ECON 1012 Lecture Notes - Lecture 18: Excess Reserves, Business Cycle, Output Gap
Document Summary
Get access
Related Documents
Related Questions
QUESTION 46
When the Fed buys a U.S. bond in the open market
its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another. | ||
its action expands total reserves and the money supply. | ||
its action contracts total reserves and the money supply. | ||
total reserves increase by the amount of the purchase but the money supply stays the same. |
1.11 points
QUESTION 47
When the Fed sells government securities,
reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities. | ||
reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities. |
1.11 points
QUESTION 48
The maximum potential money multiplier is equal to
the reserve ratio. | ||
one minus the reserve ratio | ||
the inverse of the required reserve ratio. | ||
the number of dollars on reserve. |
1.11 points
QUESTION 49
The potential money multiplier gives us
the growth in the money supply when income increases. | ||
the growth in real national income when the money supply increases. | ||
the maximum potential change in the money supply due to a change in income. | ||
the maximum potential change in the money supply due to a change in reserves. |
1.11 points
QUESTION 50
An increase in the reserve ratio
increases the money multiplier. | ||
will cause banks to make more loans. | ||
has an expansionary effect on the money supply. | ||
has a contractionary effect on the money supply. |
1.11 points
QUESTION 51
The Federal Deposit Insurance Corporation insures
banks against lawsuits. | ||
the deposits held in member banks. | ||
the deposits held in the Fed. | ||
the federal funds market. |
1.11 points
QUESTION 52
Bank runs are a possibility because
in difficult times people want currency instead of demand deposits. | ||
the FDIC is inefficient. | ||
banks do not keep enough reserves to cover all their depository liabilities. | ||
bankers are often poor businesspeople. |
1.11 points
QUESTION 53
The manner in which FDIC deposit insurance is set up in the United States encourages banks to
make riskier loans than they otherwise would. | ||
reject some loans that probably would be profitable. | ||
maintain excess reserves that are too great. | ||
be too conservative in their lending practices. |
1.11 points
QUESTION 54
The Federal Deposit Insurance Corporation
discourages banks from engaging in excessive risk taking. | ||
was established after the Panic of 1907. | ||
only insures deposits in money-center banks. | ||
increases the stability of the banking system by reducing the likelihood of bank runs. |
1.11 points
QUESTION 55
What are the two features of money that distinguish it from all other goods in the economy?
Money is government issued and it is redeemable for gold or silver. | ||
Money is part of every barter transaction and it is divisible. | ||
Money is accepted as a medium of exchange and it is the common unit of account used to express prices. | ||
Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate. |
1.11 points
QUESTION 56
Holding money to meet unplanned expenditures and emergencies is known as
asset demand. | ||
precautionary demand. | ||
aggregate demand. | ||
transactions demand. |
1.11 points
QUESTION 57
When people want to hold money to make regular planned expenditures, this is
the transaction demand for money. | ||
the spending demand for money. | ||
the asset demand for money. | ||
the precautionary demand for money. |
1.11 points
QUESTION 58
When interest rates rise, the transactions demand for money usually
decreases. | ||
increases. | ||
decreases initially and then increases to the original position. | ||
does not change. |
1.11 points
QUESTION 59
As nominal Gross Domestic Product (GDP) rises, the transactions demand for money
increases, and the money demand curve shifts to the right. | ||
remains constant, and the money demand curve remains the same. | ||
decreases, and the money demand curve shifts to the left. | ||
increases, and the money demand curve shifts to the left. |
1.11 points
QUESTION 60
One of the economic costs of holding currency is that
it fulfills no precautionary role. | ||
it fulfills no transactions role. | ||
it earns no interest income. | ||
its real value always increases. |
Question 1
The higher the capital utilization rate, the greater the depreciation rate.
True |
False |
Question 2
Higher capital utilization rates may raise the user costs of capital because higher utilization rates imply
operating at inconvenient times. |
paying overtime to employees operating the machines. |
operating when complementary services like transporters are unavailable or more expensive. |
All of the above. |
Question 3
If the rental price of capital increase, the capital utilization rate
increases. |
decreases. |
remains the same. |
depends on whether the substitution rate is greater than the income effect |
Question 4
The vacancy rate in the labor market is
the number of job openings divided by the number of unemployed people in the labor force. |
the number of job openings divided by the number of workers in the labor force. |
the ratio of open jobs to filled jobs. |
the ratio of open jobs to the total number of jobs that employers want occupied. |
Question 5
Unemployment can exist in a market clearing model if it takes some search time for workers to find jobs.
True |
False |
Question 6
A decrease in workers’ effective real incomes while they are unemployed will
lower the job finding rate and raise the expected duration of unemployment. |
lower the job finding rate and the expected duration of unemployment. |
raise the job finding rate and lower the expected duration of unemployment. |
raise the job finding rate and the expected duration of unemployment. |
Question 7
In the Barro model, the natural rate of unemployment is
positively related to the job separations rate. |
zero. |
fixed. |
positively related to the job finding rate. |
Question 8
If the interest rate increases, the real demand for money also increases
True |
False |
Question 9
Commodity money is money that has value because
of the intrinsic value of the commodity. |
it is legal tender. |
the government says so. |
All of the above. |
Question 10
High-powered money is
money held by business for investment. |
total currency in circulation plus depository institution deposits at the Fed. |
total currency in circulation. |
government bonds held by the public and depository institutions. |
Question 11
U.S. M1 money includes
currency held by the public. |
checkable deposits. |
traveler’s checks. |
All of the above. |
Question 12
U.S. M2 money includes
currency, time deposits, and government bonds. |
savings deposits, small time deposits, and private bonds. |
checkable deposits, savings deposits, and small time deposits. |
retail money market mutual funds, small time deposits, and government bonds. |
Question
Money is different from other assets like capital and bonds in that
money does not pay interest. |
money has intrinsic value. |
money is a better long term store of value. |
All of the above. |
Question
If a person’s income doubles, we expect their cash holdings to
double |
more than double. |
less than double. |
decrease. |
Question 15
Real money demand does not change when
nominal GDP changes. |
the interest rate changes. |
the price level changes. |
All of the above. |
Question 16
All else constant, the price level rises when the supply of money increases.
True |
False |
Question 17
If the nominal interest rate were to increase, then
money demand decreases and the price level increases. |
money demand increases and the price level decreases. |
the money supply and the price level would increase. |
the money supply and the price level would decrease. |
Question 18
Real money demand is a function of real GDP and the nominal interest rate.
True |
False |
Question 19
The real return on money is zero.
True |
False |
Question 20
If the expected inflation rate is 5% and the unexpected inflation rate is 4%, the actual inflation is
1% |
9% |
-1% |
1.25% |
Question 21
When the rate of growth of money is constant
the inflation rate equals the growth rate of money. |
the nominal interest rate rises. |
real money balances are declining. |
All of the above. |
Question 22
A decrease in the money growth rate in the market clearing model causes
a decrease in the nominal interest rate. |
an increase in money demand. |
a decrease in the price level. |
All of the above. |
Question 23
A decrease in the money growth rate in the market clearing model causes
an increase in the nominal interest rate. |
an increase in money demand. |
an increase in the price level. |
All of the above. |
Question 24
Under price level targeting the money supply becomes
neutral |
endogenous |
exogenous |
predetermined |
Q 25 During a recession, the interest rate falls tending to cause money demand to rise, but is at least partly offset by real GDP falling tending to cause money demand to fall.
True |
False |