Section 5 Test Review

Front

The loanable funds market is in equilibrium. If the government increases the size of the budget deficit, while at the same time households become less optimistic about the economy, we expect to see:

Back

an ambiguous change in the interest rate with a certain increase in the quantity of loanable funds saved and borrowed.

Front

Suppose that the interest rate is zero and there is no inflation. In this case, the present value of $5 received one year from today is

Back

exactly $5.

Front

Which of the following would be the initial effect of an individual making a $10,000 cash deposit in a bank? Options: The money supply would rise by $10,000., The money supply would fall by $10,000., The money supply would not be affected by the deposit., The money supply would rise by more than $10,000.

Back

The money supply would not be affected by the deposit.

Front

Now that fast food places such as McDonald's are accepting credit card payments:

Back

the demand for money has decreased.

Front

If the required reserve ratio rises:

Back

the banking system will experience a contraction in its level of bank deposits.

Front

If the reserve ratio is 25%, deposits are: $5,000, $15,000, $80,000, $100,000.

Back

$80,000.

Front

Using the scenario where the reserve requirement is 20% and Leroy deposits his $1,000 check in his checking account, what is the maximum expansion in the money supply possible?

Back

$4,000

Front

If the Fed increases the discount rate:

Back

the money supply is likely to decrease.

Front

The discount rate is the interest rate the Federal Reserve charges on loans to:

Back

banks.

Front

According to the accompanying figure, when the interest rate rises from 6% to 8%, then the:

Back

quantity supplied of loanable funds rises by $20 billion.