Marco 202 chapter 29 and 30

THE AD curve shifts to the left

A central banks sells bons on the open market. An increase in the required reserve ratio.

Which of the following is not true about a bank run

Bank runs are bad for the bank affected and usually no good for the banks competitors.

Which of the graphs accurately reflects demand and supply in the money market?

C The Y-axis on the money market graph shows the economy's interest rate.

Consider the money market illustrated below. Initially, the equilibrium interest rate and quantity are represented by the point, E1. Suppose the central bank reduces the money supply. Adjust the graph of the money market to illustrate this change and label the new equilibrium by moving the point, E2.

Money supply to the left. After the recent change in the money supply the quaintly of money demanded is more than the quaintly of money supplied.

All of the following statements about subprime lending is true except.

if a home owner is unable to make his mortgage payments, the homeowner can always pay off the mortgage by selling his home.

A decrease in real GDP causes a ________ the money demand curve.

leftward shift of

A decrease in interest rates cause a ______ the money demand curve.

movement along

How can the federal Reserve target a higher interest rate?

use open market operations to reduce the money supply

Suppose that the required reserve ratio is 9.0%. what is the simple money deposit ratio

11.11

Suppose that the central bank has increased the money supply such that there are an additional $43819 in excess reserves. If the reserve ratio is 13 percent, what is the maximum the money supply could increase? Round your answer to the nearest dollar.

337069

increasing the reserve ratio will _____ the money multiplier

decrease

1. if two short-term assets offer different interest rates then investors will move their wealth towards the asset with the lower return. 2. There is no practical difference between long-term interest rates and short-term interest rates. 3. Money demand is affected by short-term interest rates and long-term interest rates. 4. Interest rates on financial assets the mature in ten months of less are long-term interest rates. 5. The opportunity cost of holding money falls when short-term interest rates fall.

1. False 2. False 3. True. 4. False 5. True.

AD curve shifts to the right

A decrease in the discount rate. A central bank uses open market operations to conduct expansionary monetary policy. An increase in the money supply The Federal Reserve buys bonds from private banks.

What does the term "money neutrality" mean

Changes in the money supply have no real effects on the economy in the long run.

You just received a bonus at your job of $4,000 which you decide to put in a saving account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar.

If the resereve requirement is 18% how much will your deposit increase the total valuve of checkable bank deposits. 22222 If the reserve requirement is 7%, how much your deposit increase the total value of checkable deposits.

An increase in technology which makes it easier to pay for goods and services without carrying lots of cash causes a _______ the money demand curve.

Leftward shift of

If money is neutral, what does this imply about the use of monetary policy?

Monetary policy is more effective in the short term than the long term.

You are Chair of the Federal Reserve Board. In your meeting with the Federal Open Market Committee, the committee unanimously votes to increase the money supply using open market operations (OMOs). During the press conference after the meeting a reporter asks you to explain what OMOs are and how you will use them to increase the money supply. You reply:

OMOs are the purchase and sale of government securities. To increase the money supply we will buy government securities which increase the amount of reserves in the banking system and fuels deposit expansion.

There are several ways that governments can increase or decrease the money supply.

Open market operations: a central bank purchasing existing bonds. Reserve requirement: an increase in the percentage of deposits that banks must keep on hand. Discount Rate: an increase in the interest rate that a central bank charges commercial banks for loans.

the following statements regarding savings and loans (S&Ls) are all true EXCEPT:

S&Ls are not covered by federal deposit insurance

The graph shows the long-run aggregate supply, the short-run aggregate supply and the aggregate demand curves for a given economy. Manipulate the curves to show the long run effect of tan increase in money supply.

SRAS moves to the left. AD moves to the right. The aggregate price level INCREASING Real GDP STAYING THE SAME

All of the following statements about securitization are true except

Securitization is a way for financial institutions to eliminate the risk of financial panic.

The graph below shows the long-run aggregate supply (LRAS), the short-run aggregate supply (SRAS), and aggregate demand (AD) curves for a given economy. Manipulate the curves to show the short run effect of an increase in money supply.

The AD curve moves up. Interest rates decreasing the aggregate price level increasing. Real GDP increasing.

The MD curve will shift to the left if...

The aggregate price level decreases. Real GDP decreases. Crime rates increase, increasing the likelihood that people will be robbed.

The graph below depicts the market for money in the United States. Move the money supply or money demand curve to show what would happen if the Federal Reserve chose to decrease the money supply. Assume that the Federal Reserve has complete control over the money supply. Then answer the multiple choice questions.

The equilibrium interest rate: Rises That leads to this adjustment of the equilibrium interest rate: A decrease in the demand for short-term financial assets.

The government reduces the money supply in response to concerns over inflation. Adjust the graph to show the policy\'s short-run and long-run impact. Place the point E2 at the short-run equilibrium and point E3 at the long-run equilibrium after the policy change.

The money supply curve moves to the left and the money demand curve moves to the left. In the long-run the policy change causes the equilibrium interest rate to not change.

Storgan Manley is a large financial institution. Storgan Manley increases it's profitability by borrowing money to invest.

This process is leverage.

The economy in 2016 starts in equilibrium at point A, with real and potential GDP equal to $14.75 trillion. Between 2016 and 2017, potential GDP increased to $14.93 trillion as the long run aggregate supply curve shifted right to LRAS2. Economists at the central bank project that real GDP for 2017 will be $15.03 trillion. Using this information and the information contained in the graph, answer the following questions.

Why might the central bank want to engage in contractionary monetary policy in this instance? Price levels may be increasing too quickly leading to high inflation.

which of the following scenario best identifies the meaning of the term "inflation targeting"

a central bank is expected to achieve a 3% annual interest rate.

One of the causes of the financial crisis of 2008 was the connectedness of financial institutions, where financial assets for one firm are often debt for other financial institutions. Suppose that some of Storgan Manley\'s assets lose value as other financial institutions experience financial difficulty. What is this called?

balance sheet effect.

An increase in the aggregate price level causes a ______ the money demand curve.

rightward shift of

The MD curve will shift to the right

the aggregate price level increases. Real GDP increases. The government restricts the hours during which ATMs are allowed to be open. There is a decrease in the number of shops accepting debit cards.

Demonstrate what happens in the short-run if the central bank increases the money supply.

the money supply moves to the right. The aggregate price level INCREASES when the central bank increases the money supply.