Money Multiplier, Monetary Policy, Loanable Funds Review

Money in the United States is which type of money?

• fiat money

• representative money

• commodity money

• speculative money

Open market operations take place when the

• central bank buys or sells stocks

• central bank buys or sells government bonds

• central bank increases or decreases the discount rate to monitor the money supply

• central bank increases or decreases reserve requirements for depository institutions

• commercial banks borrow reserves from the central bank

Which of the following would most likely cause the United States economy to fall into a recession?

• An increase in welfare payments

• An increase in exports

• A decrease in savings by consumers

• A decrease in the required reserve ratio

• An open market sale by the Federal Reserve

Which of the following will most likely result in an increase in aggregate demand?

• An increase in the interest rates charged on credit card balances

• A disruption in global oil supply

• An open-market purchase of government bonds by the central bank

• A reduction of pay and benefits for government employees

• A decrease in the wealth of households

Which of the following will lead to an increase in the money supply?

• A decrease in income tax rates

• A decrease in government spending

• Open-market purchase of securities by the central bank

• Increased borrowing by the federal government by issuing new bonds

• An increase in the discount rate

Which of the following will lead to a decrease in a nation’s money supply?

• A decrease in income tax rates

• A decrease in the discount rate

• An open market purchase of government securities by the central bank

• An increase in reserve requirements

• An increase in government expenditures on goods and services

Which of the following changes would most likely cause an increase in interest rates in the short run?

• A decrease in reserve requirements

• An increase in trade deficits

• An open market purchase of government bonds by the Federal Reserve

• An increase in government spending financed by borrowing

• An increase in the price of bonds

The loanable funds market is best described as bringing together

• savers and borrowers

• investors and borrowers

• financial institutions and investors

• savers and lenders

• banks and savers

The M1 definition of money includes which of the following?

• currency

• savings accounts

• small time deposits

• money market accounts

• stocks

If the legal reserve requirement is 25%, the value of the money multiplier is

• 2

• 4

• 5

• 10

• 1