to the quantity equation, if velocity and output are constant, then an increase in the money supply leads to ______________ in inflation.

The same percentage increase

Bank depositors will not lose their deposits in a banking panic if:

There is 100 percent reserve banking

The money supply will increase by a multiple of the increase in bank reserves created by the central bank unless:

There is 100 percent reserve banking

Commercial banks create new money:

Through multiple rounds of lending

Nominal GDP divided by the money stock equals:

Velocity