Show me the money
If Ms. B using money to purchase something at target than money is serving as what function?
Medium of exchange
What is the definition for the amount of a deposit a bank has to keep?
Required reserves
What is the name of our nation's central bank?
The Federal Reserve
True or False: the opportunity cost to hold money (cash) is what we could have spent that money on.
FALSE - opportunity cost is the interest we give up
True or false: the Real interest rate adjust for changes in prices
True
True or False: fiat money is backed by something that has intrinsic value
FALSE
True or False:The federal reserve controls the required reserve ratio
TRUE
True or False: The Federal Reserve is in control of taxing
FALSE
Why is the demand for money downward sloping?
Inverse relationship between nominal interest rate and quantity of money demanded
Why does the supply of loanable funds slope upward?
Due to a positive relationship between the real interest rate and quantity of loans supplied
M1 would include all of the following EXCEPT:
A.) deposits
B.) Money in a saving account
C.) cash in our wallets
D.) Travelers checks
B
If Ms. B deposits $10,000 into a bank and the required reserve ratio is 20% what is the amount of required reserves?
10,000 x .2 = $2,000
What is the dual mandate of the Fed?
To keep unemployment & inflation low
Which of the following would cause an increase in the demand for money?
A.) a decrease in aggregate demand
B.) a decrease in price level
C.) a positive demand shock
D.) The Fed selling bonds
C.) demand
Which of the following will increase the demand for loanable funds?
A.) a government budget surplus
B.) an increase in perceived business opportunities
C.) a decrease in the Real interest rate
D.) an increase in savings
B
If Ms. B deposts $500 dollars into a savings account what happens to M1 and M2
M1 decrease M2 unchanged
If Ms. B deposits $10,000 into a bank and the required reserve ratio is 20% what is the amount of loans available for lending?
10,000 - (10,000 x .2) $8,000
If there is an inflationary gap what is the correct TYPE of monetary policy response?
Contractionary (decrease MS)
Which of following will case in increase in the nominal interest rate?
A.) a negative demand shock
B.) buying bonds
C.) increase in the reserve requirement
D.) a decrease in the real interest rate
C
Which of the following will increase the supply of loanable funds?
A.) a decrease in capital inflows
B.) a government deficit
C.) an increase in the expected inflation rate
D.) an increase in savings
D
In the U.S. the money supply is comprised of
A.) M1
B.) M2
C.) both A & B
D.) Fiat money
C
If Ms. B deposits $10,000 into a bank and the required reserve ratio is 20% what is the total increase to the money supply?
1/.2 x $8,000 = $40,000
If actual real GDP is BELOW potential what Open Market Operation should the Fed use?
Buy bonds (recessionary gap = expansionary monetary policy)
What is the long-run effect of expansionary monetary policy?
PL will increase but Real GDP will remain unchanged (MONETARY NEUTRALITY)
What is the long-run effect of a continued government deficit?
CROWDING OUT --> private investment by firms decreases --> accumulation of capital is slowed --> slowed economic growth