MBF assessments
2: the largest denomination bill currently issued in the U.S. is __________
100
5: how many districts are there in the federal reserve?
12
5: the first bank of the US was chartered in the ________
1700s
4: if the nominal interest rate is 0 and (expected) inflation is -2%, then the real rate is what?
2%
5: how many different central banks has the US had in its history?
3
4: if the money supply is $500 and nominal income (P x y) is $3000, the velocity of money is what?
6
5: the federal open market committee usually meets ______ times a year
8
3: in a wage-price spiral, when higher wage demands and accommodative monetary policy follow each other, the wage increase is represented by a shift in ____ and the change in monetary policy is represented by a shift in _____
AS, AD
2: what does M2 include?
M1
2: if an individual moves money from a checking account to a savings account, ________
M1 decreases and M2 stays the same
3: how will a recession in the economies of our foreign trading partners affect US aggregate demand?
US aggregate demand will decrease
2: who produces US coins/ who distributes them?
US mint/ federal reserve
3: what will increase the short run aggregate supply?
a decrease in the price of capital
2: of the following assets, which is the least liquid? - traveler's checks - a house - stocks - checking deposits
a house
2: which of the following is NOT true of a monetary economy (one that uses money) compared to one that uses barter? - a monetary economy provides for the development of a financial system - a monetary economy is better at supporting specialization and division of labor - a monetary economy has multiple prices for every item for sale - a monetary economy has lower transactions and information costs
a monetary economy has multiple prices for every item for sale
3: a philips curve implies what
a negative relationship between inflation and unemployment
3: what do economists mean by the term "sticky wage"?
a wage that is slow to adjust to equilibrium level, creating sustained periods of shortage or surplus in the labor market
5: the monetary policy framework is:
a way to prioritize and implement the central bank's objectives when they are in conflict
5: which function was the federal reserve originally designed to perform?
acting as a lender of last resort
3: a decrease in govt spending shifts _____ to the left
aggregate demand
4: according to keynes, an increase in interest rates causes _______ in velocity, ceteris paribus
an increase
3: suppose the economy is initially in long run equilibrium. what event leads to an increase in the price level and real gdp in the short run?
an increase in govt transfer payments
3: what could potentially cause continually rising prices in the LR?
an increasing money supply
4: a rate of inflation that exceeds the growth rate of money for a country could be explained by ______
an increasing velocity of money
2: money is _______
anything that is generally accepted in payment for . goods and services or in the repayment of debt
2: in a barter system, people ______
are less likely to specialize as extensively as they would in a monetary economy
2: ACH stands for what?
assisted currency holding
2: gresham's law states that _________
bad money drives out good
5: federal reserve banks are owned by:
banks that are members of the federal reserve system
2: what accurately describes the evolution of the payments system?
barter, coins made of precious metals, paper currency, checks, electronic funds transfers
2: whatever a society uses as money, the distinguishing characteristic is that it must _______
be generally acceptable as payment for goods and services or in the repayment of debt
5: why do some favor less fed independence?
believe that fed should be more accountable to the public
2: a distributed, encrypted online ledger is a _______
blockchain
5: what is responsible for invoking the fed's emergency powers?
board of governors
1: rolling over debt refers to _______
borrowing new money to pay back the old debts
2: who produces US bills/ who distributes them?
bureau of engraving and printing/ federal reserve
3: in the long run, monetary growth _____
cannot affect the factors that determine the country's unemployment rate
5: an important function of the regional federal reserve banks is:
clearing checks
2: the value of fiat money:
comes from government decree and public acceptability
5: what are functions of the federal reserve?
conduct economic research and evaluate bank mergers
3: what are the 4 sources of aggregate demand?
consumption, private investment, govt purchases, and net exports
3: inflation arising from a rise in the price of imported input goods like copper is an example of _____
cost-push inflation
4: asymmetric information is important for what channel for monetary policy
credit
4: what could explain an increase in velocity?
credit cards, wire transfers, cash management accounts
4: the transmission mechanism for monetary policy involving the net worth of firms is part of the _____ of money supply changes
credit view
3: in the long run, a decrease in aggregate demand, all other things unchanged, will cause the price level to _____ and potential output to ________
decrease, remain stable
4: because of ______, real interest rates were ______ than the nominal rates, early in the great depression
deflation, higher
2: eMoney (electric money) basically 'stores' and transfers value as _______
digital computer entries
1: what was the major legislation passed in response to the financial crisis of 2007-2009?
