chapters 13-14 - Assignment Essays

question

Concerning monetary policy, which of the following is correct?

answer

The Federal Reserve is responsible for conducting monetary policy.

question

The Federal Reserve System is owned by

answer

the banks that are members of the Federal Reserve System.

question

The federal funds rate is the interest rate paid when

answer

one bank borrows reserves from another bank.

question

The major overall purpose of the Federal Reserve System is to

answer

regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy.

question

Excess reserves of banks equal

answer

actual reserves minus required reserves.

question

The term "open market operations" refers to the

answer

buying and selling of government securities by the Federal Reserve.

question

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

answer

prices

question

The velocity of money is the

answer

average number of times a dollar is used to buy goods and services included in GDP.

question

The velocity of money is

answer

GDP divided by the money supply.

question

The equation of exchange states that

answer

velocity multiplied by money supply equals real output times the price level.

question

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

answer

it is the most liquid of all assets.

question

Money is used as a unit of account. This means

answer

money is used to measure the exchange value and costs of goods, services, assets and resources.

question

The primary source of earnings of commercial banks is income derived from

answer

the use of deposits to extend loans and undertake investments.

question

The money multiplier will be

answer

smaller if either banks hold on to excess reserves or private citizens hold on to cash.

question

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

answer

increases the money supply by $800.

question

Which of the following will cause the U.S. money supply to expand?

answer

A commercial bank uses excess reserves to extend a loan to a customer.

question

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will

answer

increase and the money supply will eventually increase.

question

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

answer

There is no change in the supply of money; your bank's excess reserves are reduced by $800.

question

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

answer

There is no change in the money supply, and the reserves of your bank decline.

question

If the Fed raises the discount rate, what happens to reserves and the money supply?

answer

both decrease

question

When the required reserve ratio is lowered,

answer

the money multiplier increases, and the amount of excess reserves increases in the banking system.

question

If the required reserve ratio were decreased,

answer

both the money supply and the outstanding loans of banks would tend to increase.

question

Which of the following lists two things that both increase the money supply?

answer

Lower the discount rate and make open market purchases.

question

An increase in the discount rate impacts the money supply because it

answer

reduces the incentive of commercial banks to borrow from the Federal Reserve.

question

Which of the following lists two things that both increase the money supply?

answer

The Fed buys bonds and lowers the discount rate.

question

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

answer

stimulate real output in the short run, but in the long run, its primary impact will be on the general level of prices.

question

If the Fed unexpectedly increases the money supply, real GDP

answer

increases because the resulting decrease in the interest rate leads to an increase in investment.

question

If the Fed unexpectedly decreases the money supply, real GDP

answer

decreases because the resulting increase in the interest rate leads to a decrease in investment.

question

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run?

answer

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

question

An increase in the money supply

answer

lowers the interest rate, causing an increase in investment and an increase in GDP.

question

Starting from an initial long-run equilibrium, an unanticipated shift to a more expansionary monetary policy would tend to increase

answer

real output in the short run but not in the long run.

question

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

answer

a higher price level

question

When continued for several years, rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

answer

high inflation

question

When the Fed purchases additional securities and shifts to a more expansionary monetary policy,

answer

several months will typically pass before the shift in policy exerts much impact on output and employment.

question

Which of the following about monetary policy is true?

answer

If the Fed wants to reduce the future growth rate of the money supply, it could do so by increasing the interest rate it pays banks on excess reserves.

question

During the second half of 2008 the monetary base was growing far more rapidly than the money supply because

answer

banks were maintaining huge excess reserves.

question

Demographic changes that increase the number of people in the lending phase (approximately age 50 to 75) and fewer in the borrowing phase (under age 50), would tend to

answer

expand the supply of loanable funds and push interest rates downward.

question

Which of the following is true of home mortgage loans since the late 1990s?

answer

There was a substantial increase in the volume of mortgage loans extended with little or no down payment.

question

Why didn't the Fed's quantitative easing policies exert a stronger impact on aggregate demand and lead to a more rapid recovery during 2010-2012?

answer

The earnings of senior citizens and others from money market accounts, saving deposits, and other forms of savings fell, reducing their incentive to spend and thereby increasing aggregate demand.

question

The "quantitative easing" policies of the Fed during, and following, the financial crisis of 2008-2009,

answer

expanded the reserves available to the banking system, but the M1 money supply increased slowly because the banks enlarged their excess reserves.

question

The "rule of 70" is a simple rule

answer

(70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.

question

What has happened to the world's economy over the past 200 years?

answer

There has been economic growth, less poverty, and longer life spans.

question

During the past 1000 years, the income per person of the world has

answer

increased by approximately tenfold during the past 200 years, but there was only a small increase during the 800 years prior to 1800.

