ECON 211 Quiz 6
Which of the following policies can the Fed follow to increase the money supply?
Reduce the interest rate on reserves
Based on the quantity equation, if Y = $8,000, P = 3, and V = 7, then M =
$3,429.
Table 29-2 The information in the following table pertains to the hypothetical economy of Florencial. Type of Money Amount (Billions of dollars) Large time deposits 120 Small time deposits 80 Demand deposits 300 Other checkable deposits 50 Savings deposits 65 Traveler's checks 5 Money market mutual funds 200 Currency 150 Credit card balances 300 Miscellaneous categories of M230 Refer to Table 29-2. What is the M2 money supply in Florencial?
$880 billion
Suppose a burrito costs $6. Clara holds $120. What is the real value of the money she holds?
20 burritos. If the price of burritos rises, to maintain the real value of her money holdings she needs to hold more dollars.
The set of items that serve as media of exchange includes
demand deposits.
Economists generally argue that
high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes.
Refer to Table 29-4. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Cheerton now hold?
$600
In the special case of the 100-percent-reserve banking, the money multiplier is
1 and banks do not create money.
Table 29-5 First National Bank Assets Reserves $1,200 Loans 8,000 Short-term securities 800 Liabilities and Owners' Equity Deposits $9,000 Debt 800 Capital (owners' equity) 200 Refer to Table 29-5. This bank's leverage ratio is
50.
Which of the following both increase the money supply?
A decrease in the discount rate and a decrease in the interest rate on reserves
Which of the following is not included in either M1 or M2?
Large time deposit
When inflation causes relative-price variability consumer decisions,
are distorted and the ability of markets to efficiently allocate factors of production is impaired.
Refer to Figure 30-1. If the money supply is MS2 and the value of money is 5, then the quantity of money
demanded is greater than the quantity supplied; the price level will fall
Refer to Table 29-3. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will
have $64,000 in excess reserves
Shoeleather costs arise when higher inflation rates induce people to
hold less money
Table 29-3 The First Bank of Roswell Assets Reserves $30,000 Loans 170,000 Liabilities Deposits $200,000 Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank
is in a position to make new loans equal to a maximum of $12,000
When the Consumer Price Index decreases from 140 to 125
less money is needed to buy the same amount of goods, so the value of money rises.
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
more reserves, so the reserve ratio will rise.
In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold
raised the price level and decreased the value of gold in Cairo.
Relative-price variability
rises with inflation, leading to a misallocation of resources
When conducting an open-market sale, the Fed
sells government bonds, and in so doing decreases the money supply.
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases
the inflation rate and the nominal interest rate by the same number of percentage points.
The principle of monetary neutrality implies that an increase in the money supply will increase
the price level, but not real GDP.
In the long run, money demand and money supply determine
the value of money but not the real interest rate.
The shoeleather cost of inflation refers to the
waste of resources used to maintain lower money holdings
