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Macro Unit 3 – Flashcards

Collin Foley

8 July 2022

question

The nominal interest rate equals:

answer

the real interest rate plus the expected rate of inflation

question

during rapid price inflation, firms must frequently change prices. The cost of changing prices is known as the:

answer

menu costs

question

if the actual inflation rate is less than the expected inflation rate, then:

answer

the lenders gain and the borrowers lose

question

banks are financial intermediaries that

answer

provide liquid assets to lenders and long-term financing to borrowers

question

providing a linkage between savers and investors is an important aspect of

answer

a well functioning financial system

question

when you take out a loan from a bank, it is

answer

a liability to you and an asset to the bank

question

currency in the united states today is ____ money

answer

fiat

question

the priamry difference between M1 and M2 is that:

answer

M2 includes saving deposits and time deposits, but M1 does not

question

when people use money to buy a DVD

answer

a medium of exchange

question

a decrease in government borrowing will shift the demand for loanable funds to the:

answer

left and decrease the interest rate

question

reserve requirement is 20% and Leroy deposits his 1,000 dollar check received as a graduation gift in his checking account. The bank does Not want to hold excess reserves how much of the deposit is the bank required to keep in reserves?

answer

200$

question

a bank run occurs when

answer

many bank depositors are trying to withdraw their funds from the bank

question

an expectation that perceived business opportunities will increase will generally cause

answer

the demand for loanable funds to increase

question

banks create money when they

answer

make loans

question

if banks were required to keep 100% of deposits in reserves, they could:

answer

make no loans

question

if banks decide to hold some of their excess reserves instead of lending them all out, then:

answer

the money multiplier will be less than 1 divided by the reserve ratio

question

in a graph of a money demand curve, which of the following variables is plotted on the vertical axis?

answer

the interest rate on liquid assets, like short-term CDs

question

the ____ multiplier is equal to ___

answer

money; 1 divided by the required reserve ratio

question

Responsibilities of the Fed are

answer

set the reserve requirement, oversee and regulate the banking system, set the discount rate, control the monetary base

question

federal funds are

answer

loans between banks

question

if it looks like a bank won't meed the Federal Reserve Bank's reserve requirement, normally it will first turn to the:

answer

other member banks and borrow at the federal funds rate

question

if the Fed conducts an open market purchase

answer

bank reserves increase and the money supply increases

question

suppose the Fed buys $50 million in Treasury bills from commercial banks. If the reserve ratio is 10%, the monetary supply might eventually ____ by ___

answer

increase; $500 million

question

The Federal reserve system is the ____ for the United States

answer

central bank

question

The Federal reserve system was created in

answer

1913

question

the discount rate is the interest rate the fed charges on loans to

answer

banks

question

the federal funds rate is the interest rate at which

answer

banks borrow excess reserves from other banks

question

the major tools of monetary policy available to the Federal Reserve System include

answer

reserve requirements, open market operations, and the discount rate

question

to ___ the money supply, the Fed could ___

answer

increase; conduct open market purchases

question

to change the money supply, the Fed prefers and most frequently uses

answer

open market operations

question

to decrease the money supply, the central bank could

answer

make open market sales

question

when a bank borrows from the federal reserve, it pays the

answer

discount rate

question

when banks borrow and lend reserves from each other, they are participating in the ___ market

answer

federal funds

question

which of the following actions would allow banks to lend out more money?

answer

a decrease in the discount rate

question

which of the following is a tool used by the Fed in the conduct of monetary policy?

answer

buying and selling federal government bonds

question

Banks are required to keep reserves against customer deposits either in their vaults or in reserve accounts at Federal Reserve district banks

answer

True

question

a liquidity trap is a situation in which

answer

using expansionary monetary policy is not effective because the nominal interest rate is almost zero

question

a liquidity trap results from the

answer

zero bound of the nominal interest rate

question

Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is ________, it can be argued that ________ is (are) better off.

answer

below 3%, Adrianna

question

If the Federal Reserve buys $250 million worth of U.S. Treasury bills in the open market, and the reserve ratio is 10%, then at most the money supply will:

answer

increase by 2,500 Million

question

if the Federal Reserve wanted to increase the money supply, it could:

answer

decrease the required reserve ratio, decrease the discount rate, buy bonds on the open market

question

if the Federal Reserve wants to discourage banks from borrowing directly from the Fed and thus decrease the monetary base, the Fed would likely:

answer

increase the discount rate

question

if the Federal Reserve wants to increase the monetary base, the Fed might

answer

engage in an open market purchase of Treasury bills

question

if the Federal Reserve wants to increase the money supply, it will

answer

lower the reserve requirement

question

if the economy is in a liquidity trap

answer

fiscal policy can be effective, but monetary policy is not

question

If the reserve ratio is 25%, and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:

answer

25,000

question

the discount rate is the interest rate the Fed charges on loans to:

answer

banks

question

the federal funds rate is the rate

answer

one bank would pay another bank for a loan

question

the tool of monetary policy that involves the Fed's buying and selling of government bonds is

