Exam 3

Question 0

Fiat money

Answer 0

Only worth something as money (no intrinsic value)

Question 1

3 functions of money

Answer 1

Medium of exchange, unit of account, store of value

Question 2

Commodity money.

Answer 2

Paper money backed by valuable things like gold, silver, etc

Question 3

Total reserves

Answer 3

Cash held in banks plus each banks’s account balance at federal reserves

Question 4

Reserve ratio

Answer 4

Reserves/

Deposits

Question 5

The fed

Answer 5

Central bank of the U.S.

Question 6

The fed’s 2 main functions

Answer 6

Monetary policy & regulate banks

Question 7

Open market operations

Answer 7

Buying/selling government bonds

Question 8

Fractional reserve banking

Answer 8

Deposits that banks don’t keep as reserves are loaned out

Question 9

Money multiplier

Answer 9

Deposits/

Reserves

Question 10

Quantitative easing

Answer 10

Fed buys/sells riskier assets

Question 11

Discount rate

Answer 11

Interest rate the fed charges on loans to banks

Question 12

Inflation

Answer 12

Rise in the price level

Question 13

Deflation

Answer 13

Drop in the price level

Question 14

If the price level is P, the value of a dollar is

Answer 14

1/P

Question 15

Money demand comes from

Answer 15

People’s desire to hold their wealth as liquid assets

Question 16

Nominal variable

Answer 16

Measured in money

Question 17

Real variable

Answer 17

Adjusted for inflation

Question 18

Money neutrality

Answer 18

In the long run, changes in the money supply do not affect real variables

Question 19

Velocity

Answer 19

Price level x real GDP/

Money supply

Question 20

The fisher effect

Answer 20

A 1% rise in the inflation rate will cause a 1% rise in the nominal interest rate

Question 21

Shoeleather costs

Answer 21

Time & effort wasted converting illiquid assets to money & vice versa

Question 22

Unexpected inflation

Answer 22

Redistributes wealth from savers to borrowers

Question 23

Hyperinflation

Answer 23

Inflation rate hirer than 10%, usually much higher than that

Question 24

At any point in time, M1 ? M2 ? M3

Answer 24

M1 < M2 < M3

Question 25

In a system of 100% reserve banking, banks do or do not affect the supply of money?

Answer 25

Do not

Question 26

To reduce the impact of falling money supply, the fed can

Answer 26

Buy treasury stock

Question 27

The inflation rate is equal to

Answer 27

The growth rate of the price level

Question 28

If the economy is experiencing deflation, the price level is

Answer 28

Decreasing

Question 29

Increase in value of money leads to

Answer 29

Decrease in money demanded

Question 30

In the long run, changes in the money supply affect

Answer 30

Nominal variables, but not real variables