The Federal Reserve correct answers in charge of monetary policy in U.S., adjusts the money supply to help achieve its monetary policy goals
Monetary correct answers increasing and decreasing amount of money in the economy
Monetary Policy Goals correct answers e prices (low inflation) and max...
Econ 203 Exam 3 Texas A&M Edwardson || with Errorless
Solutions 100%.
The Federal Reserve correct answers in charge of monetary policy in U.S., adjusts the money
supply to help achieve its monetary policy goals
Monetary correct answers increasing and decreasing amount of money in the economy
Monetary Policy Goals correct answers 1.stable prices (low inflation) and maximum
employment
2. stable economic growth
3. stable financial system
The Fed's Monetary Policy Tools correct answers open market operations, interest rates on
reserves, required reserve ratio, discount rate
Fractional Reserve Banking correct answers a system in which banks must keep a fraction of
their deposits as reserves and can lend the rest
Money Supply correct answers the quantity of money available in the economy
Reserves correct answers deposits that banks have received but have not loaned out
Total Reserves= correct answers Required Reserves + Excess Reserves
Required Reserves= correct answers Deposits x Required Reserve Ratio
Change Money= correct answers change Reserves x 1/r
Discount Rate correct answers rate Fed charges when banks borrow
The Classical Theory of Inflation correct answers in the long run, inflation is determined solely
by changes in the amount of money in the economy
Long Run correct answers enough time has passed for market prices to be in equilibrium
The Value of Money correct answers a dollar is worth the amount of goods and services you can
buy with it
Effects of an Increase in the Money Supply correct answers creates excess supply of money,
people get rid of their money, making the value of money fall
Classical Dichotomy correct answers the idea that changes in REAL variables are caused by
changes in other REAL variables
, Real variable correct answers 3 slices of pizza
Nominal variable correct answers $6 of pizza
Do changes in nominal variables affect real variables? correct answers NO
Money Neutrality correct answers changes in the money supply (a nominal variable) have
neutral impact on real variables
The Velocity of Money correct answers the average number of times per year each dollar in the
money supply is spent
V (velocity of money)= correct answers P (price level) x Y (real GDP) / M (money supply)
P (price level) x Y (real GDP) correct answers Nominal GDP
M (money supply) x V (velocity of money)= correct answers P (price level) x Y (real GDP)
Quantity Theory of Money correct answers -velocity of money is constant (%change V=0)
-money neutrality (changes in money supply have no affect on real GDP)
- %change M = %change P
The Inflation Tax correct answers when the money supply increases, the value of money falls.
This decrease in value of money effectively a tax on holders of money
Imports correct answers goods and services produced abroad, but sold domestically
Exports correct answers goods and services produced domestically, but sold abroad
Net Exports (Nx)= correct answers Exports-Imports
What Determines a Country's Trade Balance correct answers 1. tastes for foreign and domestic
goods
2. foreign and domestic prices
3. exchange rates
4. foreign and domestic income
5. transaction costs
6. trade policy
Net Capital Flow (NCO) correct answers Domestic Purchase of Foreign Assets- Foreign
Purchase of Domestic Assets
NCO= correct answers DPFA-FPDA
Open Economy correct answers Y=C+I+G+NX
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