5 Written questions
5 Matching questions
- discount rate
- interest sensitivity (insensitivity) of planned investment
- required reserve ratio
- high interest rates
- a deposits that a bank has at the federal reserve plus its cash on hand; apprx. 1.5-2% held as vault cash
- b if Fed lowers RR - creates excess reserves and money supply; fed incr. RR then decr. excess reserves and money supply
- c quantity of money demanded = low b/c high opportunity cost (convert to bond)
- d how responsive planned investment is to the interest rate; interest sensitivity = "I" responds a great deal to change in "r"; interest insensitivity = "I" responds very little to a change in "r"
- e interest rate that banks pay to the Fed to borrow money from it; if DR incr. banks borrow less (decr. MS); DR decr. banks borrow more (incr. MS)
5 Multiple choice questions
- interest rate a bank charges when it lends excess reserves to another bank through the "Federal Funds Market"
- created in 1933 and insures deposits in banks
- makes it a good medium of exchange and store value; it's portable and durable so it's easliy exchanged for goods; how easily something can be exchanged and converted
- makes gov't spending multiplier smaller; incr. G=incr. AE=incr. Y= incr. MD= incr. r= decr. I= decr. AE= decr. Y
- percentage of its total deposits that a bank must keep as reserves at the Fed (in reality 10%)
5 True/False questions
change in Y → anything that is generally acceptable to sellers in exchange for goods and services; accepted as a medium of exchange
barter → direct exchange of goods and services for other goods and services; must have a "double coincidence of wants"
open market operations → market where financial instruments are exchanged and the equilibrium of the interest rate is determined
non-synchronization of income and spending → decr. G (or incr. T, decr. C) in order to decr. output/ rate of growth (in recession); affects goods market (AE, fiscal policy); decr. G= decr. AE2= decr. Y2= decr. MD= decr. r= incr. I= incr. AE3= incr. Y3
tight monetary policy → close substitutes for transactions money such as savings accountsand money market accounts