answer

open-market operations

question

opening the discount windows is the same thing as decreasing the discount rate

answer

true

1 of

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question

The nominal interest rate equals:

answer

the real interest rate plus the expected rate of inflation

question

during rapid price inflation, firms must frequently change prices. The cost of changing prices is known as the:

answer

menu costs

question

if the actual inflation rate is less than the expected inflation rate, then:

answer

the lenders gain and the borrowers lose

question

banks are financial intermediaries that

answer

provide liquid assets to lenders and long-term financing to borrowers

question

providing a linkage between savers and investors is an important aspect of

answer

a well functioning financial system

question

when you take out a loan from a bank, it is

answer

a liability to you and an asset to the bank

question

currency in the united states today is ____ money

answer

fiat

question

the priamry difference between M1 and M2 is that:

answer

M2 includes saving deposits and time deposits, but M1 does not

question

when people use money to buy a DVD

answer

a medium of exchange

question

a decrease in government borrowing will shift the demand for loanable funds to the:

answer

left and decrease the interest rate

question

answer

200$

question

a bank run occurs when

answer

many bank depositors are trying to withdraw their funds from the bank

question

an expectation that perceived business opportunities will increase will generally cause

answer

the demand for loanable funds to increase

question

banks create money when they

answer

make loans

question

if banks were required to keep 100% of deposits in reserves, they could:

answer

make no loans

question

if banks decide to hold some of their excess reserves instead of lending them all out, then:

answer

the money multiplier will be less than 1 divided by the reserve ratio

question

in a graph of a money demand curve, which of the following variables is plotted on the vertical axis?

answer

the interest rate on liquid assets, like short-term CDs

question

the ____ multiplier is equal to ___

answer

money; 1 divided by the required reserve ratio

question

Responsibilities of the Fed are

answer

set the reserve requirement, oversee and regulate the banking system, set the discount rate, control the monetary base

question

federal funds are

answer

loans between banks

question

if it looks like a bank won't meed the Federal Reserve Bank's reserve requirement, normally it will first turn to the:

answer

other member banks and borrow at the federal funds rate

question

if the Fed conducts an open market purchase

answer

bank reserves increase and the money supply increases

question

suppose the Fed buys $50 million in Treasury bills from commercial banks. If the reserve ratio is 10%, the monetary supply might eventually ____ by ___

answer

increase; $500 million

question

The Federal reserve system is the ____ for the United States

answer

central bank

question

The Federal reserve system was created in

answer

1913

question

the discount rate is the interest rate the fed charges on loans to

answer

banks

question

the federal funds rate is the interest rate at which

answer

banks borrow excess reserves from other banks

question

the major tools of monetary policy available to the Federal Reserve System include

answer

reserve requirements, open market operations, and the discount rate

question

to ___ the money supply, the Fed could ___

answer

increase; conduct open market purchases

question

to change the money supply, the Fed prefers and most frequently uses

answer

open market operations

question

to decrease the money supply, the central bank could

answer

make open market sales

question

when a bank borrows from the federal reserve, it pays the

answer

discount rate

question

when banks borrow and lend reserves from each other, they are participating in the ___ market

answer

federal funds

question

which of the following actions would allow banks to lend out more money?

answer

a decrease in the discount rate

question

which of the following is a tool used by the Fed in the conduct of monetary policy?

answer

buying and selling federal government bonds

question

Banks are required to keep reserves against customer deposits either in their vaults or in reserve accounts at Federal Reserve district banks

answer

True

question

a liquidity trap is a situation in which

answer

using expansionary monetary policy is not effective because the nominal interest rate is almost zero

question

a liquidity trap results from the

answer

zero bound of the nominal interest rate

question

answer

below 3%, Adrianna

question

If the Federal Reserve buys $250 million worth of U.S. Treasury bills in the open market, and the reserve ratio is 10%, then at most the money supply will:

answer

increase by 2,500 Million

question

if the Federal Reserve wanted to increase the money supply, it could:

answer

decrease the required reserve ratio, decrease the discount rate, buy bonds on the open market

question

if the Federal Reserve wants to discourage banks from borrowing directly from the Fed and thus decrease the monetary base, the Fed would likely:

answer

increase the discount rate

question

if the Federal Reserve wants to increase the monetary base, the Fed might

answer

engage in an open market purchase of Treasury bills

question

if the Federal Reserve wants to increase the money supply, it will

answer

lower the reserve requirement

question

if the economy is in a liquidity trap

answer

fiscal policy can be effective, but monetary policy is not

question

If the reserve ratio is 25%, and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:

answer

25,000

question

the discount rate is the interest rate the Fed charges on loans to:

answer

banks

question

the federal funds rate is the rate

answer

one bank would pay another bank for a loan

question

the tool of monetary policy that involves the Fed's buying and selling of government bonds is

answer

open-market operations

question

opening the discount windows is the same thing as decreasing the discount rate

answer

true

Macro Unit 3 – Flashcards

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