dodd frank
3: what do economists believe the philips curve looks like in the short and long run
downward sloping in the short run and vertical in the long run
5: funding for the operations board of governors of the federal reserve is derived from _______
earnings of the federal reserve district banks
2: when economists say that money promotes _______, they mean that money encourages specialization and the division of labor
efficiency
2: in terms of value of transactions, the largest share of the non-cash retail payments made each year in the US are made by _______
electronic funds transfers
1: what was employed during the financial crisis and recession of 2007-09?
expansionary fiscal policy in the form of tax cuts and increased govt expenditures, creation of govt 'make-work' projects like the Civilian Conservation Corps, considerable public relations efforts by the fed to increase consumer and business confidence
5: the political business cycle refers to the phenomenon that just before elections, politicians enact _____ policies. after the elections, the bad effects of these policies (for example, ______) have to be counteracted with ____ policies
expansionary, a higher inflation rate, contractionary
3: if output is below the natural rate, output will reduce due to a _____ in wages, which leads _______ to shift to the right
fall, AS
2: true or false: bitcoin is considered money
false
2: true or false: credit cards are considered money
false
2: true or false: federal reserve notes were the first fiat currency in the US
false
2: true or false: the fact that US currency is legal tender means that they must be accepted in payment by private individuals
false
3: true or false: according to the AS-AD model, if workers demand higher wages, then equilibrium output and the equilibrium price level will fall in the short run
false
3: true or false: in the long run, the major cause of inflation is excessive govt spending
false
4: true or false: expansionary monetary policy can expand lending due to an increase in the net worth of firms and an increase in asymmetric information issues
false
4: true or false: real interest rates were low during the early years of the great depression, since nominal rates were very low and there was significant deflation
false
4: true or false: timing and historical evidence give conflicting evidence concerning the effects of changes in the money supply during the great depression
false
5: true or false: countries with independent central banks tend to have higher inflation
false
5: true or false: the ECB, unlike the fed, has no role in regulation of EU banks
false
5: true or false: the chairman of the board of governors has sole discretion on charges in the money supply
false
5: true or false: the fed cannot be audited
false
5: true or false: the federal reserve is considered to be independent since it cannot be affected by congressional legislation
false
1: what is the key policy interest rate that the fed lowered to 0 during the financial crisis?
fed funds rate
2: paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money
fiat
5: the rationale for the existence of central banks is mainly that:
financial systems are prone to periods of extreme volatility
2: most US currency is apparently held by _____
foreigners
3: the long run in macroeconomic . analysis is a period in which ________
full wage and price flexibility and market adjustment have been achieved
1: financial institutions that borrow money short-term (to be paid back relatively soon) and invest the money in long-term assets are said to have _______
funding mis-match
2: US currency was originally backed by (convertible into) _______
gold and/ or silver
1: subprime mortgages refer to home loans to __________
high risk borrowers
3: an increase in investment will lead to _____ equilibrium output and a ______ equilibrium price level in the short run
higher, higher
3: a decrease in oil prices will lead to ____ equilibrium output and a _____ equilibrium price level in the short run
higher, lower
4: according to the keynesian speculative demand for money, at high interest rates the public will _______
hold bonds rather than money
4: monetary policy can affect the economy through _______
household wealth, investment, credit markets
4: what could represent the transmission of monetary policy?
households altering their spending on durable goods, firms altering their growth plans, net exports changing
3: an economic analysis of the short run is useful to explain ______
how deviations of real GDP from potential output can and do occur
4: according to fisher's equation, the relation between real and nominal interest rates is (approximately) given by which of the following?
i real = i nominal - inflation
1: what contributed to the financial crisis resulting in a recession?
increase in saving and paying back debt, decline in consumer and business confidence, decline in wealth
4: a decline in the yields earned by bonds should ____
increase the demand for money
2: a substantial decline in the general level of prices (say the CPI) would ______
increase the purchasing power of a dollar
4: according to tobin's q theory, expansionary monetary policy will ______ q and ______ investment in plant and equipment
increase, increase
3: all other things unchanged, a lower exchange rate _____
increases exports, decreases imports, increases net exports and aggregate demand
4: what are results of expansionary monetary policy
increasing wealth and consumption, raising tobin's q and investment, reducing asymmetric information problems and thus increasing lending
5: the main problem from inflation as seen by most economists is:
inflation creates risk
5: supporters of federal reserve independence contend that independence from the rest of the federal govt leads to lower _______
inflation rates
1: the financial crisis largely reflected _______
insolvency
5: where does the fed get its operating income from?
interest on bonds
4: when a central bank increases the money supply _____
interest rates fall, firm q values rise, firm cash flows rise
4: monetary policy can impact bank lending through changes in ______
interest rates, deposits, net worth of banks
5: what are criteria used to judge a central bank's independence?
