Unit 4: Macroecomics

Suppose a bank already has excess reserves of $800 and the reserve ratio is 20%. If Andy deposits $1,000 of cash into his checking account and the bank lends $600 to Melanie, that bank can lend an additional:

$1,000

Refer to the balance sheet. If the minimum reserve ratio for ABC Bank is 10%, then the bank is required to maintain minimum reserves of:

$10 million.

If the required reserve ratio is 10%, and the Fed performs an open market purchase of $100, what is the maximum possible change in the money supply resulting from this purchase?

$1000

If the interest rate is 8%, businesses will want to borrow approximately:

$2 trillion

The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves.How much of the deposit is the bank required to keep in reserves?

$200

If the market interest rate is 13%, the amount of planned investment spending is:

$2000

If the reserve ratio is 25%, and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:

$25,000.

According to the accompanying figure, when the interest rate is 6%, the quantity demanded of loanable funds will equal:

$50 billion

Suppose that the reserve ratio is 10% when the Fed buys $25,000 of U.S. Treasury bills from the banking system. If the banking system does NOT want to hold any excess reserves, _______ will be added to the money supply.

$500,000

If the reserve ratio is 25%, loans are:

$60,000.

Suppose that U.S. debt is $7 trillion dollars at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are $2 trillion and tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is:

$7.5 trillion

First National Bank First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds. Consider the information for First National Bank. The bank has liabilities of:

$80 million.

If the reserve ratio is 25%, deposits are:

$80,000.

If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on deposit at the Federal Reserve, then its reserve ratio is:

25%.

In the accompanying table, at what interest rate will the market for loanable funds be in equilibrium?

5%

According to the accompanying figure, after an increase in government borrowing, the new equilibrium interest rate will rise from ______ and the amount of private savings will _______.

6% to 8%; rise

The accompanying graph shows the market for loanable funds in equilibrium. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150?

Businesses have become more optimistic about the return on investment spending.

Suppose an economy has $200,000 of demand deposits and $40,000 of excess reserves with a 10% required reserve ratio. If the monetary authorities raise the required reserve ratio to 20%, then which of the following will likely follow?

Excess reserves will decrease by $20,000.

In the U.S., the institution that is charged with determining the size of the monetary base and with regulating the banking system is the:

Federal Reserve.

Which of the following is considered investment spending in macroeconomics?

GM builds a new plant to manufacture automobiles.

A budget surplus would exist when which of the following occurs?

Taxes are greater than government spending.

Which of the following would be the initial effect of an individual making a $10,000 cash deposit in a bank?

The money supply would not be affected by the deposit.

A physical asset is:

a claim on a tangible asset that gives the owner the right to dispose of it as he or she wishes.

A financial asset is:

a claim that entitles the owner to future income from the seller.

Which of the following actions would allow banks to lend out more money?

a decrease in the discount rate

A liability is:

a requirement that you pay income in the future.

Holding everything else constant, when government uses an expansionary policy in the presence of a deficit, this will result in:

an increase in the equilibrium interest rate in the loanable funds market.

The money multiplier and the required reserve ratio are:

are inversely related.

If the Fed conducts an open-market purchase:

bank reserves increase and the money supply increases

The federal funds rate is the interest rate at which:

banks borrow excess reserves from other banks.

The discount rate is the interest rate the Fed charges on loans to:

banks.

The Federal Reserve System is the _______ for the United States.

central bank

Human capital refers to:

changes in the level of education or training which workers possess.

If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the monetary base will:

decrease by $10 million.

Samantha's employer has given her a 5% raise for the coming year. If the inflation rate during the next year is 5.5%, then her real wage will:

decrease by .5%.

The money demand curve is _________ because a lower interest rate ___________.

downward-slopping; decreases the opportunity cost of holding money

The demand for loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds.

downward; investors; increasing

Money whose value derives entirely from its official status as a means of exchange is known as:

fiat money.

