quiz 4

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank​ A's required reserves increase by

$2,000.

According to the quantity theory of​ money, if the money supply grows at 20 percent and real GDP grows at 5​ percent, then the inflation rate will be

15 percent.

Refer to the diagram to the right. Suppose the economy is in short run equilibrium above potential​ GDP, the unemployment rate is very​ low, and wages and prices are rising. Using the static ADminusAS ​model, the correct Fed policy for this situation would be depicted as a movement from

C to B.

Banks can continue to make loans until their

actual reserves equal their required reserves.

Economies where goods and services are traded directly for other goods and services are called​ ________ economies.

barter

For purposes of monetary​ policy, the Federal Reserve has targeted the interest rate known as the

federal funds rate.

The interest rate that banks charge other banks for overnight loans is the

federal funds rate.fe

Commodity money

has value independent of its use as money.ha

Using the money demand and money supply​ model, an increase in money demand would cause the equilibrium interest rate to

increase

An increase in the interest rate

increases the opportunity cost of holding money.in

Which of the following assets is most​ liquid?

money

Milton Friedman would have liked the Fed to follow a monetary rule where the

money supply is increased every year by a percentage rate equal to themo ​ long-run growth rate of real GDP.

The main tool the Federal Reserve uses to conduct monetary policy is

open market operations.op

Refer to the diagram to the right. The money demand curve would move from MD1 to MD2 if

real GDP increased.re

Which of the following functions of money would be violated if inflation were​ high?

store of value

An increase in the price level causes

the money demand curve to shift to the right.th

Support for a monetary rule of the kind advocated by Friedman declined since 1980 because

the ​ Fed's performance since 1980 has been excellent even without a formal inflation target.

Soldiers in a World War II​ prisoner-of-war camp

used cigarettes as money.us

Consider the following choices and determine the correct definition for the monetary rule.

A monetary rule is a plan for increasing the money supply at a constant rate regardless of the prevailing economic condition.A

Refer to the diagram to the right. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static ADminusAS ​model, this would be depicted as a movement from

A to B.

Refer to the diagram to the right. Suppose the economy is in a recessionary gap and no policy is pursued. Using the static ADminusAS ​model, this situation would be depicted as a movement from

A to E.

Which of the following best describes how banks create​ money?

Banks create checking account deposits when making loans from excess reserves.

Consider the figures below and determine which is the best description of what causes the shift from AD 1 to AD 2.

Both A and B.

Monetary policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives.Fe

Expansionary monetary policy refers to the​ ________ to increase real GDP.

Federal ​Reserve's increasing the money supply and decreasing interest rates

The purchase of Treasury securities by the Federal Reserve​ will, in​ general,

increase the quantity of reserves held by banks.in

Using the money demand and money supply​ model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

increase.

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.li

In the figure to the​ right, if the economy is at point A​, the appropriate monetary policy by the Federal Reserve would be to

lower interest rates.lo

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

open market​ operations, discount​ policy, and reserve requirements.

In response to already low interest rates doing little to stimulate the​ economy, the Fed began buying​ 10-year Treasury notes and certain​ mortgage-backed securities to keep interest rates low. This policy is known as

quantitative easing

In response to the destructive bank panics of the Great​ Depression, future bank panics are designed to be prevented by

the establishment of the Federal Deposit Insurance Corporation.th

The monetary policy target the Federal Reserve focuses primarily on today is

the interest rate.

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, checking account deposits in the banking system as a whole​ (including the original​ deposit) could eventually increase up to a maximum of

​​$50,000.

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank A can make a maximum loan of

​​$8,000.

If a person takes​ $100 from​ his/her piggy bank at home and puts it in​ his/her savings​ account, then M1 will​ ________ and M2 will​ ________.

​​decrease; not change

If the reserve requirement ratio​ (RR) is​ 0.20, the simple deposit multiplier is

5.

To increase the money​ supply, the Federal Reserve could

conduct an open market purchase of Treasury securitiesco

To decrease the money​ supply, the Federal Reserve could

conduct an open market sale of Treasury securities.

Which of the following is not counted in​ M1?

credit card balances

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank​ A's reserves immediately increase by

$10,000.

Open market operations refer to the purchase or sale of​ ________ to control the money supply.

U.S. Treasury securities by the Federal ReserveU.

In response to already low interest rates doing little to stimulate the​ economy, the Fed announced a new program in September 2011 under which it would purchase​ long-term Treasury securities while selling an equal amount of​ shorter-term Treasury securities.

Operation Twist.

Which of the following would cause the money demand curve to shift to the​ left?

a decrease in real GDPa