irreversible decisions, budgetary independence, long terms for members
2: when the continental congress issued currency to finance the revolutionary war, the continental congress:
issued too many "continentals," eventually making the currency worthless
5: the federal reserve is considered independent because:
it has its own source of funds
5: the theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize:
its own welfare
4: to avoid deflation, a central bank should
keep real interest rates low or negative
5: during WWII, the fed accommodated the war effort by:
keeping bond prices high and interest rates low
4: what would reflect the transactions demand for money?
keeping funds in your checking account to pay your rent
2: what is the relative ease and speech with which an asset can be converted into a medium of exchange?
liquidity
5: in its role as a bank for the US govt, the federal reserve performs all of the following services:
maintaining the US treasury's bank account, managing the US treasury's borrowings, issuing new currency
2: monetary aggregates are _____
measures of the money supply reported by the federal reserve
2: of money's three functions, the one that distinguishes money from other . assets is its function as a ________
medium of exchange
2: new bitcoins are created by _____
miners
5: if prices are not stable:
money becomes less useful as a store of value
2: the difference between money and income is that ________
money is a stock and income is a flow
3: in the long run, the price level is determined by _______
money supply .
2: M1 is _______ than GDP
much smaller
3: the economy's potential output corresponds to the level of _____
natural unemployment
3: an increase in what would lead to a decrease in equilibrium output and an increase in equilibrium prices?
negative supply shock
4: the keynesian transactions demand for money is ______ related to interest rates, and the speculative demand for money is ______ related to interest rates
negatively, negatively
1: what were problems with the shadow banking system?
no lender of last resort, no FDIC insurance, weak regulation
4: the velocity of money equals:
nominal gdp divided by the money supply
4: a liquidity trap occurs when
nominal interest rates are zero
5: each governor on the board of governors can serve _______
one full nonrenewable 14 year term, plus part of another term
5: buying and selling US treasury securities for the fed's own portfolio is called:
open market operations
5: which tool does the fed use most commonly to control the money supply?
open market operations
5: independence of a central bank refers to independence from:
other parts of the government
2: currency includes ___________
paper money and coins
5: central accountability means:
politicians will establish goals and central bankers will report on their progress
4: what is the relationship between the velocity of money and interest rates
positive but not stable
3: the long-run aggregate supply curve is vertical at _______
potential output
4: according to keynes, income affects the ____ demand for money
precautionary and transactions
4: the quantity theory of money is a theory of how in the long run, ______
price level and inflation is determined
5: the autonomy of modern central banks means that govts cannot increase their spending by ________
printing money
5: members of congress are able to influence monetary policy, albeit indirectly, through their ability to:
propose legislation that would force the fed to submit budget requests to congress, as must other govt agencies
4: increasing the money supply when short-run nominal interest rates are already at 0 is called
quantitative easing
4: due to asymmetric information in credit markets, monetary policy may affect economic activity through the broad credit channel, where an increase in the money supply _____
raises firms net worth, decreasing adverse selection and moral hazard problems, thus increasing banks willingness to lend to finance investment spending
2: fedwire is a _________
real time gross settlement electronic payment system run by the federal reserve
4: the only solution available to a country experiencing extremely high rates of inflation is to
reduce money growth
5: a primary goal of central banks is to:
reduce systematic risk
5: what are functions of a central bank?
regulating banks, clearing checks, acting as a lender of last resort
2: critics of fiat money generally urge the government to _______
return to a gold standard
1: one interpretation of the financial crisis is that it was a _________
run on the shadow banking system
2: which of the following is not included in the measure of M1? - currency - demand deposits - savings deposits - NOW accounts
savings deposits
2: what does money eliminate the need for?
search for a double coincidence of wants
2: the return a sovereign (government) earns from creating (minting) money . is called _______
seignorage
4: if an investor thinks interest rates are likely to rise, she would ______
sell her bonds and hold more money
3: all other things unchanged, an increase in exports relative to imports will _____
shift the aggregate demand curve to the right
3: all other things unchanged, an increase in govt spending will ______
shift the aggregate demand curve to the right
4: people holding money in anticipation that bond yields will rise is an example of
speculative demand
5: what is the fed's dual mandate?
