86 terms

Monetary Economics

When the price of an asset is pushed to an unreasonably high level by investors' expectations of further price gains,
An asset bubble is created, this price rise cannot be sustained over the long run, Only A and B are correct
Which of the following statements is most correct about money?
Money is wealth but not all wealth is money
To say an asset is liquid implies that
We are considering assets that may be readily converted into a means of payment
In comparing money to a U.S. Treasury bond held by an individual, we can say
Both are stores of value
Which of the following is true of shadow banks?
Shadow banks are involved in maturity transformation
The statement "risk requires compensation" implies that people
Will only accept risk when they are rewarded for doing so
Banks usually offer higher rates of interest to people willing to keep their funds in the bank longer because
bankers realize time has value and people need to be compensated if they are to keep their money in the bank longer
The pool of information collected by financial markets is usually
summarized in the form of a price
Jimmy had $1000 in his wallet. He has just deposited this amount into his savings account. As a result,
M1 decreases and M2 does not change
The money aggregate M1 includes each of the following except
Currency in the vaults of commercial banks
Financial instruments and money share which of the following characteristics?
Both can function as a means of payment and a store of value
Brad purchases a U.S. Treasury bond; the bond is:
A liability of the U.S. government and an asset for Brad
The owner of a small business applies for a bank loan and tells the loan officer that the funds will be used to expand inventory for the upcoming holiday season. the small business finds itself in need of additional funds to meet the monthly rent for the next quarter and the owner uses the loan proceeds to pay the rent. This is an example of
Moral hazard problem that arises due to information asymmetry
Over-the-counter (OTC) markets
Are networks of security dealers linked electronically
A primary financial market is a market
where investment banks assist companies in raising cash
Financial intermediaries include each of the following, except
The New York Stock Exchange
Which of the following countries had one of the earliest central banks in the world?
The rationale for the existence of central banks is mainly that
financial system is prone to periods of extreme volatility
The primary use of derivative contacts is
To shift risk among investors
The value of a financial instrument is influenced by each of the following, except
The identity of the seller of the instrument in a secondary market
The money aggregate M1 includes each of the following, except
Currency in the vaults of commercial banks
Financial instruments used primarily as stores of values include each of the following, except
Futures contracts
Which of the following statement is incorrect about money?
Money is a means of payments but is not part of wealth
In its role as the Bankers' Bank, a central bank performs each of the following, except
Providing deposit insurance
The stability of the financial system is enhanced by the ability of central banks to
Be a lender of last resort
Checks are
Not money
Everything else equal, if the growth rate of a country exceeds its sustainable rate, the central bank
Is likely to raise interest rates to slow the rate of growth
Each of the following items would appear as an asset on the central banks' balance sheet, except
The operational components required for truly independent central banks include
Monetary policies that cannot be reversed by anyone outside of the central bank
Which of the following statements is most accurate?
As the inflation rate increases, inflation becomes less stable
The main asset held by a central bank in its role as the Banker's Bank is
Vault cash is
A part of reserves and an asset of commercial banks
Member banks of the Federal Reserve System include
Nationally chartered banks and state chartered banks that decide to join
If the currency to deposit ratio increases, that is, people hold more in currency relative to deposits, assuming that everything else remains constant, the money multiplier
In its role as the banks for the U.S. government, the Federal Reserve performs all of the following services, except
Making discount loans
The federal funds rate is the interest rate
Banks charge each other for overnight loans on their excess deposits at the Fed
Considering a central banks' balance sheet, when the value of a liability decreases
Either the value of another liability increases or an asset must decrease
If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's excess reserves will
Increase by $100,000
The Fed purchases German bonds from commercial banks. Which of the following best describes the impact on the Fed's and the Banking system's balance sheets resulting from this transition?
The Fed's assets and liabilities increase. For the banking system, the value of assets and liabilities do not change, only the composition of assets changes
Mary decides to withdraw $500 out of her checking account. The impact of this transaction on the Banking System's balance sheet will be
To decrease reserves and checkable deposits each by $500
The monetary base is also known as
High powered money
Which of the following are not a permanent voting member on the FOMC?
