Section 5 Econ Test

All else equal, a 20% increase in the aggregate price will increase the quantity of money demanded by:

20%

Use the "Loanable Funds Market" Figure 29-3. The equilibrium interest rate and total quantity of lending are:

6% and $3 trillion

Which of the following statements describes a function of money?

I, III, and IV only

Crowding out is a phenomenon:

where an increase in government's budget deficit causes the overall investment spending to fall

Use the "Money Market II" Figure 28-1. Equilibrium in this money will occur at interest rate __________ and quantity of money ___________

R2; Q2

Suppose the Federal Reserve were to engage in an open-market operations by buying $100 million of U.S. Treasury bills. Which of the following would be the end result of such an action?

The money supply would increase by more than $100 million

If the required ratio is 10%, and a depositor withdraws $500 from her checkable deposits, the money supply will _________ if the banking system does NOT hold any excess reserves

decrease by $4500

If the Federal Reserve wanted to increase the money supply, it could:

decrease the required reserve ratio, decrease the discount rate, buy bonds on the open market

Use the "Money Market II" Figure 28-1. If the rate of interest is below the equilibrium rate, there will be an __________ money and the interest rate will ________

excess demand for; rise

The reserve ratio is the

fraction of deposits the banks hold in their vaults

Suppose an investment project is projected to provide $198,000 in revenues if the project is undertaken. The investment will cost the company $180,000. Given this information, one should commit to the project:

if the current interest rate is less than or equal to 10%

If the required reserve ratio is 25% and a customer deposits $300 into her checkable deposit, the money supply will ________ if the banking system does NOT hold any excess reserves

increase by $900

If the federal reserve wants to lower the interest rate, it will:

increase the money supply

The money demand curve shows the relationship between the:

interest rate and the nominal quantity of money demanded

Use the "Market for Loanable Funds II" Figure 29-9. A decrease in savings by the private sector will shift the supply of loanable funds to the:

left and increase the interest rate

All of the following are responsibilities of the Fed EXCEPT

mint bills coins

An increase in real aggregate spending will shift the:

money demand curve rightward

Use the "Crowding Out" Figure 29-10. The demand for loanable funds curve D LF1 will shift to D LF2, because:

of an increase in the government budget deficit

The tool of monetary policy that involves the Fed's buying and selling of government bonds is:

open-market operations

Governments can engage in saving when:

tax revenues are greater than expenditures

Use the "Crowding Out" Figure 29-10. Suppose the supply of loanable funds curve S LF1 shifts to S LF2, that implies:

that private savings have increased

Now that fast food places such as McDonald's are accepting credit card payments:

the demand for money has decreased

When an individual decides to hold money instead of other assets

the individual is giving up the interest that could have been earned by holding other types of assets

When the Fed decreases bank's reserve through an open-market operation:

the monetary base decreases, loans decrease, and the money supply decreases

If the Fed increases the discount rate:

the money supply is likely to decrease

Use the "Loanable Funds Market" Figure 29-3. If the interest rate is 8%, business will want to borrow approximately

$2 trillion

If the reserve ratio is 25% and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:

$25,000

Use the "Loanable Funds Market" Figure 29-3. If the interest rate is 8%, people will want to save approx.

$4 trillion

Which of the following assets is the MOST liquid?

a $50 bill