An increase in daily transactions that consumers make due to an increase in income would likely

shift the demand curve in money market to the right

Why is the money supply graphed as a vertical line?

Because the Fed sets the money supply

In the money market, when the money supply increases:

there is no change in money demand.

Something generally accepted for the exchange of goods

Which of the following is an example of contractionary monetary policy?

increasing the reserve requirement

What is measured in a money market graph?

Nominal Interest Rate and Quantity of Money

Which of the following changes would increase the size of the money multiplier?

a decrease in the reserve ratio

An increase in the supply of loanable funds results in:

A decrease in the interest rate

The Loanable Funds Market:

Sets interest rates based on demand and supply of loans

Open Market Operations involve:

Buying or selling Govt bonds/securities

In the money market graph, money supply is drawn...

vertically because MS is set by the Fed

How does money multiplier create money?

Banks lending out excess reserves

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Monetary Policy - Unit 4

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AP Macroeconomics - Monetary Policy

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Questions 40

Answers

1
What are demand deposits?
large scale institutional accounts
checking accounts
savings accounts
money market accounts
2
What scenario is this graph depicting between Q* and Q1?
peak in the business cycle
inflationary gap
recessionary gap
increase in aggregate supply
3
The price of loanable funds is the
discount rate
federal funds rate
nominal interest rate
real interest rate
4
Money multiplier question
C
B
E
D
5
which one of the following will NOT shift the money demand curve?
The Federal Reserve
Changes in Real GDP
Changes in Technology like credit cards
A change in Aggregate Price Level
6
An increase in daily transactions that consumers make due to an increase in income would likely
shift supply curve in money market to the left
shift the demand curve in money market to the right
shift the supply curve of loanable funds
shift the supply curve in the money market to the right
7
Flannery saves money in a CD for college, what function of money is this?
durability
medium of exchange
unit of account
store of value
8
What should the y-axis be labeled on this graph?
real interest rate
inflation rate
nominal interest rate
money
9
A change in the money supply is called
tax revenues
crowding out
monetary policy
fiscal policy
10
Why is the money supply graphed as a vertical line?
Because it depends on interest rates
Because the Fed sets the money supply
Because bonds and interest rates vary indirectly
Because economists think straight lines are easier to draw
11
RR = 25%. Fed buys $10 bonds. Total change in Money Supply =
$50
$40
$55
$45
12
The shift from S1 to S2 in this Money Supply Graph was likely caused by
Sale of bonds in OMO
Purchase of bonds in OMO
Fiscal reduction in taxes, more money in the system
Fiscal increase in taxes, less money in the system
13
What is the United States Central Bank called?
The Central Bank of the United States
The First Bank of the United States
The Federal Reserve
The Second Bank of the United States
14
In the money market, when the money supply increases:
there is an increase in money demand
there is no change in money demand.
there is a decrease in money demand.
15
This is the rate that banks charge other banks to borrow money "overnight"
Inflation Rate
Discount Rate
Federal Funds Rate
Overnight Rate
16
What is money?
federal reserve notes
anything backed by gold
Something generally accepted for the exchange of goods
gold, silver, spices
17
Which of the following is the most liquid?
M2
Your car
A Certificate of Deposit
M1
18
Which of the following is an example of contractionary monetary policy?
decreasing taxes
decreasing the discount rate
purchasing government securities
increasing the reserve requirement
19
What is measured in a money market graph?
Aggregate Demand and Supply
Nominal Interest Rate and Quantity of Money
Inflation Rate and Unemployment
Real Interest Rate and Quantity of Money
20
which one of the following will NOT shift the money demand curve?
Changes in Real GDP
Changes in Technology like credit cards
A change in Aggregate Price Level
The Federal Reserve
21
MPC increases. What happens to Loanable funds...
Supply increases
Demand decreases
Demand increases
Supply decreases
22
Which of the following changes would increase the size of the money multiplier?
people holding more of their money outside of banks
congress issuing a tax cut
a decrease in the reserve ratio
tightening regulations on loans
23
If inflation= 2% and you want to earn 5% on $$ you loan out, what nom. int rate do you need?
greater than 2%
greater than 7%
greater than 10%
greater than 5%
24
Money aggregate M1 includes time deposits.
False
True
25
An increase in the supply of loanable funds results in:
A decrease in the interest rate
An increase in the aggregate price level
An increase in the interest rate
A shift in the demand for loanable funds
26
If the reserve requirement is 20%, the money multiplier is??
4
2
10
5
27
The Loanable Funds Market:
Sets interest rates based on demand and supply of loans
Includes anything that can quickly be turned into money
Contains a vertical money supply curve
Includes a required reserve ratio
28
Which of the following is NOT a "tool of the Fed"?
Federal Funds Rate
Reserve Requirement
Discount Rate
Open Market Operations
29
Open Market Operations involve:
Raising interest rates
buying groceries
Lowering the Reserve Requirement
Buying or selling Govt bonds/securities
30
The Fed can change the Demand for Money
True
False
31
1/RR is equal to what?
Money Multiplier
Spending Multiplier
MPC
Tax Multiplier
32
This would most likely be caused by...
FED lowering the discount rate
FED taking action
a decrease in the price level
an increase in national income
33
The supply of loanable funds represents the amount of ...
demand for money to make investments
national savings
currency in circulation
all the above
34
How do you calculate total change in money supply?
initial deposits x excess reserves
Multiplier x Excess reserves
demand deposits + excess reserves
1/MPS
35
To reduce inflation, the Federal Reserve could....
reduce the discount rate
expand the money supply
contract the money supply
buy bonds
36
In the money market graph, money supply is drawn...
vertically because money doesn't matter
vertically because MS is set by the Fed
horizontally because the Fed can change interest rates
upward sloping because people save more when i increases
37
How does money multiplier create money?
Banks lending out excess reserves
Banks printing money
Banks lending out required reserves
It is impossible to "create" money
38
Which of the following does the Federal Reserve use most often to combat a recession?
Buying Securities (bonds)
Reducing the Reserve Requirement
Increasing the Federal Funds Rate
Selling securities (bonds)
39
Money Multiplier
1/MPS
MPC/MPS
1/MM
1/RR
40
rrr= 20%. Fed sells $1 million in securities. Change in money supply?
decrease in $1 million
increase in $1 million
decrease in $5 million
increase in $5 million

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