Economics 100 3Rd Midterm Exam

Front 1

according to the AS/AD model, when the fed buys bonds in the open market:

Back 1

real GDP and the prive level will rise

Front 2

a change in the monetary policy that aims to expand aggregate demand can be described either as ___ the money supply or as ___ the interest rate

Back 2

increasing; lowering

Front 3

which part of the Fed meets about every six weeks to discuss the economy and make changes in monetary policy?

Back 3

the FOMC

Front 4

if the Fed acts to increase the money supply,

Back 4

it will buy bonds, drive bond prices up, and drive interest rates down

Front 5

what is a liability to a bank?

Back 5

deposits

Front 6

the suuply of money is determined by

Back 6

the Fed

Front 7

if the Fed makes open-market purchases it will

Back 7

increase the money supply which will increase the price level

Front 8

if inflation is a threat, then the Fed will conduct monetary policy aimed at ___ the interest rate which then will shift aggregate demand to the ___.

Back 8

increasing; left

Front 9

data on hyperinflation indicates,

Back 9

that money supply growth was about the same as inflation

Front 10

if total reserves in the banking system are $15 million, the required reserve ratio is 11 percent, and banks hold no excess reserves, then the total level of bank deposits should be equal to:

Back 10

$136 million

Front 11

what are the three types of monetary policy lags?

Back 11

recognition lag, implementation lag, impact lag

Front 12

what is true about bonds?

Back 12

sellers of newly issued bonds are borrowers

Front 13

in 1991, the federal reserve lowered the reserve requirement ratio from 12% to 10%. this should have

Back 13

increased both the money multiplier and the money supply

Front 14

the Fed's most frequently used tool of monetary control is

Back 14

open-market operations

Front 15

suppose that the federal reserve wants to increase the money supply (M1). Instead of the usual open-market operation, the Fed buys $1 million of bubble gym from a US manufacturer. Will this action be effective in changing the money supply?

Back 15

it will be effective, as long as the bubble gum manufacturer deposits the check from the Fed in their commercial bank account

Front 16

if the reserve ratio is 14 percent, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Back 16

increase by $10 million and the money supply eventually increases by $71 million

Front 17

velocity is computed as

Back 17

(P x Y)/M

Front 18

the higher the reserve ratio the

Back 18

less of each deposit banks may lend out, and the smaller the money multiplier

Front 19

suppose the Fed conducts an open market purchase. we can expect this transaction to

Back 19

increase the money supply, raise bond prices, and lower interest rates

Front 20

using the equation of exchange, if the nominal GDP is $8,000 billion and the money supply is $1,600 billion then

Back 20

velocity is 5

Front 21

what will increase the money supply, but leave the money multiplier unchanged?

Back 21

none of the above

Front 22

suppose the economy experiences a recessionary gap. if the Fed responds with expansionary monetary policy, investment will ___ and interest rates will ___.

Back 22

increase; decrease

Front 23

when her $1,000 time deposit (certificate of deposit, or CD) expires, Suneeta decides not to renew the time deposit and opts to have the funds transferred to her checking account. as a result of her transaction

Back 23

M1 increases and M2 is unaffected

Front 24

the monetary policy tool that involves the buying ans selling of government bonds is:

Back 24

open-market operations

Front 25

suppose that eric buys a used car from anna. in exchange for the car, he gives Anna a check for $5,500 drawn from his account at First Financial. she then deposits the check in her account at Suntrust Bank. the required reserve ratio is 10 percent.

Back 25

deposits at suntrust rise by $5,500, but there is no change in the total bank deposits in the banking system

Front 26

a $1,000 bond which matures in one year has a price of $925. the interest rate on this bond is

Back 26

8.11%

Front 27

what happens in the money market when there is a decrease in the supply of money?

Back 27

the equilibrium quantity of money decreases and the equilibrium interest rate increases

Front 28

a decrease in the interest rate will cause a:

Back 28

movement along the investment demand curve and a rightward shift in the AD curve

Front 29

the demand for bonds curve slopes downwards because

Back 29

at lower prices, bonds pay higher interest which makes them more attractive to buyers

Front 30

if the demand for bonds increases (all else constant)

Back 30

the price of bonds will rise, causing interest rates to fall and investment to rise

Front 31

the first national bank of tinyville has $10,000 of reserves. if it is holding no excess reserves, and the reserve ratio is 10%, its deposits are

Back 31

$100,000

Front 32

in order to function as a medium of exchange, money must:

Back 32

be generally accepted in exchange for goods and services