question

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to

answer

64 years

question

Which of the following is true for the world as a whole?

answer

During the 800 years between 1000 and 1800, the increases in both world income per person and life expectancy at birth were small, but both of these indicators have increased sharply during the past 200 years.

question

What has happened to per capita income and the degree of income inequality of the world during the past three decades?

answer

Per capita income has increased in both rich and poor countries, and the worldwide distribution of income has become more equal.

question

What has happened to income inequality and the poverty rate of the world since 1980?

answer

Both income inequality and the poverty rate have declined.

question

During 1980-2014, the per-capita incomes of less-developed countries (LDCs)

answer

registered a mixed growth record; some grew rapidly while others stagnated.

question

Which of the following countries have the highest per person income levels?

answer

Ireland, Norway, and the United States

question

The Economic Freedom of the World index is a measure of the consistency of a nation's institutions and policies with

answer

economic freedom

question

The value (purchasing power) of each unit of money

answer

is inversely related to the general level of prices.

question

If money were not used as a medium of exchange,

answer

the gains from trade would be severely limited.

question

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

answer

limits the ability of banks to expand the money supply by extending additional loans.

question

If a customer deposits $1,000 cash into her checking account, the bank's

answer

assets and liabilities both rise by $1,000.

question

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

answer

200 Billlion

question

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

answer

The reserve requirements mandated by the Fed.

question

Suppose Laqueta deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is

answer

no change in the M1 money supply, but in the future, the M1 money supply will tend to expand because the bank now has excess reserves.

question

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

answer

an increase in that bank's excess reserves.

question

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

answer

Buy U.S. securities.

question

Open-market purchases by the Fed make the money supply

answer

increase, which tends to decrease the value of money.

question

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

answer

buying government securities from the public.

question

Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

answer

$500 million decrease.

question

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

answer

lower interest rates, increase in aggregate demand, and an expansion in output.

question

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated decrease in the money supply will be

answer

higher real interest rates and a reduction in aggregate demand.

question

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

answer

an increase in real output

question

An analysis of countries experiencing rapid inflation indicates that inflation is generally

answer

caused by rapid growth in the money supply.

question

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

answer

inflation.
high nominal interest rates.

question

Monetary policy pushed interest rates to historically low levels during 2002-2004, but was more restrictive during 2005-2006. Economic analysis indicates that this policy

answer

contributed to the boom and bust of the housing market, and thereby the instability of this era.

1 of 68

question

Concerning monetary policy, which of the following is correct?

answer

The Federal Reserve is responsible for conducting monetary policy.

question

The Federal Reserve System is owned by

answer

the banks that are members of the Federal Reserve System.

question

The federal funds rate is the interest rate paid when

answer

one bank borrows reserves from another bank.

question

The major overall purpose of the Federal Reserve System is to

answer

regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy.

question

Excess reserves of banks equal

answer

actual reserves minus required reserves.

question

The term "open market operations" refers to the

answer

buying and selling of government securities by the Federal Reserve.

question

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

answer

prices

question

The velocity of money is the

answer

average number of times a dollar is used to buy goods and services included in GDP.

question

The velocity of money is

answer

GDP divided by the money supply.

question

The equation of exchange states that

answer

velocity multiplied by money supply equals real output times the price level.

question

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

answer

it is the most liquid of all assets.

question

Money is used as a unit of account. This means

answer

money is used to measure the exchange value and costs of goods, services, assets and resources.

question

The primary source of earnings of commercial banks is income derived from

answer

the use of deposits to extend loans and undertake investments.

question

The money multiplier will be

answer

smaller if either banks hold on to excess reserves or private citizens hold on to cash.

question

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

answer

increases the money supply by $800.

question

Which of the following will cause the U.S. money supply to expand?

answer

A commercial bank uses excess reserves to extend a loan to a customer.

question

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will

answer

increase and the money supply will eventually increase.

question

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

answer

There is no change in the supply of money; your bank's excess reserves are reduced by $800.

question

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

answer

There is no change in the money supply, and the reserves of your bank decline.

question

If the Fed raises the discount rate, what happens to reserves and the money supply?

answer

both decrease

question

When the required reserve ratio is lowered,

answer

the money multiplier increases, and the amount of excess reserves increases in the banking system.

question

If the required reserve ratio were decreased,

answer

both the money supply and the outstanding loans of banks would tend to increase.

question

Which of the following lists two things that both increase the money supply?

answer

Lower the discount rate and make open market purchases.

question

An increase in the discount rate impacts the money supply because it

answer

reduces the incentive of commercial banks to borrow from the Federal Reserve.

question

Which of the following lists two things that both increase the money supply?