The reserve ratio is the:

fraction of deposits the banks hold in their vaults.

A business will want to borrow to undertake an investment project when the rate of return on that project is:

greater than the interest rate.

The government saves when it:

has a budget surplus.

All other things unchanged, an increase in loanable funds demand would most likely be caused by a(n):

increase in the amount of government borrowing.This is the correct answer.

If the federal reserve wants to lower the interest rate, it will:

increase the money supply

Suppose the Fed buys bonds. We can expect this transaction to:

increase the money supply, increase bond prices, and decrease interest rates.

Suppose the Fed buys $50 million in Treasury bills from commercial banks. If the reserve ratio is 10%, the monetary supply might eventually ____ by _____.

increase; $500 million

To _______ the money supply, the Fed could ________.

increase; lower the reserve requirements

If the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity demanded of money will ______.

increase;decrease

The money demand curve shows the relationship between the:

interest rate and the nominal quantity of money demanded

Monetary policy attempts to affect the overall level of spending in the economy by changes in:

interest rates and the quantity of money.

The government has a budget deficit if:

its total revenues are less than its total expenditures.

Banks create money when they:

make loans.

If banks were required to keep 100% of deposits in reserves, they could:

make no loans.

To decrease the money supply, the central bank could:

make open-market sales.

Expansionary fiscal policies:

make the budget surplus smaller.

All of the following are responsibilities of the Fed EXCEPT

mint bills and coins.

An increase in real aggregate spending will shift the:

money demand curve rightward.

The _______ multiplier is equal to _______ .

money; 1 divided by the required reserve ratio

An increase in the demand for money, with no change in the supply of money, will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium interest rate.

no change; an increase

The demand for loanable funds curve DLF1 will shift to DLF2, because:

of an increase in the government budget deficit.

To change the money supply, the Fed most frequently uses:

open-market operations.

According to the accompanying figure, when the interest rate rises from 6% to 8%, then the:

quantity supplied of loanable funds rises by $20 billion.

A sale of bonds by the Fed:

raises interest rates and reduces the money supply.

Crowding out negatively affects the economy by:

reducing investment spending on physical capital

The major tools of monetary policy available to the Federal Reserve System include:

reserve requirements, open-market operations, and the discount rate.

An increase in government borrowing will shift the demand for loanable funds to the:

right and increase the interest rate.

The national debt _______ in years in which the federal government incurs a _______ .

rises; deficit

During an expansion, economists generally believe that an economy should:

run a budget surplus.

Money is anything that:

serves as a medium of exchange for goods and services.

According to the loanable funds model, contractionary monetary policy:

shifts the supply curve for loanable funds to the left.

In the loanable funds market, savers:

supply funds.

If the money supply is currently at MS1 and the central bank chooses to buy bonds, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

supply of loanable funds from S1 to S2 and a lower interest rate.

Governments can engage in saving when:

tax revenues are greater than expenditures.

If in an open economy, a country imports more than it exports and the government budget deficit increases:

the change in interest rates is ambiguous, but the amount of borrowing will increase.

An expectation that perceived business opportunities will increase will generally cause:

the demand for loanable funds to increase.

If aggregate output decreases in an economy where the central bank is not changing its monetary policy, one would expect:

the demand for money to fall.

Bank reserves are:

the fraction of deposits kept in the form of very liquid assets.

The price in the loanable funds market is:

the interest rate

Economists use _____ as a model to show how savers and borrowers come together to determine the equilibrium rate of interest.

the market for loanable funds

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect:

the money demand curve to shift inward.

Holding everything else constant, if the required reserve ratio falls, then:

the money multiplier increases.

People forgo interest and hold money:

to reduce their transactions costs.

The liquidity preference model:

uses the demand and supply of money to determine the interest rate.

Since the Fed has the power to determine the supply of money, the money supply curve in the liquidity preference model shows it as a(n):

vertical line.

The money supply curve is:

vertical.