Money and Economists
What are the 3 properties of money?
1. Medium of exchange
2. Unit of Account
3. Store of value
Suppose a bank’s balance sheet shows the following figures: Total deposits = $1500
Total/Actual Reserves = $250
Using these figures, find required reserves and excess reserves assuming the RRR is 15% and the initial deposit is $75.
Required Reserves= 236
Excess Reserves= 14
If the Fed wanted to increase the money supply would it buy or sell securities?
The Fed would buy securities from banks to increase the money supply.
A bank that is owned by its depositors and has a theme is called?
Credit Union
Assume that monetary policy is used to fix an inflationary gap. Which curve will shift back towards equilibrium.
AD curve
Which of the following statements about M1 and M2 is/ are true?
A) M1 represents cash, checking accounts and travelers checks
B) M2 represents M1 plus savings accounts, CDs, and money market accounts
C) M1 is less liquid that M2
D) a and b
D) a and b
The RRR is equal to 10%. Amount of money created if the Fed deposits $600 into the bank?
$6,000
Expected GDP decreases. How does this affect the Money Supply and Money Demand graph?
Money demand decreases. MD shifts left.
What is the Fed's target rate for inflation?
2%
Start at LR equilibrium. Kenya's economy is experiencing a recession. How would the Fed fix this gap using open market operations?
Fed would buy securities
Dave decides to move $100,000 from his checking account into a 10-year Certificate of Deposit. How does this affect M1 and M2?
M1 decreases.
M2 stays same.
CPI=$45,000 Real GDP= $10 trillion and the current money supply is $6.0 trillion. What is the velocity of money?
750
The Fed sells securities. How does this affect the Money Supply and Money Demand graph?
Money supply decreases. MS shifts left.
What is the key rate? How does the Fed change it?
Federal Funds Rate. The Fed changes it through open market operations.
Start at LR equilibrium. Average wages in the US have decreased. How would the Fed fix this gap using open market operations?
Fed would sell securities
Which economists believe that wages are very sticky when it comes to SAS and expectations are key when it comes to AD, and that we should have very active fiscal and monetary policy?
A) Classical
B) Keynesian
C) Monetarists
D) Austrians
B) Keynesian
MPC is 0.60. The government increases spending by $300. Calculate the total impact of this increase in spending.
$750
Price levels increase. How does this affect the Money Supply and Money Demand graph?
Money demand increases. MD shifts right.
The FDIC insures deposits up to what amount? What is the risk created by the FDIC doing this?
$250,000. Allows banks to act riskier when loaning out money.
Start at LR equilibrium. Consumers expect their future incomes to increase. Using open market operations to fix this gap would the Fed want to increase or decrease the money supply? Which part of the Fed would be responsible for this?
Decrease the money supply by selling securities FOMC is responsible for this.
Does money solve the problem of the double coincidence of wants? If so, how does money solve this problem?
Money solves the problem of the double coincidence of wants by being a generally accepted form of payment.
Why does tax cut multiplier have a smaller effect on GDP than the Government spending multiplier?
Tax cut multiplier does not have an initial impact on GDP.
The Fed increases RRR. How does this affect the Money Supply and Money Demand graph?
Money Supply decreases. MS shifts left.
What is the difference between demand-pull inflation and cost-push inflation?
Demand-pull inflation is caused by a continual increase in AD. Cost-push inflation is caused by a continual decrease in SAS.
When the Fed fixes an inflationary gap by selling government bonds, what happens to consumption, investment, and net exports?
Interest rates increase causing consumption, investment, and net exports to decrease.