macro: quiz 10
Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve ratio is 25 percent. If the reserve ratio is then lowered to 20 percent, we can conclude that the: A) Banking system now has excess reserves of $3 billion B) Monetary multiplier has decreased C) Maximum money-creating potential of the banking system has been increased by $7 billion D) Fed has decided that money supply is needed to be reduced
A
Dividing nominal gross domestic product (GDP) by the money supply (M) is a way to obtain: A) Velocity of money B) Monetary multiplier C) Equation of exchange D) Monetary rule
A
If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, the: A) Velocity of money is 5 B) Money supply is $40 billion C) Level of the price index is 320 D) Equilibrium level of GDP is $320 billion
A
If the velocity of money remains unchanged and with full employment in the economy, the equation of exchange predicts that a rise in the money supply will: A) Increase prices B) Increase interest rates C) Increase real output D) Decrease nominal GDP
A
The rule suggested by the monetarists is that the money supply should be increased at the same rate as the potential growth in: A) Real GDP B) Population C) The level of prices D) The velocity of money
A
Which of the following statements is true? A) Bond prices and the interest rate are inversely related B) A lower interest rate raises the opportunity cost of holding money C) The supply of money is directly related to the interest rate D) The total demand for money is directly related to the interest rate
A
Which of the following varies directly with the interest rate? A) The opportunity cost of holding money B) The transactions demand for money C) The asset demand for money D) The level of investment
A
Assume that the required reserve ratio for the commercial banks is 25 percent. If the Federal Reserve Banks buy $3 billion in government securities from the non-bank securities dealers, then as a result of this transaction, the lending ability of the commercial banking system will increase by: A) $4.5 billion B) $9 billion C) $12 billion D) $15 billion
B
Compared to fiscal policy, monetary policy has a much shorter: A) Recognition lag B) Administrative lag C) Operational lag D) Effects lag
B
If bond prices decrease, then the: A) Interest rate decreases B) Interest rate increases C) Transactions demand for money will decrease D) Transactions demand for money will increase
B
Monetarists argue that the relationship between: A) The quantity of money the public wants to hold and the level of GDP is not stable B) The quantity of money the public wants to hold and the level of GDP is stable C) The quantity of money the public wants to hold and the level of saving is stable D) Velocity and the interest rate varies directly
B
Other things equal, an increase in consumer wealth will: A) Increase aggregate supply B) Increase aggregate demand C) Reduce the price level D) Reduce the money supply
B
The conduct of monetary policy in the United States is the main responsibility of the: A) U.S. Treasury B) Federal Reserve System C) Office of Management and Budget D) Bureau of Economic Analysis
B
Which view of economics typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability? A) Monetarism B) Mainstream economics C) Real business cycle theory D) Rational expectations theory
B
When the Federal Reserve raises the target Federal funds rate, it: A) Sells government securities to increase the excess reserves available for overnight loan B) Buys government securities to increase the excess reserves available for overnight loan C) Sells government securities to decrease the excess reserves available for overnight loan D) Buys government securities to decrease the excess reserves available for overnight loan
C
Economist Milton Friedman viewed the economy as needing: A) An efficiency wage theory B) Price-level surprises to tame inflation C) Discretionary monetary and fiscal policy to stabilize it D) A monetary rule to increase the money supply at a set, steady rate
D
In recent years, calls for monetary rules by the Federal Reserve have been replaced with calls for: A) A reduction in coordination failures B) Using an equation of exchange C) Price-level surprises D) Inflation targeting
D
In the Great Recession that started in 2007, economic policy in the U.S. turned forcefully toward fiscal policy because of the following reasons, except: A) Monetary policy's cyclical asymmetry B) The banking system fell into a liquidity trap C) Interest rates had already been cut to very low levels D) The time lags of monetary policy
D
