Quiz Week 12 - Lukas Haugen

The diagram above refers to a private closed economy. In this instance, the equilibrium GDP is: (graph) a. $180 billion. b. $60 billion. c. between $60 and $180 billion. d. $60 billion at all levels of GDP.

$180 billion.

If GDP is 3600 and the money supply is 300, what is the velocity? a. 12 b. 18 c. 8 d. 4.57

12

If nominal GDP is 2700 and the money supply is 900, what is velocity? a. 3 b. .33 c. 25 d. 13.5

3

If GDP is 2400 and the money supply is 600, then what is the velocity? a. 12 b. 18.3 c. 4 d. 4.57

4

If nominal GDP is 1800 and the money supply is 450, then what is velocity? a. 25 b. 4 c. 22 d. 4.5

4

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession? a. increased discount rate b. open market operations c. increased reserves requirements d. quantitative easing

quantitative easing

A central bank that desires to reduce the quantity of money in the economy can: a. buy bonds in open market operations. b. engage in quantitative easing. c. lower the discount rate. d. raise the reserve requirement.

raise the reserve requirement

When the central bank lowers the reserve requirement on deposits: Select one: a. the money supply and interest rates increase. b. the money supply decreases and interest rates increase. c. the money supply and interest rates decrease. d. the money supply increases and interest rates decrease.

the money supply increases and interest rates decrease.

According to the basic quantity equation of money, if price and output fall while velocity increases, then: a. the quantity of money will rise. b. the quantity of money will rise slowly. c. the quantity of money will rise before it falls. d. the quantity of money will fall.

the quantity of money will fall

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result? a. unpredictable rises and falls in nominal GDP b. monetary policy will become inevitably imprecise c. quantity of credit rises above where it otherwise be d. innovations relating to banking and finance

unpredictable rises and falls in nominal GDP

If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP? a. a loose monetary policy b. higher interest rates c. a tight monetary policy d. fewer loanable funds

a lose monetary policy

Which of the following is considered to be a relatively weak tool of monetary policy? a. quantitative easing b. altering the discount rate c. reserve requirements d. reducing the money supply

altering the discount rate

How are the specific interest rates for the lending and borrowing markets determined? Select one: a. by altering the discount rate b. by the forces of supply and demand c. through open market operations d. U.S. Treasury Department Board policy

by the forces of supply and demand

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions? a. loose b. countercyclical c. contractionary d. laissez faire

countercyclical

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only: a. create a deflationary loss in price level. b. create an inflationary increase in price level. c. create an increase in unemployment. d. create an increase in GDP.

create an inflationary increase in price level.

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? a. discount rate b. open market rate c. Fed rate d. reserve requirement

discount rate

Which of the following institutions determines the quantity of money in the economy as its most important task? a. U.S. Department of the Treasury b. Central Bank c. Federal Reserve Board of Governors d. Federal Open Market Committee

Central Bank

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the: a. FFIEC; day-to-day democratic control of policy. b. FOMC; passing of tax and spending bills. c. FDIC; responsibility for deposit insurance. d. Central Bank; safety and stability of the banking system.

Central Bank; safety and stability of the banking system.

____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect? a. Long and variable time lags b. Quantitative easing c. Altering the discount rate d. Reserve requirements

Long and variable time lags

Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result? a. Northern's net worth changes by $30 million b. Northern's bond assets increase by $30 million c. the money supply in the economy decreases d. Northern's loan assets increase by $30 million

Northern's loan assets increase by $30 million

Which of the following institutions oversees the safety and stability of the U.S. banking system? a. Office of the Comptroller of the Currency b. Federal Financial Institutions Examination Council c. Federal Open Market Committee d. The Federal Reserve

The Federal Reserve

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: a. a quantitative easing policy. b. a contractionary monetary policy. c. a expansionary monetary policy. d. a loose monetary policy.

a contractionary monetary policy

Which of the following events would cause interest rates to increase? a. an open market operation to buy bonds b. lower reserve requirements c. a higher discount rate d. lower tax rates

a higher discount rate

What is the name given to the macroeconomic equation MV = PQ? a. basic velocity of price equation b. basic quantity equation of output c. basic quantity equation of money d. basic velocity of money equation

basic quantity equation of money

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely: a. borrow for the short term from the central bank. b. reduce the quantity of money and loans on the balance sheet. c. buy bonds to increase the size of its reserve assets. d. keep track of whether money is flowing in or out of the bank.

borrow for the short term from the central bank.

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond? a. by increasing its reserves b. its balance sheet will be unchanged c. it can make more loans with increased loan assets d. by noting a decrease in net worth

by increasing its reserves

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run. a. tight monetary policy b. contractionary monetary policy c. reverse quantitative easing policy d. expansionary monetary policy

expansionary monetary policy

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected? a. real interest rate b. consumer lending rate c. nominal interest rate d. federal funds rate

federal funds rate

If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be? a. bank runs b. bank supervision c. fighting inflation d. leverage cycle

fighting inflation

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will: a. follow expansionary monetary policy. b. follow tight monetary policy. c. follow loose monetary policy. d. follow quantitative easing policy.

follow tight monetary policy.

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: a. reversing quantitative easing. b. following a tight monetary policy. c. following a loose monetary policy. d. following a contractionary monetary policy.

following a loose monetary policy.

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is: a. following a tight monetary policy. b. following an expansionary monetary policy. c. following a contractionary monetary policy. d. following quantitative easing policy.

following an expansionary monetary policy.

Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result? Select one: a. increase of $1 million in Pacific's loan assets b. increase of Pacific's bond assets by $1million c. decrease of $1 million in Pacific's net worth d. the money supply in the economy decreases

increase of $1 million in Pacific's loan assets

If the economy is at equilibrium as shown in the diagram above, then a contractionary monetary policy will (graph) a. increase output and increase inflation. b. increase unemployment and decrease inflation. c. have no effect on output, but increase inflation. d. increase unemployment, but have little effect on inflation.

increase unemployment, but have little effect on inflation.

When the central bank decides to increase the discount rate, the: a. interest rates are unaffected. b. money supply increases. c. interest rates increase. d. interest rates decrease.

interest rates increase

When banks hold excess reserves because they don't see good lending opportunities: a. expansionary monetary policy is unaffected. b. it negatively affects contractionary monetary policy. c. contractionary monetary policy is unaffected. d. it negatively affects expansionary monetary policy.

it negatively affects expansionary monetary policy.

Which of the following is a traditional tool used by the Fed during recessions? Select one: a. open market operations b. higher interest rates c. coins and paper currency d. quantitative easing

open market operations

If the economy is at equilibrium as shown in the diagram above, then an expansionary monetary policy will: a. reduce both unemployment and inflation. b. reduce unemployment, but increase inflation. c. reduce unemployment, but have little effect on inflation. d. have no effect on both unemployment and inflation

reduce unemployment, but have little effect on inflation DOB

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? a. reserve requirements b. discount requirements c. deposit requirements d. monetary requirements

reserve requirements

The quantitative easing policies adopted by the Federal Reserve are usually thought of as: a. a relatively weak tool. b. traditional monetary policies. c. short term loans to fill out reserves. d. temporary emergency measures.

temporary emergency measures.

When the central bank decides it will sell bonds using open market operations: a. interest rates decrease. b. the money supply decreases. c. the money supply is unaffected. d. the money supply increases.

the money supply decreases

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? a. Southern's net worth increases by $25 million b. increase in Southern's loan assets of $25 million c. decrease in Southern's bond assets by $25 million d. the money supply in the economy decreases

the money supply in the economy decreases