EC 111 test 3 Zirlott || Questions and 100% Verified Answers.
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Course
EC 111
Institution
EC 111
3 functions of money correct answers medium of exchange
unit of account
store of value
types of money correct answers commodity money (gold)
flat money (dollars)
What is M1 correct answers currency, travelers checks and checkable deposits
What is M2 correct answers everything in M1 plus...
What is M1 correct answers currency, travelers checks and checkable deposits
What is M2 correct answers everything in M1 plus saving deposits, small time deposits, money
market mutual funds
The federal reserve structure correct answers board of governors
12 regional federal reserve banks
federal open market committee
the 3 tools of the federal reserve correct answers open market operations
reserve requirements
discount rate
discount rate correct answers set rate interest rate banks are charged when they borrow from the
fed
(discount rate) to increase the money supply fed can correct answers lower discount rate
open market operations correct answers the purchase and sale of us government bonds
(omo) to increase money supply feds can correct answers buy government bonds paying with
new dollars
Reserve requirements correct answers affect how much money banks can create by making loans
(reserve requirements) to increase money supply correct answers banks make more loans from
each dollar of reserves, which increases money multiplier and money supply
no bank system correct answers public holds the $100 as currency; money supply =$100
100% reserve banking system correct answers BANKS DONT AFFECT SIZE OF MONEY
public deposits the $100 at the bank; the bank holds 100% of the deposit as reserves: Money
Supply= $100
, fractional reserve banking system correct answers RR= 10%, the bank loans all but 10% of the
deposit; money supply=190
($100 deposit + $90 currency)
How does a bank create money correct answers the bank gives out loans, while still theoretically
holding the value, so the banks can continue to loan out a multiplied percentage of that value
financial crisis 2008 correct answers banks had a shortage of capital after they incurred losses on
some of their assets
reduced lending which contributed to severe downturn in economic activity
value of money correct answers the quantity of goods and services that a unit of money can buy
TARP correct answers put many billions of dollars pf public funds into the banking system in
financial crisis of 2008
2 sided graph with the value of money and price level correct answers as price increases the
value of money decreases (inverse relationship)
How to calculate relative prices and what do they mean ? correct answers the price of one good
relative to others, the ratio of two prices
How to calculate real wages and what do they mean? correct answers measured in physical units
W/P
W= nominal wage; price of labor
real variable correct answers measured in physical units
ex: real gdp
real interest rate
real wage
nominal variable correct answers measured in monetary units
ex: nominal gdp
nominal interest rate
nominal wage
Classical Dichotomy correct answers the theoretical separation of nominal and real variables
ex: if central bank doubles their money supply all variables including prices will double
monetary neutrality correct answers the proposition that changes in the money supply do not
affect real variables
relative price remains unchanged
velocity of money correct answers the rate at which money changes hands
velocity of money formula correct answers V= __price level*real gdp_
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