econ unit 4 test

if the required reserve ratio is 10%, what is the maximum change in the money supply from John’s deposit of $50,000 cash into his checking account?

$450,000

which of the following will most likely result in a lower real interest rate in a nation?

the citizens of the nation increase their savings for retirement

Ms. Smith withdraws $1000 from her safe and deposit the money in a bank. If the bank holds the access reserves and the reserve requirement is 10%, how will this deposit increase the banks required reserves and the banks loans?

RR: $100 Loans: $900

assume a countries banking system has limited reserves. If the reserve requirement is 10% and the central bank sells $10,000 in government bonds on the open market, the money supply will

decrease by a maximum of $100,000

which of the following will most likely result in an increase in aggregate demand?

A decrease in the central banks administered interest rates

When Stephanie took out a one year fixed rate loan, she expected to pay a real interest rate of 3%. At the end of the year, the real interest rate had fallen into 2%. Which of the following could have caused the decrease in the real interest rate?

The actual inflation rate was greater than the expected inflation rate

Assume a countries banking system has limited reserves. Which of the following results when the central bank sells bonds to commercial banks?

The money supply decreases

in the short run, a tight monetary policy tends to cause

an increase in interest rate and a decrease in private investment

which of the following accurately describes the federal funds rate?

The interest rate that banks charge other banks for overnight loans

Which of the following will cause an increase in the equilibrium real interest rate?

an increase in investment demand

For a country who is banking system has limited reserves, and open market operation by the country Central bank to reduce the unemployment rate would be to

Buy bonds to decrease the interest rate to increase aggregate demand

Investors feel that business conditions will deteriorate in the future, the demand for loans, and the real interest rate in the loanable funds market will change in which of the following ways in the short run?

demand for loans: decrease

real interest rate: decrease

A bank has $200 million in demand deposit and $150 million in reserves. The reserve ratio is 20%. What is the maximum amount of loans the bank can make from its reserves?

$110 million

Fred Jones withdraws $1000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?

M1 will not change; M2 will not change

Banks create money when

they make loans

Pat deposits a portion of her wages into a personal savings account every week. The saved money can be considered to be primarily a

Store of value

Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money, multiplier, and the money supply to change in which of the following ways?

total reserves: no change

MM: increase

money supply: increase

in the short run, an increase in the policy rate will cause

A leftward shift in the aggregate demand curve

If a country’s economy is operating below the full employment level of output at a very low inflation rate, the essential Bank of the country is most likely to

Lower administered interest rates to generate an increase in output

If aggregate demand is growing faster than the long run aggregate supply, the federal reserve is most likely to

Increase the interest rates on reserve balances

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways?

Demand for money: increases nominal interest rate: increase

The most liquid asset is

Currency

The federal reserve Institute of policy to reduce inflation, which of the following is most likely to increase?

Interest rates

Which of the following is true when interest rates rise

The opportunity cost of holding cash increases

The monetary base includes which of the following?

Currency in circulation

with a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

interest rate: decrease

quantity of money: not change

an increase in inflationary expectations will most likely affect nominal, interest rates, and bond prices in which of the following ways in the short run?

Nominal interest rates: increase

bond prices: decrease.

Which of the following is true about the expected real interest rate?

It is negative if the expected inflation rate exceeds the nominal interest

Assume a countries banking system has limited reserves. In the short run, which of the following would occur to the bond prices and interest rates if a central bank bought bonds through open market operations?

Bond prices: increase

Interest rates: decrease

assume that the reserve is 15% and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank’s balance sheet?

Liabilities: increased by $200

Required reserves: increased by $30

if the required reserve ratio is 0.2, a $1 billion increase in bank reserves can lead to an increase in M1 of at most

$5 billion

The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand from AD1 to AD2 would be caused by

A decrease in the money supply

if a banking system has ample reserves, which of the following is an action taken by the central bank that would cause a decrease in the cyclical unemployment in the short run?

A decrease in interest on reserves

Expansionary monetary policy can affect the economy through which of the following chain of events?

Decreasing the administered interest rates lowers nominal interest rates, which increases investment