Macro test 6 ch 14-16

-$5,000; $1,000.

A bank currently has $100,000 in checkable deposits and $15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has ________ in money-creating potential. If the reserve ratio is 14 percent, the bank has __________ in money-creating potential.

loans and securities on one hand and reserves on the other.

A banker must strike a balance in the pursuit of two conflicting goals: profits and liquidity. In terms of asset management, this translates into achieving a balance between holding

9 percent

A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent interest. If the market price of the bond rises to $11,000, the annual yield approximately equals

2 million

A commercial bank has $100 million in checkable-deposit liabilities and $12 million in actual reserves. The required reserve ratio is 10 percent. How big are the bank's excess reserves?

it involves a bank repurchasing a collateralized loan it previously sold to the Fed.

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are

1000

A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent. It makes a loan of $6,000 to a borrower. The borrower writes a check for $6,000 that is deposited in another commercial bank. After the check clears, the first bank will be short of reserves in the amount of

increases by 100,000

A commercial bank sells a Treasury bond to the Federal Reserve for $100,000. (assume that all proceeds from this bond sale are lent out) The money supply:

transactions demand for money.

A consumer holds money to meet spending needs. This would be an example of the

2/5

A goldsmith has $2 million of gold in his vaults. He issues $5 million in gold receipts. His gold holdings are what fraction of the paper money (gold receipts) he has issued?

3,750

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

a means of payment.

An asset's liquidity refers to its ability to be

rise by 2.5 percentage points.

Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate will

4 percent

Answer the question on the basis of the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. Interest Rate Amount of Money Demanded as an Asset 10% $20 8 40 6 60 4 80 2 100 If nominal GDP is $300 and the supply of money is $230, the equilibrium interest rate will be

32,000

Assets Liabilities + Net Worth Reserves $50,000 Checkable Deposits $120,000 Loans 75,000 Stock Shares 130,000 Securities 25,000 Property 100,000 Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

the supply of money is increased by $5,000.

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction,

$200 billion

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

buy bonds in the open market

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?

4

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be

rise, causing households and businesses to hold less money.

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

paying of interest on excess reserves held at Fed banks.

In 2008, the Fed acquired a fourth tool of monetary policy, which is the

the Fed borrows money from financial institutions.

In a reverse repo transaction,

decrease by $10 billion.

Interest Rate (1) Investment (2) Investment (3) 4% $100 $80 5 90 70 6 80 60 7 70 50 8 60 40 Refer to the table, in which investment is in billions. Suppose the Fed reduces the interest rate from 6 to 5 percent at a time when the investment demand declines from that shown by columns (1) and (2) to that shown by columns (1) and (3). As a result of these two occurrences, investment will

asset demand for money.

Refer to the diagram of the market for money. The downward slope of the money demand curve Dm is best explained in terms of the

I2

Refer to the diagram of the market for money. The equilibrium interest rate is

D3.

Refer to the given market-for-money diagrams. The total demand for money is shown by

B

Refer to the graph, which shows the supply and demand for money, where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the money supply?

decrease aggregate demand by increasing the interest rate from 4 to 6 percent.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary, full-employment output Qf in the economy, the Fed should try to

Decreased

Suppose that last year $30 billion in new loans were extended by banks while $50 billion in old loans were paid off by borrowers. What happened to the money supply?

decreased

Suppose that last year $30 billion in new loans were extended by banks while $50 billion in old loans were paid off by borrowers. What happened to the money supply?

20 billion

Suppose that the Fed has set the reserve ratio at 10 percent and that banks collectively have $2 billion in excess reserves. What is the maximum amount of new checkable-deposit money that can be created by the banking system?

Canada

Suppose that the banking system in Canada has a required reserve ratio of 10 percent while the banking system in the United States has a required reserve ratio of 20 percent. In which country would $100 of initial excess reserves be able to cause a larger total amount of money creation?

To give the Fed control over the lending ability of commercial banks.

The actual reason that banks must hold required reserves is:

lower is the monetary multiplier.

The greater the required reserve ratio, the

Profit and liquidity

The interest rate that the Fed charges banks for loans to them through the traditional channel is called

federal funds market.

The market for immediately available reserve balances at the Federal Reserve is known as the

down

When bond prices go up, interest rates go ___________

government bonds

When the Fed does repos and reverse repos (or repurchase agreements) with financial institutions, the collateral used in these transactions is

the feds buy 400 million worth of treasury bonds from commercial banks the fed lowers the discount rate from 4 percent to 2 percent

Which of the following Fed actions will increase bank lending?

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

Which of the following actions by the Fed most likely increase commercial bank lending?

Commercial bank reserves will increase.

Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change?

escape the complications of barter.

One major advantage of money serving as a medium of exchange is that it allows society to

the discount rate.

One major advantage of money serving as a medium of exchange is that it allows society to

$50,000 and $250,000, respectively.

The two conflicting goals facing commercial banks are:

increase the transactions demand and the total demand for money.

An increase in nominal GDP will

interest rates

An increase in the money supply is likely to reduce

lower interest rates and increase the equilibrium GDP.

An increase in the money supply will

pushing on a string.

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

nominal GDP decreases and the interest rate increases

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