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Econ Prac Exam 3
Question | Answer |
---|---|
A bank has no excess reserves. Then it receives a new deposit for $100,000. If it has a desired reserve ratio of 20 percent, by how much can it increase its loans? | $80,000 |
Checking deposits are included in | M1 and M2. |
A highly liquid asset | can be converted into a means of payment easily without loss of value. |
The main policy-making organ of the Federal Reserve System is the | Federal Open Market Committee. |
The Federal Reserve System.. | conducts the nation's monetary policy and regulates the nation's financial institutions. |
Which of the following is true regarding the required reserve ratio? | The ratio determines the legally required amount of reserves a bank must hold. |
Open market operations are | buying and selling U.S. government securities by the Fed. |
If an increase in the monetary base of $8 billion increases the quantity of money by $64 billion, then the money multiplier is equal to ________. | 8 |
Commercial banks are able to create money by | Making loans. |
The opportunity cost of holding money is | the interest rate |
The quantity theory of money states that in the long run | an increase in the quantity of money results in an equal percentage increase in the price level. |
In the short run, firms expand their production when the price level rises because | the money wage rate remains constant so the higher prices for their product makes it profitable for firms to expand production. |
An increase in the amount of human capital ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. | shifts; shifts |
One reason that the aggregate demand curve has a negative slope is because | people buy fewer goods and save more when the price level rises because their real wealth decreases. |
People expect that the El Nino effect will cause drought in Australia in coming years. If most firms expect their profits will fall during the next five years, Australia's ________ this year | aggregate demand will decrease |
In the short run, a rightward shift of the short-run aggregate supply curve ________ real GDP and ________ the price level. | increases; lowers |
If the aggregate demand curve shifts ________ faster than the long-run aggregate supply curve, then ________ occurs. | rightward; inflation |
If the Federal Reserve purchases government securities | banks' reserves will increase. |
When the Fed lowers the federal funds rate | investment expenditures increase. |
If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________ | sale; rise; rise |