Notes After Exam 1 & 2

Question 1

The fed deposits ____ the bank’s reserves and thereby ____ the amount of money in the economy

Answer 1

increase

increase

Question 2

The Fed collects bonds from people and financial institutions and in return gives them ___ they can ___

Answer 2

checks

deposit in their banks

Question 3

The Fed collects money from people and financial institutions and in return gives them ____, removing those funds from ____

Answer 3

bonds

circulation

Question 4

Removing money from deposits to purchase bonds ____ the bank’s reserves and thereby ____ the amount of money in the economy

Answer 4

decreases

decreases

Question 5

The market for borrowing and lending reserves between banks

Answer 5

Federal Funds Market

Question 6

The interest rate that banks pay when borrowing reserves from other banks

Answer 6

Federal Funds Rate

Question 7

____ price is the federal funds rate

Answer 7

Equilibrium

Question 8

Decrease reserves =

Answer 8

selling bonds

Question 9

Increase reserves =

Answer 9

buying bonds

Question 10

Decreased FFR = (3)

Answer 10

• The fed buys bonds
• The quantity of reserves available in the banking system increases
• This in turn increases the money supply

Question 11

Increased FFR = (3)

Answer 11

• he fed sells bonds
• The quantity of reserves available in the banking system decreases
• This in turn decreases the money supply

Question 12

Federal funds rate affects

Answer 12

interest rate

Question 13

Instability in the macroeconomy comes from real economic events

Answer 13

Real business cycle theory

Question 14

Events of business cycle theory (2)

Answer 14

• Technological innovation

- Changes in resource availability

Question 15

The rate, or price, at which one currency can be exchanged for another

Answer 15

Exchange rate

Question 16

If the price of dollars for euros falls, we will see

Answer 16

a higher quantity of euros demanded

Question 17

The demand curve for foreign currency is

Answer 17

downward sloping

Question 18

If the price of dollars for euros increases, we will see

Answer 18

a higher quantity of euros supplied

Question 19

The supply curve of foreign currency is

Answer 19

upward sloping

Question 20

Exchange rate =

Answer 20

(B$/A$)

Question 21

In flexible exchange rates, _____ determine exchange rates

Answer 21

exchange markets

Question 22

Exchange rate changes as demand and supply for the currency change

Answer 22

Flexible exchange rate

Question 23

(Exchange rate)

Increase in demand ->

Increase in supply ->

Answer 23

increase in price

decrease in price

price or exchange rate

Question 24

Non-price determinants of exchange rates (4)

Answer 24

• Income
• Expectations
• Preferences
• Depends on situation

Question 25

A decrease in the exchange rate makes foreign currency

Answer 25

cheaper

Question 26

an increase in the exchange rate makes foreign currency

Answer 26

more expensive

Question 27

An exchange rate that is set at a specific value and maintained over time

Answer 27

Fixed exchange rate

Question 28

How to increase the money supply (2)

Answer 28

• Buying foreign reserves with your own currency

- Pursuing expansionary monetary policy

Question 29

Appreciation benefits those who hold

Answer 29

foreign currency and want U.S. dollars

Question 30

Depreciation benefits those who hold

Answer 30

U.S. dollars and want to buy foreign goods

Question 31

Increase in exports ____ output

Answer 31

increases

Question 32

More imports and fewer exports ___ output

Answer 32

decreases