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Decreasing what is a task of the financial system?
i. transaction costs
ii. risk
iii. liquidity
i and ii
Which of the following is not a type of financial asset?
a. bonds
b. stocks
c. bank deposits
d. loans
e. houses
e
The federal government is said to be "dissaving" when...
there is a budget deficit
A nonprofit institution collects the savings of its members and invests those funds in a wide variety of assets in order to provide its members with income after retirement. This describes a...
pension fund
A financial intermediary that provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers is called a...
bank
When you use money to purchase your lunch, money is serving which role(s)?
i. medium of exchange
ii. store of value
iii. unit of account
i and iii
When you decide you want "$10 worth" of a product, money is serving which role(s)?
i. medium of exchange
ii. store of value
iii. unit of account
iii
In the United States, the dollar is
a. backed by silver
b. commodity-backed money
c. commodity money
d. fiat money
d
What is the most liquid monetary aggregate?
M1
Which of the following is the best example of using money as a store of value?
a. A customer pays in advance for $10 worth of gasoline at a gas station.
b. A babysitter puts her earnings in a dresser drawer while she saves to buy a bicycle.
c. Travelers buy meals on board an airline flight.
d. Foreign visitors to the U.S. convert their currency to dollars at the airport.
b
Suppose that a bank uses a single interest rate for loans and deposits, there is no inflation, and all unspent money is deposited in the bank. The interest rate measures what?
i. the cost of using a dollar today rather than a year from now
ii. the benefit of delaying the use of a dollar from today until a year from now
iii. the price of borrowing money calculated as a percentage of the amount borrowed
i, ii, iii
If the interest rate is zero, then the present value of a dollar received at the end of the year is...
less than $1
If the interest rate is 10%, the present value of $1 paid to you one year from now is...
$0.91
If the interest rate is 5%, the amount received one year from now as a result of lending $100 today is...
$105
What is the present value of $100 realized two years from now if the interest rate is 10%?
$83
Bank reserves include which of the following?
i. currency in bank vaults
ii. bank deposits held in accounts at the Federal Reserve
iii. customer deposits in bank checking accounts
i and ii
The fraction of bank deposits actually held as reserves is the...
reserve ratio
Bank regulation includes which of the following?
I. deposit insurance
II. capital requirements
III. reserve requirements
i, ii, iii
Which of the following changes would be most likely to reduce the size of the money multiplier?
a. a decrease in the required reserve ratio
b. a decrease in excess reserves
c. an increase in cash holdings buy consumers
d. a decrease in bank runs
e. an increase in deposit insurance
c
The monetary base equal...
currency in circulation plus reserves held by banks
Which of the following is a function of the Federal Reserve System?
i. examine commercial banks
ii. print Federal Reserve notes
iii. conduct monetary policy
i and iii
Which of the following financial services does the Federal Reserve provide for commercial banks?
i. clearing checks
ii. holding reserves
iii. making loans
i, ii, iii
When the Fed makes a loan to a commercial bank, it charges...
the discount rate
If the Fed purchases U.S Treasury bills from a commercial bank, what happens to bank reserves and the money supply?
bank reserves increase, money supply increase
When banks make loans to each other, they charge the
federal funds rate
The shifters of the money demand curves are...
Changes in the aggregate price level, changes in real GDP, changes in technology, and changes in institutions
Which of the following will decrease the demand for money?
a. an increase in the interest rate
b. inflation
c. a increase in real GDP
d. an increase in the availability of ATMs
e. the adoption of Regulation Q
d
What will happen to the money supply and the equilibrium interest rate if the Federal Reserve sells Treasury securities?
money supply decreases, equilibrium interest rate increases
Which of the following is true regarding short-term and long-term interest rates?
a. Short-term interest rates are always above long-term interest rates
b. Short-term interest rates are always below long-term interest rates
c. Short-term interest rates are always equal to long-term interest rates
d. Short-term interest rates are more important for determining the demand for money
e. Long-term interest rates are more important for determining the demand for money
d
The quantity of money demanded rises (there is a movement along the money demand curve) when
a. the aggregate price level falls
b. the aggregate price level increases
c. real GDP increases
d. new technology makes banking easier
e. short-term interest rates fall
e
A business will decide whether or not to borrow money to finance a project based on a comparison of the interest rate with the _________ from its project
rate of return
The real interest rate equals the
nominal interest rate - inflation rate
What are the shifters of the demand for loanable funds curve?
changes in perceived business opportunities and changes in the government's borrowing
What are the shifters of the supply of loanable funds curve?
changes in private savings behavior and changes in capital inflows
Both lenders and borrowers base their decisions on...
expected real interest rates
At each meeting of the Federal Open Market Committee, the Federal Reserves sets are target for...
the federal funds rate
Which of the following actions can the Fed take to decrease the equilibrium interest rate?
a. increase the money supply
b. increase money demand
c. decrease the money supply
d. decrease money demand
e. both a and d
a
Contractionary monetary policy attempts to ______ aggregate demand by ________ interest rates
decrease, increase
Which of the following is a goal of monetary policy?
a. zero inflation
b. deflation
c. price stability
d. increased potential output
e. decreased actual real GDP
c
When implementing monetary policy, the Federal Reserve attempts to achieve
a. an explicit target inflation rate
b. zero inflation
c. a low rate of deflation
d. a low, but positive inflation rate
e. 4-5% inflation
d
In the long run, changes in the quantity of money affect which of the following?
i. real aggregate output
ii. interest rates
iii. the aggregate price level
iii
An increase in the money supply will lead to which of the following in the short run?
a. higher interest rates
b. decreased investment spending
c. decreased consumer spending
d. increased aggregate demand
e. lower real GDP
d
A 10% decrease in the money supply will change the aggregate price level in the long run by...
10%
Monetary neutrality means that, in the long run, changes in the money supply...
have no real effect on the economy
A graph of percentage increases in the money supply and average annual increases in the price level for various countries provides evidence that
a. changes in the two variables are exactly equal
b. the money supply and aggregate price level are unrelated
c. money neutrality holds only in wealthy countries
d. monetary policy is ineffective
e. money is neutral in the long run
e
The real quantity of money is
i. equal to M/P
ii. the money supply adjusted for inflation
iii. higher in the long run when the Fed buys government securities
i and ii
In the classical model of the price level...
both the short run and long run aggregate supply curves are vertical
The classical model of the price level is most applicable in...
periods of high inflation
An inflation tax is...
the result of a decrease in the value of money held by the public
Revenue generated by the government's right to print money is known as
seignorage
The long-run Phillips curve is
i. the same as the short-run Phillips curve
ii. vertical
iii. the short-run Phillips curve plus expected inflation
ii
The short run Phillips curve shows a ______ relationship between ______ and _____
negative, unemployment, and inflation
An increase in expected inflation will shift
a. the short run PC downward
b. the short run PC upward
c. the long run PC upward
d. the long run PC downward
e. neither the short run nor the long run Phillips curve
b
Bringing down inflation that has become embedded in expectations is called...
disinflation
Debt deflation is
a. the effect of deflation in decreasing aggregate demand
b. an idea proposed by Irving Fisher
c. a contributing factor in causing the Great Depression
d. due to differences in how borrowers/lenders respond to inflation losses/gains
e. all of the above
e
