Exam #3 MACRO
The quantity theory of money assume that velocity of money is...
Constant
To decrease the money supply the Fed could...
Increase Required Reserve
If a bank receives a $1 million discount loan from the Fed, then the banks reserves will...
Increase by $1 million
If the fed lowers the reserve requirements, then this...
Increase excess reserves, increase loans, and increase money supply
The purchase of Treasury Securities by the Fed will...
Increase the quantity of reserves held by banks
By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages...
Investment banks
When the Fed increases the money supply, at the previous equilibrium interest rate, households and firms will now have...
More money than they want to hold
The money demand curve, against possible levels of interest rates, has a...
Negative Slope
The money demand curve has a ___ slope because...
Negative; an increase in the interest rate decreases the quantity of money demanded
Which policy tool allows the Fed the greatest control over monetary policy?
Open Market Operations
When a financial asset is first said, the sale takes place in the ___ market, and subsequent sales take place in ___ market.
Primary; Secondary
Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of
Real GDP
Monetary policy refers to the actions the Federal Reserve takes to manage
The money supply and interest rates to pursue its economic objectives
According to the quantity theory of money, inflation is caused by...
The money supply growing faster than real GDP
A balance sheet measures...
assets, liabilities, and net worth @ a giving instance in time
The primary tool the Fed uses to increase the money supply is...
buying Treasury Securities
The largest liabilities on the balance sheet of most banks is...
checking and saving account deposits
To increase money supply, the Fed could...
conduct an open market purchase of Treasury securities
A bank is legally required to hold a fraction of its ___ as ___...
deposits; required reserves
If the Fed wished to decrease money supply they will...
-Increase Reserve Requirement -Raise Discount Rate -Sell Bonds
If the Fed buys US Treasury securities, then this...
-Increases reserves -Encourages banks to make more loans -Increase the money supply
If the Fed wishes to increase money supply they will...
-Lower Reserve Requirement -Lower Discount Rate -Buy Bonds
If the Fed pursues expansionary monetary policy then...
-Money supply will increase -Interest rates will fall -GDP will rise
The three main monetary policy tools used by the Fed to manage money supply are...
-Open Market Operations -Discount Policy -Reserve Requirements
Simple deposit multiplier =
1/RR
A major source of inefficiency in barter economies is that they require...
A double coincidence of wants
Kristy deposits $10,000, RR is 20%. Required Reserves increase by...
$2,000
Kristy deposits $10,000, RR is 20%. Excess reserves increase by...
$8,000
A financial asset is considered ___ if it can be bought or sold in a financial market.
A security
Excess Reserves =
Actual Reserves - Required Reserves
Banks can continue to make loans until their...
Actual reserves equal their required reserves
When the Fed embarked on a policy known as quantitive easing they...
Bought longer term securities than are usually bought in OMO
To offset the effect of households and firms deciding to hold less money in checking account deposits and more in currency, the Fed could...
Buy Treasury Securities
What is the appropriate policy for the Fed to purse if it wants to increase the money supply?
Buy US Treasury Bills
Changes in the federal funds rate usually result in...
Changes in both short and long term with more of an effect on short term interest rates
If households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will...
Decrease M1 and not change M2
A bank's largest liability is its...
Deposits of customers
One way investment banks differ from commercial banks is that investment banks...
Do not take in deposits
True or False: Changes in interest rates affect all four components of Aggregate Demand
False
True or False: Expansionary monetary policy refers to the Fed's increasing money supply and increasing interest rates to increase real GDP
False
True or False: Liquidity increases as we move from the M1 to M2 definition of the money supply
False
True or False: The amount of income an economy equals the money supply in the economy
False
True or False: The real world money multiplier is greater than the simple money multiplier
False
True or False: The relationship between GDP and the money supply has gotten stronger since the 1980s
False
True or False: The supply of commodity money is easier to control than fiat
False
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the...
