Economics Test 3

Question 1

how to change the economy by changing the money supply

Answer 1

monetary policy

Question 2

characteristics of money

Answer 2

medium of exchange

store of value

Question 3

m1 includes

Answer 3

cash, coins, demand deposits, travelers checks

Question 4

m2 includes

Answer 4

m1 + saving accounts, small denomination time deposits

Question 5

m3 includes

Answer 5

m2 + large denomination time deposits

Question 6

L includes

Answer 6

m3 + US savings bonds

Question 7

how much cash is in the economy

Answer 7

monetary base

Question 8

how much money can be created out of monetary base

Answer 8

money supply

Question 9

the percentage of deposits the bank has to hold as cash either in their vault or on deposit at the federal reserve bank

Answer 9

required reserve ration

Question 10

the amount of deposits the bank can do whatever it wants with

Answer 10

excess reserves

Question 11

monetary base * DEM =

Answer 11

money supply

Question 12

what is DEM

Answer 12

deposit expansion multiplier

Question 13

how do you get DEM

Answer 13

1/RRR

Question 14

discount rate changes every

Answer 14

6 months

Question 15

required reserve ration changes every

Answer 15

25 years

Question 16

3 tools of monetary policy

Answer 16

1. required reserve ratio
2. discount rate
3. open market operations

Question 17

to increase MS, you have to ___ RRR

Answer 17

lower

Question 18

to decrease MS, you have to ____ RRR

Answer 18

raise

Question 19

the interest rate the fed charges member banks to borrow money

Answer 19

discount rate

Question 20

to increase MS, you have to ___ discount rate

Answer 20

lower

Question 21

to decrease MS, you have to ___ discount rate

Answer 21

raise

Question 22

the buy-ing and selling of government bonds by the fed

Answer 22

open market operations

Question 23

to increase MS, the fed has to

Answer 23

buy bonds

Question 24

to decrease MS, the fed has to

Answer 24

sell bonds

Question 25

equation of exchange is also known as

Answer 25

quantity theory of money

Question 26

equation of exchange

Answer 26

MV= PQ = nominal GDP

Question 27

M means

Answer 27

money supply (m1)

Question 28

V means

Answer 28

velocity

Question 29

what is velocity

Answer 29

how many times in a year a dollar gets spent on average`

Question 30

P means

Answer 30

Price level

Question 31

Q means

Answer 31

Quantity of real output (real GDP)

Question 32

MV =

Answer 32

total spending in the economy

Question 33

PQ =

Answer 33

total income in the economy

Question 34

total spending has to equal

Answer 34

total income

Question 35

a rise in the general price level

Answer 35

inflation

Question 36

the ONLY cause of inflation is

Answer 36

the money supply increasing faster than real output

(“too much money chasing too few goods)”

Question 37

real interest rate + inflation rate=

Answer 37

nominal interest rate

Question 38

fisher equation

Answer 38

/\M + /\v = /\P + /\Q