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Macro Unit 3

The nominal interest rate equals:
the real interest rate plus the expected rate of inflation
during rapid price inflation, firms must frequently change prices. The cost of changing prices is known as the:
menu costs
if the actual inflation rate is less than the expected inflation rate, then:
the lenders gain and the borrowers lose
banks are financial intermediaries that
provide liquid assets to lenders and long-term financing to borrowers
providing a linkage between savers and investors is an important aspect of
a well functioning financial system
when you take out a loan from a bank, it is
a liability to you and an asset to the bank
currency in the united states today is ____ money
fiat
the priamry difference between M1 and M2 is that:
M2 includes saving deposits and time deposits, but M1 does not
when people use money to buy a DVD
a medium of exchange
a decrease in government borrowing will shift the demand for loanable funds to the:
left and decrease the interest rate
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?

200$
a bank run occurs when
many bank depositors are trying to withdraw their funds from the bank
an expectation that perceived business opportunities will increase will generally cause
the demand for loanable funds to increase
banks create money when they
make loans
if banks were required to keep 100% of deposits in reserves, they could:
make no loans
if banks decide to hold some of their excess reserves instead of lending them all out, then:
the money multiplier will be less than 1 divided by the reserve ratio
in a graph of a money demand curve, which of the following variables is plotted on the vertical axis?
the interest rate on liquid assets, like short-term CDs
the ____ multiplier is equal to ___
money; 1 divided by the required reserve ratio
Responsibilities of the Fed are
set the reserve requirement, oversee and regulate the banking system, set the discount rate, control the monetary base
federal funds are
loans between banks
if it looks like a bank won’t meed the Federal Reserve Bank’s reserve requirement, normally it will first turn to the:
other member banks and borrow at the federal funds rate
if the Fed conducts an open market purchase
bank reserves increase and the money supply increases
suppose the Fed buys $50 million in Treasury bills from commercial banks. If the reserve ratio is 10%, the monetary supply might eventually ____ by ___
increase; $500 million
The Federal reserve system is the ____ for the United States
central bank
The Federal reserve system was created in
1913
the discount rate is the interest rate the fed charges on loans to
banks
the federal funds rate is the interest rate at which
banks borrow excess reserves from other banks
the major tools of monetary policy available to the Federal Reserve System include
reserve requirements, open market operations, and the discount rate
to ___ the money supply, the Fed could ___
increase; conduct open market purchases
to change the money supply, the Fed prefers and most frequently uses
open market operations
to decrease the money supply, the central bank could
make open market sales
when a bank borrows from the federal reserve, it pays the
discount rate
when banks borrow and lend reserves from each other, they are participating in the ___ market
federal funds
which of the following actions would allow banks to lend out more money?
a decrease in the discount rate
which of the following is a tool used by the Fed in the conduct of monetary policy?
buying and selling federal government bonds
Banks are required to keep reserves against customer deposits either in their vaults or in reserve accounts at Federal Reserve district banks
True
a liquidity trap is a situation in which
using expansionary monetary policy is not effective because the nominal interest rate is almost zero
a liquidity trap results from the
zero bound of the nominal interest rate
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.
below 3%, Adrianna
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:
increase by 2,500 Million
if the Federal Reserve wanted to increase the money supply, it could:
decrease the required reserve ratio, decrease the discount rate, buy bonds on the open market
if the Federal Reserve wants to discourage banks from borrowing directly from the Fed and thus decrease the monetary base, the Fed would likely:
increase the discount rate
if the Federal Reserve wants to increase the monetary base, the Fed might
engage in an open market purchase of Treasury bills
if the Federal Reserve wants to increase the money supply, it will
lower the reserve requirement
if the economy is in a liquidity trap
fiscal policy can be effective, but monetary policy is not
If the reserve ratio is 25%, and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:
25,000
the discount rate is the interest rate the Fed charges on loans to:
banks
the federal funds rate is the rate
one bank would pay another bank for a loan
the tool of monetary policy that involves the Fed’s buying and selling of government bonds is
open-market operations
opening the discount windows is the same thing as decreasing the discount rate
true

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