Federal Funds Rate
Paper currency is a...
Fiat money
The core personal consumption expenditures price index excludes...
Food + Energy Prices
In October 2008, Congress passed the TARP, under which the Treasury provided ___ to banks in exchange for ___.
Funds; Stock
If households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier ________ the real-world multiplier.
Greater than
Hyperinflation is caused by...
High growth in money supply
An increase in the price level causes...
The money demand curve to shift to the right
If the Fed lowers its target for the federal funds rate, this indicates that...
Its pursuing expansionary monetary policy
The Fed's implicit policy goal for 20 years has been...
Keep inflation low and stable in the long run
The EU bailing out troubles banks made them act as...
Lender of last resort
What is an asset for the bank?
Loans
There is a strong link between changes in the money supply and inflation in the ___ run.
Long
If the probability of losing your job remains ___, a recession would be a good time to purchase a home because the Fed usually ___ interest rates.
Low; lowers
The money demanded curve has a negative slope because...
Lower interest rate causes firms to switch financial assets to money
Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often...
Lowers interest rates during recessions
The quantity equation states that...
M x V = P x Y
The Fed's narrowest definition of the money supply is...
M1
The M2 measure of the money supply equals...
M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares
If the Fed decided to include virtual money in money supply, what is the effect on M1 or M2?
M1 would rise
What is a statement in favor of inflation targeting?
Makes monetary policy ineffective because the targets are publicly announced
When calculating GDP, the Bureau of Economic Analysis revises its quarterly data...
Many times over the next several years
Inflation targeting refers to conducting ___ policy so as to commit the central bank to achieving a ___.
Monetary; Publicly announced level of inflation
When banks gain ___, they can ___ their loans; and their money supply ___.
Reserves; increase; expands
The Fed seeks to promote stability of financial markets because...
Resources are lost when there is not an efficient matching of savers and borrowers
The process of bundling loans together and buying+selling these bundles in a secondary financial market is called...
Securitization
If the Fed OMO wants to decrease the money supply through open market operations it will...
Sell US Treasury Securities
Money market mutual funds sell shares to investors and use the money to buy...
Short term securities
The more excess reserves banks choose to keep the ___ the deposit multiplier
Smaller
If, during a deposit expansion, not all money redeposited into the banking system and some leaks out as currency, then the real world multiplier is...
Smaller than 1/RR
By making exchange easier, money allows for ___ and higher ___.
Specialization; productivity
If tomatoes were money, which function would be hardest to satisfy?
Store of Value
What function would be violated if inflation were high?
Store of value
The Fed's preferred measure of inflation is...
The Core Personal Consumption Expenditures Index
Who is responsible for the managing the money supply?
The Federal Open Market Committee
The German Hyperinflation of the early 1920s was caused by...
The German government raising funds for expenditures by selling bonds to the central bank
The federal funds rate is...
The interest rate at which banks make overnight loans to one another
The discount rate is...
The interest rate on the loans that the Fed makes to banks
Inflation targeting has typically been accomplished by lower inflation
True
True or False: Money will fail to serve as a medium of exchange if it ceases to be a store of value
True
True or False: The Fed can use expansionary monetary policy to lower interest rates to stimulate aggregate demand
True
True or False: The amount of national income in an economy does not equal the money supply is an economy
True
Open market operations refer to the purchase or sale of ___ to control money supply.
US Treasury Securities by the Federal Reserve
Which of the following describes what the Fed would do to purse an expansionary monetary policy?
Use open market operations to buy Treasury Bills
Reserves of a bank equal its...
Vault cash plus deposits with the Federal Reserve
Fiat Money has...
little to no intrinsic value and is authorized by the central bank or governmental body.
Economists estimate that ___ of US currency is outside US and held primarily by...
over half; households and firms in countries where there is little confidence in the local currency
According to the quantity theory of money the inflation rate equals...
the growth rate of money supply minus the growth rate of real output