stable prices and maximum employment
2: patrick places his pocket change into his savings bank on his desk each evening. by his actions, patrick indicated that he believes money is a _______
store of value
1: loans made to less credit-worthy borrowers are called _______
sub-prime
4: if the target federal funds rate reaches the lower bound, ________
the FOMC would turn to unconventional measures, such as forward guidance
3: in the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of ______
the aggregate demand and the short run aggregate supply curves
3: using the AD-AS model, predict what happens in the short run when the federal govt enacts a cut in the personal income tax rates
the aggregate demand curve shifts right, the aggregate supply curve is not affected, price level and real gdp increase
3: using the AS-AS supply model, predict what happens in the short run when the federal govt lowers the capital gains tax to stimulate investment
the aggregate demand curve shifts right, the aggregate supply curve is not affected, price level and real gdp increase
3: the vertical philips curve occurs in the long run because _______
the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment
4: what are transmissions of monetary policy
the balance-sheet channel, the exchange-rate channel, the asset-price channel
4: an expansionary monetary policy may cause asset prices to rise, thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise. this monetary transmission mechanism is part of ______
the broad credit channel
5: who always serves on the FOMC?
the chairman of the board of governors, the board of governors, the president of the FRBNY
2: when was paper money first issued by the US government?
the civil war
4: according to the quantity theory of money demand, what will an increase in interest rates cause
the demand for money will fall
5: over the past 75 years, power within the federal reserve has shifted from ______
the federal reserve banks to the board of governors in washington
5: the group that makes decisions about the conduct of monetary policy for the ECB is:
the governing council
3: explain the multiplier effect as a result of a $100 million increase in govt spending on highways
the govt spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption
2: the payments system is ________
the method of conducting transactions in the economy
4: if a borrower's net worth increases, ______
the moral hazard risk for the potential lenders decreases
4: the opportunity cost of holding money is ______
the nominal interest rate
4: what does the portfolio demand for money reflect
the portion of wealth people desire to hold in the form of money
3: what does rising inflation mean?
the price level is rising at an increasing rate
2: when we say that money is a stock variable, we mean that _________
the quantity of money is measured at a given point in time
4: crises that occasionally hit financial markets will increase the demand for money since
the risk of holding money relative to . other financial assets decreases
4: according to the equation of exchange, if real output and the money supply stay the same and price level increases, what happens?
the velocity of money has to increase
4: key assumptions behind the quantity theory of money include:
the velocity of money is constant
3: in the long run, unemployment will be at the natural rate. what does this imply?
there is no relationship between unemployment and inflation, so the philips curve is vertical
4: the market value of a company divided by the cost of its physical capital is called ______
tobin's q
2: ________ are the time and resources spent trying to exchange good and services
transaction costs
2: compared to an economy that uses a medium of exchange, in a barter economy, _________
transaction costs are higher
2: what does an ACH do?
transfers funds electronically
1: true or false: in the recent financial crisis, the widespread use of derivatives greatly magnified and spread the impact of losses on sub-prime mortgages
true
1: true or false: leverage increases both risk and return for investors
true
1: true or false: the federal reserve is the most common lender of last resort
true
2: true or false: prior to legislation in 2003, all checks had to be sent back to the originating bank in paper form
true
3: true or false: a decrease in the money supply will shift the AD curve to the left
true
3: true or false: according to the quantity theory of money, an increase in the supply of money would shift AD to the right
true
3: true or false: an increase in the interest rate shifts AD to the left in the SR
true
3: true or false: an increase in the prices of natural resources will lead to a decrease in short-run aggregate supply
true
3: true or false: factors other than money growth may influence the inflation rate from one year to the next, but they are not likely to cause sustained inflation
true
3: true or false: long-run aggregate supply corresponds to the level of potential output
true
3: true or false: public policy to eliminate inflationary or recessionary gaps is called stabilization
true
4: true or false: real interest rates have a greater impact on investment than nominal rates
true
4: true or false: the credit view emphasizes the role of bank lending as a transmission for monetary policy
true
4: true or false: the effect of expansionary monetary policy (increasing the money supply) on tobin's q affects the economy primarily through firm investment
true
4: true or false: the wealth effect of monetary policy focuses on the effect of money supply changes on the value of stocks and houses
true
5: true or false: one of the central banks in US history was killed by andrew jackson
true
5: true or false: the FRBNY has the job of conducting open market operations
true
5: true or false: the panic of 1907 led to the chartering of the current federal reserve
true
5: true or false: there was a period of time when the US did not have a central bank
true
set 1: true or false: one contributor to the housing bubble and subsequent financial crisis of 2007-2008 was the general belief that housing prices would rise indefinitely
true
2: when money prices are used to facilitate comparisons of value, money is said to function as a _______
unit of account
3: in the long run, the aggregate supply curve is _________
vertical
3: the short run in macroeconomic analysis is a period in which _______
wages and some other prices do not respond to changes in economic conditions
2: the total stock of assets, real and financial, make up a person's _______
wealth
4: expansionary monetary policy raises the price of fine art, which is part of the ______ channel for monetary policy
wealth
2: one major difference between a debit and credit card is _________
you can build a credit history with the credit card but not with the debit card, and get assistance with a defective purchase
