Econ Unit 4 + 5 MCQ Final

Question 1

Shifters of money supply

Answer 1

1. Reserve Ratio- % of deposits banks must hold (RR decrease, MS increases)
2. Discount Rate- The interest rate the FED charges banks (DR decrease, MS increases)
3. Open Market Operations- FED buys or sells bonds (buys bonds, money supply increases)

Question 2

What money is

Answer 2

1. Medium of exchange
2. Unit of account –> acts as a measurement of value
3. Store of value –> store purchasing power for the future

Question 3

Commodity Money

Answer 3

actual things with value –> gold, silver

Question 4

Fiat Money

Answer 4

Serves as money but has no other value –> cash, coins

Question 5

Checkable Deposits

Answer 5

accounts where owners can take out money at anytime

Question 6

M1 Money (highest liquidity)

Answer 6

1. Currency in circulation
2. Checking accounts
3. Travler checks

Question 7

Liquidity

Answer 7

how easy an asset can be converted to cash without effecting its market value

Question 8

M2 Money (Near-Moneys)

Answer 8

Everything in M1 +
1. Savings deposits
2. Time deposits (has interest)
3. Money market funds

Question 9

Assets (Low-Liquidity)

Answer 9

1. Stocks
2. Bonds
3. Real Estate

Question 10

Stocks (equity)

Answer 10

buying part of company –> when its worth more, your stock is worth more and vice versa

Question 11

Bonds (securities)

Answer 11

Loaning out your money to gov. or companies who will use it then pay it back with agreed upon interest rate

Question 12

Bond Prices & Interest rates

Answer 12

inversely proportional

Question 13

Required reserves

Answer 13

minimum amount of deposits banks must hold

Question 14

Excess reserves

Answer 14

amount banks can loan out

Question 15

money multiplier

Answer 15

1/reserve ratio

Question 16

Required reserve ratio is 25%, someone deposits $700. what will be the total change in money supply?

Answer 16

$2,800

Question 17

Recessionary Gap

Answer 17

increase in unemployment and a decrease in output

Question 18

Expansionary Gap

Answer 18

increase in output and a decrease in unemployment

Question 19

MS what should FED do for recessionary Gap (increase money supply)

Answer 19

1. decrease reserve ratio
2. decrease discount rate (DR is the amount the FED charges banks for giving out loans)
3. Open market operations (FED buys bonds –> no reserve requirements so it goes directly into circulation) / FED buys bonds

Question 20

MS what should FED do for expansionary Gap (decrease money supply)

Answer 20

1. increase reserve ratio
2. Increase discount rate
3. FED sells bonds

Question 21

Ample reserves

Question 22

monetary reserves

Answer 22

currency in circulation and held by bank reserves

Question 23

expected real interest rate

Answer 23

nominal IR - expected inflation rate

Question 24

nominal IR & quantity of money

Answer 24

inverse and money is sloping downward

Question 25

increase in price level, how will it effect money market & bond market

Answer 25

nominal IR increases and price of previous bonds fall