Macro Assignment 9

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1

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

reserves increase by $100 million and the money supply increases by more than $100 million.

2

To decrease the money supply, the Fed could

a.

increase the discount rate.

b.

increase the reserve requirement.

c.

sell government bonds.

All of the above are correct

3

When the Fed buys government bonds,

the money supply increases and the federal funds rate decreases.

4

When the Fed conducts open-market purchases,

it buys Treasury securities, which increases the money supply.

5

Which of the following can the Fed do to change the money supply?

change reserves or change the reserve ratio

6

Which of the following is correct?

A bank’s deposits at the Federal Reserve counts as part of the bank’s reserves. The Federal Reserve pays interest on these deposits.

7

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

15/400.

8

If the reserve ratio is 4 percent, then the money multiplier is

25

9

The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?

$528

10

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

inflation and nominal interest rates, but does not change real interest rates.

11

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

three percent and prices fell one percent.

12

Monetary neutrality implies that an increase in the quantity of money will

increase the price level.

13

Open-market purchases by the Fed make the money supply

increase, which makes the value of money decrease.

14

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

movement to the right along the money demand curve.

15

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

excess supply of money, so the price level will rise.

16

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

shifts left, causing the price level to fall.

17

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

excess supply of money which causes the price level to rise.

18

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

19

Which of the following can a country increase in the long run by increasing its money growth rate?

the nominal wage.

20

Which of the following is correct?

If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.

21

Which of the following is not implied by the quantity equation?

With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

22

You put money in the bank. The increase in the dollar value of your savings

is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.