The secretary of the Treasury
Suppose the estimated value of the money multiplier is 3.8. That implies that
an increase of $1 in monetary base increases money supply by $3.80
If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's required reserves will
Not change
If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to
Which of the following books is released to the public before the FOMC meetings?
The beige book
The largest of the regional Federal Reserve Banks is located in
New York City
If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale is $5 million of U.S. Treasury securities by the Fed, will result in deposits
Decreasing by $50 million
Central bank accountability means
Politicians will establish set goals and central bankers will report on their progress
To ensure that the Board of Governors is not unduly influenced by any one President
the appointees to the Board are subject to U.S. senate confirmation
Which of the books used at the FOMC meetings the Board staff's economic forecast for the next few years?
The green book
The decision by nonbank public as to how much currency to hold depends on each of the following except
The interest rate on reserves paid by the federal reserve
Federal funds loans are
unsecured loans between banks
If the economy was initially at a long-run equilibrium, the short run effects from an increase in aggregate demand will include
An expansionary gap
If inflation is 1.5%, real output grows by 3.0%, and the growth rate of money is 5.0%, the change in the velocity of money is
Key assumptions behind the quantity theory of money include
the velocity of money is constant
When nominal interest rates are high, the velocity of money should
Also be high
Suppose the economy never experienes decline. A rate of inflation that exceeds the growth rate of money for a country could be explained by
An increasing velocity of money
The portfolio demand for money reflects
The portion of wealth people desire to hold in the form of money
The dynamic aggregate demand curve has a negative slope for all of the following reasons except
the fact that high rates of inflation are good for the stock market
All other factors equal, if the costs of converting bonds and other financial securities to a means of payment increase
the demand for money should increase
Which of the following would be classified as precautionary demand for money?
You put $1,000 in a savings account at your bank for emergencies
If the market federal funds rate were below the target rate, the resonse from the Fed would likely to be
Sell U.S. treasury securities
Crisis that occasionally hit financial markets will increase the demand for money since
the risk of holding money relative to other financial asset decreases
One cost that potentially could result from central banks targeting money growth is
Volatile interest rates
The aggregate demand curve is defined as
The quantity of real output demanded at each level of inflation
Which of the following would cause an increase in the potential output of a country?
An increase in the capital stock
In the long run, if we ignore changes in velocity
Inflation will equal money growth less the growth in potential output
Which of the following would NOT be included in aggregate demand?
The value of 100 shares of Microsoft stock you purchased
Of all of the component parts of aggregate demand, the part MOST sensitive to changes in the real interest rate is
If most people expect the inflation rate will increase, the
short run aggregate supply curve would shift to the left
One of the reasons primary credit exists is to
Provide additional reserves when the open market staff's forecasts are off and the day's reserve supply falls short
Which best completes the following statement "at any point along the long-run aggregate supply curve..."
Current output equals potential output and expected inflation equals current inflation
If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to
Raise the real interest rate
It has been argued that the information technology age has greatly increased productivity and potential output. If this is true
The long run real interest rate is lower as a result
If the slope of the monetary policy reaction curve is relatively flat, it means that central bankers are
Less concerned about keeping inflation close to its short run target
Which of the following features would characterize a good monetary policy instrument?
Tightly linked to monetary policy objectives
Increases in the real interest rate in the U.S. will cause net exports to
Decrease because the dollar appreciates
A characteristic of long run equilibrium is the economy is producing its potential output. This is
The level of output the economy produces when its resources are used at normal rates
The potential output of a country would increase as a result of each of the following, except
Depreciation of the capital stock
Secondary credit provided by the Fed is designed for
Banks that are in trouble and cannot obtain a loan from anyone else
Which of the following is true regarding monetary policy tools?
The central banks cannot set a quantity and a price tool simultaneously
At the market federal funds rate that equals the deposit rate
The reserves demand curve becomes perfectly elastic
The velocity of money increases if
Each unit of money is used more frequently
Nobel-laureate economist Milton Friedman suggested that policymakers strive to ensure that the monetary aggregates
Grow at a rate equal to the rate of real growth plus the desire level of inflation
If the nomical interest rate increases
The cost of holding money increases