Macroeconomics Quiz # 11

Banks create more money by ______.

Printing additional currency

Making loans to borrowers

Selling mutual funds

Decreasing demand deposits

What does the money multiplier measure?

How much a bank has available in excess reserves

The potential amount of money generated by each dollar of bank reserves

The share of its assets a bank must hold in reserve at the Fed

How much liability a bank has at any given moment

The multiple expansion effect relies on ______.

Banks keeping new cash assets in physical form

The Fed raising interest rates

Banks holding excess reserves at the Fed

Borrowers spending the money they have borrowed

Which statement about the Federal Reserve Board of Governors is true?

Members of the Board of Governors are appointed by the U.S. president.

The Board of Governors has little control over major policy decisions.

The 12 Federal Reserve Banks act as a check on the power of the Board of Governors.

Senate approval is required for most actions taken by the Board of Governors.

Most of the key decisions made regarding the U.S. money supply are made ______.

Collectively the 12 Federal Reserve Banks

By the president of the Federal Reserve Board of Governors

By the Federal Open Market Committee

By the president of the United States

What would the Fed do if it wanted to decrease the money supply?

It would lower banks’ reserve requirements.

It would instruct the trading desk to sell government bonds.

It would lower the interest rate it pays on reserves.

It would lower the interest rate it charges on borrowed reserves.

Compared to the other options that the Federal Reserve has for affecting the money supply, ______ relatively unimportant.

The reserve requirement is

Open market operations are

The discount rate is

Money market accounts are

What was one of the major causes of the bank failures of the 1930s?

The national bank holiday declared by President Roosevelt on March 4, 1933

The Federal Reserve being too aggressive in its purchase of government bonds.

Criminal activity on the part of bank officers at the largest banks in the country

Depositors hearing rumors of failures and converting their deposits to currency

Which institution helps prevent runs on banks by promising to make good on the deposits of banks that have run into financial difficulty?

The Federal Deposit Insurance Corporation

The Federal Reserve System

The Federal Open Market Committee

The New York Federal Reserve Bank

A decrease in the demand for money will shift the money demand curve ______.

To the right

To the left

Upward

Downward

Money market equilibrium occurs at which of the following?

The real interest rate where the quantity of money demanded equals the quantity of money supplied

The nominal rate where the quantity of money demanded equals the quantity of money supplied

The real interest rate where the quantity of money demanded is less than the quantity of money supplied

The nominal interest rate where the quantity of money demanded is more than the quantity of money supplied

In the long run, if the money supply rises by 20 percent, the price level rises by ______.

5%

10%

20%

30%

With all other things being equal, the money supply curve is drawn as ______.

Vertical

Horizontal

Upward sloping

Downward sloping

Which of the following strategies do bond sellers use if many people are trying to get rid of bonds?

They vary interest rates.

They keep interest rates stable.

They decrease interest rates.

They increase interest rates.

When does the Fed use a contractionary monetary policy?

Before an economic recession

During an economic recession

Before an inflation period

During an inflation period

The Fed decides to pursue an expansionary monetary policy on the open market. What effect will this have?

U.S. exports and imports will both increase.

U.S. exports and imports will both decrease.

U.S. exports will increase and U.S. imports will decrease.

U.S. exports will decrease and U.S. imports will increase.

During inflation, the Fed will engage in a contractionary money policy by ______ the money supply and ______ the interest rate.

Decreasing; increasing

Increasing; decreasing

Decreasing; decreasing

Increasing; increasing

The quantity theory of money and prices claims that changes in the ______ lead to equal proportional changes in the ______.

Real GDP; money supply

Money supply; price level

Real GDP; price level

Real GDP; nominal GDP

In the equation of exchange, which of the following letters represents real output?

M

P

Q

V

It is difficult for the Fed to know when an increase in the aggregate demand curve will happen because ______.

RGDP tends to fluctuate

Equilibrium points are unstable

Of unexpected shifts in price levels

Of the time lag before monetary policy has an impact

In order to know how much to stimulate the economy, policy makers must know how much ______ should increase.

RGDP

NGDP

NNP

NI

Why does the Fed engage in quantitative easing?

To increase short-term interest rates

To decrease short-term interest rates

To increase long-term interest rates

To decrease long-term interest rates

The short-run aggregate supply curve is _____ when the economy is near maximum capacity.

Upward sloping

Downward sloping

Steep

Flat

What do many people believe was an important cause of the financial crisis of 2008-2009?

Banks giving out too many loans that couldn’t be paid back

Banks maintaining excess reserves instead of loaning them out

Banks receiving insufficient money for the Fed

Banks using reserves for investments

When real wages drop, unemployment ______.

Increases

Decreases

Temporarily disappears

Remains unchanged

How do higher prices affect people on fixed incomes?

They increase their real income.

They decrease their real income.

They boost their purchasing power.

They preserve their purchasing power.

High price stability corresponds with ______.

Low real wages

High unemployment

Low unemployment

High interest rates

In the 1960s, policy makers ______ the Phillips curve.

Widely followed

Disregarded

Were unaware of

First hypothesized

The idea that the economy’s employment level will self-correct is known as the ______.

Real business model theory

Rational expectation theory

Phillips curve

Natural rate hypothesis

The sacrifice ratio is considered to be ______.

Very precise

A rough measure

Independent of other variables

A fixed number