The Fed can increase the price level by conducting open market

purchases and lowering the discount rate

In a fractional reserve banking system, an increase in the reserve requirement

decreases the MS and the money multiplier

The MS increases when the Fed

buys bonds. The increase will be larger the smaller the reserve ratio

Which of the following 2 lists things that both increase the MS?

the Fed buys bonds and lowers the discount rate

When the Fed conducts Open Market sales

It sells bonds which decreases MS

The supply curve of money is vertical because the MS increases

Only if the Fed increases the MS

According to the assumptions of the quantity theory, if the MS increases 5% then

Nominal GDP would rise by 5%, real is unchanged

Suppose a bank has a 10% reserve requirement, $5,000 in deposits and loaned out all it can...

It has $500 in reserves and $4,500 in loans

As price decreases, the value of money

increases, so people need to hold less of it

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Unit Three Macro

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Questions 26

Answers

1
According to the classical dichotomy when the MS doubles which will double?
Only the price
price and nominal GDP
price and real GDP
real GDP
2
If price rises from $120 to $126 what is the inflation rate?
None of the above
6%
3%
5%
3
The Fed can increase the price level by conducting open market
sales and lowering the discount rate
purchases and lowering the discount rate
purchases and raising the discount rate
sales and raising the discount rate
4
According to the classical dichotomy, which of the following is not influenced by monetary factors
All of the above
Nominal interest rate
real GDP
The price
5
If you deposit $100 of currency into a demand deposit at the bank, this action alone
Increases the MS
Has an indeterminate effect on the MS
does not change the MS
Decreases the MS
6
When a bank loans out $1,000 the MS
Douglas, if you think I know this you are on drugs.
Does not change
Increases
Decreases
7
As the reserve ratio increases, the money multiplier
Could do any of the above
Increases
Dereases
Does not change
8
In a fractional reserve banking system, an increase in the reserve requirement
increases the MS and the money multiplier
decreases the MS and the money multiplier
decreases the money multiplier but increases the MS
increases the money multiplier but decreases the MS
9
The MS increases when the Fed
sells bonds. The increase will be smaller the smaller the reserve ratio.
buys bonds. This increase will be larger the larger the reserve ratio
sells bonds. The increase will be larger the smaller the reserve ratio
buys bonds. The increase will be larger the smaller the reserve ratio
10
U.S. currency is
Commodity with no other value
Fiat with other value
Commodity with other value
Fiat with no other value
11
Based on the quantity equation, if M is $100, V is 4 and Y is 200 then P is = to
2
none of the above
1/2
8
12
Which of the following 2 lists things that both increase the MS?
the Fed buys bonds and lowers the discount rate
The Fed sells bonds and raises the discount rate.
The Fed sells bonds and lowers the discount rate.
The Fed buys bonds and raises the discount rate
13
The Federal Reserve does all of the following except
Control the supply of money
Control the value of money
Make loans to individuals
Regulate the banking system
14
When the Fed conducts Open Market sales
It lends money to the banks which decreases the MS
It sells bonds which decreases MS
It borrows money from the banks which increases MS
it sells bonds which increases MS
15
Economic variables whose values are measured in monetary units are called
real variables
classical variables
dichotomous variables
nominal variables
16
When the Federal Reserve conducts OMO's to increase the money supply it
Raises the discount rate
Decreases its lending to banks
Redeems Federal Reserve Notes
Buys government bonds
17
If the reserve ratio is 5%, $1,000 of deposits can create an additional
$20,000
$15,000
$19,000
$25,000
18
The supply curve of money is vertical because the MS increases
when the value of money decreases
when the value of money increases
Only if the Fed increases the MS
only if people desire to hold more money
19
You get money for babysitting the neighbors kids. This best illustrates which function of money?
Liquidity
Medium of Exchange
Unit of Account
Store of Value
20
According to the assumptions of the quantity theory, if the MS increases 5% then
Neither nominal nor real GDP would change
nominal and real GDP would rise by 5%
Nominal GDP would rise by 5%, real is unchanged
Nominal GDP would be unchanged, real would rise by 5%
21
The nominal interest rate is 3% and the inflation rate is 2%. What is the real interest rate?
6 percent
1.5 percent
1 percent
5 percent
22
Suppose a bank has a 10% reserve requirement, $5,000 in deposits and loaned out all it can...
None of the above
It has $500 in reserves and $4,500 in loans
It has $50 in reserves and $4,950 in loans
It has $555 in reserves and $4,445 in loans
23
Mia puts money in a piggy bank so she can spend it later. What function of money does this illustrate?
Unit of Account
Store of Value
None of the above
Medium of Exchange
24
As price decreases, the value of money
increases, so people need to hold less of it
decreases so people need to hold more of it
increases, so people need to hold more of it
decreases, so people need to hold less of it
25
The Fed's primary tool to change the money supply is
Conduct open market operations
Change the discount rate
Redeeming Federal Reserve Notes
Change the reserve requirement
26
Suppose the reserve ratio is 10 percent and that a bank has $2,000 in deposits, its reserves are
$1,880
$20
$200
$1,800

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