answer

The Fed buys bonds and lowers the discount rate.

question

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

answer

stimulate real output in the short run, but in the long run, its primary impact will be on the general level of prices.

question

If the Fed unexpectedly increases the money supply, real GDP

answer

increases because the resulting decrease in the interest rate leads to an increase in investment.

question

If the Fed unexpectedly decreases the money supply, real GDP

answer

decreases because the resulting increase in the interest rate leads to a decrease in investment.

question

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run?

answer

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

question

An increase in the money supply

answer

lowers the interest rate, causing an increase in investment and an increase in GDP.

question

Starting from an initial long-run equilibrium, an unanticipated shift to a more expansionary monetary policy would tend to increase

answer

real output in the short run but not in the long run.

question

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

answer

a higher price level

question

When continued for several years, rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

answer

high inflation

question

When the Fed purchases additional securities and shifts to a more expansionary monetary policy,

answer

several months will typically pass before the shift in policy exerts much impact on output and employment.

question

Which of the following about monetary policy is true?

answer

If the Fed wants to reduce the future growth rate of the money supply, it could do so by increasing the interest rate it pays banks on excess reserves.

question

During the second half of 2008 the monetary base was growing far more rapidly than the money supply because

answer

banks were maintaining huge excess reserves.

question

Demographic changes that increase the number of people in the lending phase (approximately age 50 to 75) and fewer in the borrowing phase (under age 50), would tend to

answer

expand the supply of loanable funds and push interest rates downward.

question

Which of the following is true of home mortgage loans since the late 1990s?

answer

There was a substantial increase in the volume of mortgage loans extended with little or no down payment.

question

Why didn't the Fed's quantitative easing policies exert a stronger impact on aggregate demand and lead to a more rapid recovery during 2010-2012?

answer

The earnings of senior citizens and others from money market accounts, saving deposits, and other forms of savings fell, reducing their incentive to spend and thereby increasing aggregate demand.

question

The "quantitative easing" policies of the Fed during, and following, the financial crisis of 2008-2009,

answer

expanded the reserves available to the banking system, but the M1 money supply increased slowly because the banks enlarged their excess reserves.

question

The "rule of 70" is a simple rule

answer

(70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.

question

What has happened to the world's economy over the past 200 years?

answer

There has been economic growth, less poverty, and longer life spans.

question

During the past 1000 years, the income per person of the world has

answer

increased by approximately tenfold during the past 200 years, but there was only a small increase during the 800 years prior to 1800.

question

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to

answer

64 years

question

Which of the following is true for the world as a whole?

answer

question

What has happened to per capita income and the degree of income inequality of the world during the past three decades?

answer

Per capita income has increased in both rich and poor countries, and the worldwide distribution of income has become more equal.

question

What has happened to income inequality and the poverty rate of the world since 1980?

answer

Both income inequality and the poverty rate have declined.

question

During 1980-2014, the per-capita incomes of less-developed countries (LDCs)

answer

registered a mixed growth record; some grew rapidly while others stagnated.

question

Which of the following countries have the highest per person income levels?

answer

Ireland, Norway, and the United States

question

The Economic Freedom of the World index is a measure of the consistency of a nation's institutions and policies with

answer

economic freedom

question

The value (purchasing power) of each unit of money

answer

is inversely related to the general level of prices.

question

If money were not used as a medium of exchange,

answer

the gains from trade would be severely limited.

question

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

answer

limits the ability of banks to expand the money supply by extending additional loans.

question

If a customer deposits $1,000 cash into her checking account, the bank's

answer

assets and liabilities both rise by $1,000.

question

If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

answer

200 Billlion

question

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

answer

The reserve requirements mandated by the Fed.

question

Suppose Laqueta deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is

answer

no change in the M1 money supply, but in the future, the M1 money supply will tend to expand because the bank now has excess reserves.

question

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

answer

an increase in that bank's excess reserves.

question

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

answer

Buy U.S. securities.

question

Open-market purchases by the Fed make the money supply

answer

increase, which tends to decrease the value of money.

question

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

answer

buying government securities from the public.

question

answer

$500 million decrease.

question

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

answer

lower interest rates, increase in aggregate demand, and an expansion in output.

question

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated decrease in the money supply will be

answer

higher real interest rates and a reduction in aggregate demand.

question

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

answer

an increase in real output

question

An analysis of countries experiencing rapid inflation indicates that inflation is generally

answer

caused by rapid growth in the money supply.

question

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

answer

inflation.
high nominal interest rates.

question

Monetary policy pushed interest rates to historically low levels during 2002-2004, but was more restrictive during 2005-2006. Economic analysis indicates that this policy

answer

contributed to the boom and bust of the housing market, and thereby the instability of this era.

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