An important factor in the evolution of commodity money to fiat money is:
a desire to reduce transaction costs.
Checking account balances that are linked to debit cards are included in:
both M1 and M2.
Banks create money in:
a fractional-reserve banking system but not in a 100-percent-reserve banking system.
Based on the table below, what is the leverage ratio at the bank?
Bank Balance Sheet
Assets
Liabilities & Net Worth
Reserves
$ 10,000
Deposits
$100,000
Loans
100,000
Debt
20,000
Securities
40,000
Equity
30,000
5
Based on the Table in question 4 above, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.
20
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:
$150 billion.
If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:
the money supply decreases.
Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.
monetary base; money multiplier; monetary base
Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities.
riskier and longer-term
In 1932, the U.S. government imposed a two-cent tax on checks written on deposits in bank accounts. This action would be expected to ______ the currency deposit ratio and ______ the money supply.
increase; decrease
Funds flow directly between savers and investors in financial _____ and flow indirectly between savers and investors through financial _____.
markets; intermediaries
Purchasers of bonds issued by companies are _____ of the company, while purchasers of shares of stock issued by a company are _____ of the company.
creditors; partial owners
Risk that affects many businesses at the same time is called _____ risk, while risk associated with individual businesses is called _____ risk.
systematic; idiosyncratic
Reducing risk by holding many imperfectly correlated assets is called:
diversification.
Adverse selection may cause lenders to be offered opportunities to finance only:
less desirable business ventures
When a borrower uses borrowed funds to engage in activities that are detrimental to the profitability of the business venture that was financed, there is a problem of:
moral hazard.
A rise in the price of an asset above its fundamental value is called a(n):
bubble.
The TED spread is an indicator of :
the solvency of the banking system.
Conventional monetary and fiscal policies during a financial crisis are aimed at _____, while acting as a lender of last resort or injecting government funds into the financial system during a financial crisis is aimed at _____.
expanding aggregate demand; fixing the financial system
The benefit of stricter capital requirements for shadow banks is _____, while the cost is _____.
enhancing financial stability; impeding financial intermediation
If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.
3
When the demand for money parameter, k, is large, the velocity of money is ______ and money is changing hands ______
small; infrequently
If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then:
the price level is proportional to the money supply.
Inflation tax means that:
as the price level rises, the real value of money held by the public decreases.
According to the quantity theory a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation a 5 percent increase in the rate of inflation increases the nominal interest rate by _____.
5; 5
If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:
a rise in money growth leads to a fall in consumption and a rise in investment.
If the Fed announces that it will raise the money supply in the future but does not change the money supply today,
both the nominal interest rate and the current price level will increase.
Inflation ______ the variability of relative prices and ______ allocative efficiency.
increases; decreases
Most hyperinflations end with _____ reforms that eliminate the need for _____.
fiscal; seigniorage
The classical dichotomy:
is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money.
In a steady state:
the number of people finding jobs equals the number of people losing jobs.
Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding.
reduce; increase
If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate
below; toward
Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total weeks of unemployment we
56.5 percent.
By paying efficiency wages, firms contribute to higher unemployment because they:
keep the wage above the equilibrium level.
When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage.
much greater than
Short-term unemployment is most likely to be ______ unemployment, while long-term unemployment is mostly likely to be _____ unemployment.
frictional; structural
The recent reduced demand for unskilled workers relative to skilled workers has led to ______ for unskilled workers in Europe compared to ______ for unskilled workers in the United States.
unemployment; lower wages
Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to:
no change in the real wage and a rise in unemployment.
Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the labor market were always in equilibrium, this would lead to:
a lower real wage and no change in unemployment