Macroeconomics Study Guide 3
Which of the following is correct?
If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates
and a price index are both nominal variables.
Which of the following fall during a recession?
both retail sales and employment
Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to
decrease consumption, which shifts aggregate demand left
When prices are falling, economists say that there is
deflation.
If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as
$12,500.
In the special case of the 100 percent-reserve banking the money multiplier is
1 and banks do not create money.
The nominal interest rate is 4.5 percent and the inflation rate is 0.9 percent. What is the real interest rate?
3.6 percent
If the reserve ratio is 2.5 percent, then the money multiplier is
40.
Traveler's checks are included in
M1 and M2
A decrease in U.S. interest rates leads to
a depreciation of the dollar that leads to greater net exports.
Other things the same, as the price level falls
a dollar buys more domestic goods.
Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to
decrease consumption, shown by shifting the aggregate-demand curve to the left.
If Y and M are constant and V doubles, the quantity equation implies that the price level
doubles.
The value of money rises as the price level
falls, because the number of dollars needed to buy a representative basket of goods falls.
Which of the following will not help to prevent bank runs?
fractional reserve banking
The money supply decreases if
households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,
households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.
Credit cards are
important for analyzing the monetary system
The inflation tax
is a tax on everyone who holds money.
When inflation rises, people will desire to hold
less money and will go to the bank more frequently.
Wealth is redistributed from creditors to debtors when inflation was expected to be a
low and it turns out to be high.
The money supply increases when the Fed
lowers the discount rate. The increase will be larger the smaller the reserve ratio is.
Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the
money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.
According to the classical dichotomy, which of the following is influenced by monetary factors?
nominal interest rates
Other things the same, a fall in an economy's overall level of prices tends to
raise the quantity demanded of goods and services, but lower the quantity supplied.
Economic variables whose values are measured in goods are called
real variables.
The aggregate quantity of goods and services demanded changes as the price level falls because
real wealth rises, interest rates fall, and the dollar depreciates.
Other things the same, when the price level rises, interest rates
rise, so firms decrease investment
Relative-price variability
rises with inflation, leading to a misallocation of resources.
In order to understand how the economy works in the short run, we need to
study a model in which real and nominal variables interact
The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of
the FOMC.
As the price level rises,
the exchange rate rises, so net exports fall
The data on hyperinflation show a clear link between the quantity of money and
the price level.
When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in
the value of money.
M1 equals currency plus demand deposits plus
traveler's checks plus other checkable deposits
When we measure and record economic value, we use money as the
unit of account.
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase reserves
Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?
People who held money would feel poorer. Prices would rise. People who had lent money at a fixed interest rate would feel poorer.
Which of the following functions of money is also a common function of most other financial assets?
a store of value
Which of the following is a function of money?
a unit of account, a store of value, medium of exchange
Which of the following decreases in response to the interest-rate effect from an increase in the price level?
both investment and consumption
If the economy unexpectedly went from inflation to deflation,
creditors would gain at the expense of debtors.
The model of aggregate demand and aggregate supply
is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.
Commodity money is
money with intrinsic value
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
more reserves, so the money multiplier will fall.
Historically, the change in real GDP during recessions has been a
mostly a change in investment spending.
An increase in the money supply might indicate that the Fed had
purchased bonds in an attempt to reduce the federal funds rate.
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
selling bonds. This selling would reduce reserves