locked econ 3

Which statement about the Federal Reserve is correct?

The President of the New York Fed has a permanent vote on the FOMC.

Who is the current Chair of the Federal Reserve, and what is the main monetary policymaking body?

Jerome Powell; Federal Open Market Committee

Order the money supply measures from largest to smallest.

M2 > M1 > currency

Which of the following is NOT a typical function of the Federal Reserve?

Collecting tariffs

What happens to the money multiplier if the reserve requirement increases (5% → 20%)?

It decreases (from 20 to 5), so money creation falls.

When the Fed conducts an open market purchase, what happens to reserves and the money supply?

both increase

When the Fed sells government securities, what happens to reserves and the money supply?

both decrease

Lowering the discount rate has what effect on borrowing and money supply?

Increases borrowing → increases money supply.

Raising reserve requirements has what effect on bank lending and money supply?

Decreases lending → decreases money supply

What is the federal funds rate?

The interest rate banks charge each other for overnight loans of reserves

If the Fed increases the money supply, what happens to interest rates (short run)?

interest rates decrease

If the Fed decreases the money supply, what happens to interest rates?

interest rates increase

If the Fed wants to stimulate the economy during a recession, what should it do?

Increase money supply (expansionary policy).

If inflation is too high, what type of policy should the Fed use?

Contractionary monetary policy (reduce money supply)

What happens to bond prices when interest rates rise?

Bond prices fall

If the Fed buys bonds, what happens to bond prices and interest rates?

Rise, fall

What is the main goal of monetary policy?

To stabilize inflation and promote economic growth.

What does “money is neutral” mean in the long run?

It affects prices, but not real GDP.

High inflation is most likely when the government runs a large deficit and the central bank does what?

Expands the money supply.

Using the Quantity Theory (MV = PY), if money grows 7% and real GDP grows 4%, what is inflation?

3%

In the short run, after an increase in money supply, what happens to the real interest rate?

It decreases

According to the Fisher Effect, what happens when inflation rises?

Nominal interest rates rise

What does the vertical line in a money market graph represent?

The money supply (MS), which is set by the central bank and is typically vertical

What does the downward-sloping curve in a money market graph represent?

Money demand

What is the equilibrium interest rate in the money market?

Where money supply equals money demand

What is expansionary monetary policy?

Increasing the money supply to stimulate the economy

What is contractionary monetary policy?

Decreasing the money supply to control inflation

What is the equation in the Quantity Theory of Money?

M × V = P × Y

In the Quantity Theory of Money, what does M represent?

Money supply

In the Quantity Theory of Money, what does V represent?

Velocity of money

In the Quantity Theory of Money, what does P represent?

Price level

In the Quantity Theory of Money, what does Y represent?

Real output (GDP)

If velocity is constant, what happens when money supply increases?

Price level increases

Why is money demand downward sloping?

Higher interest rates increase the opportunity cost of holding money