Macroeconomics Unit 3 Challenge 2: Monetary Policy with Complete Solutions

Macroeconomics Unit 3 Challenge 2: Monetary Policy with Complete Solutions The M1 definition of money includes ___________ Physical currency and demand deposits Select the answer below that has the three examples of money in order from most liquid to least liquid. Dollar bills, checking account balances, money market mutual funds Which of the following statements regarding different types of money is true? Time deposits belong in the least liquid category of money. If the reserve requirement of a bank is 25%, then the multiplier effect will be ________ and $200 in M1 will increase the money supply by ________. 4; $800 If the reserve requirement of a bank is 50%, then the multiplier effect will be ________ and $100 in M1 will increase the money supply by ________. 2; $200 Which statement is NOT true regarding the way that the Federal Reserve controls the money supply? The U.S. Treasury sends the money it prints directly into circulation. What is the result when the Federal Reserve buys Treasury bonds? More currency in the hands of the public When the Fed sells bonds, the result is an increase in __________. Interest rates Fed member banks enter the federal funds market in order to __________. Meet reserve requirements The federal funds rate is paid to __________. banks who lend excess reserves to other member banks Which of the following statements is true as it relates to banks and the federal funds market? Banks with less than the reserve requirement need overnight loans to meet their obligations. Which statement below is true about the discount rate? This is the rate used when banks borrow directly from the Fed. Which of the following statements is associated with deflation? Prices fall, but loan payments stay the same. Which of the following statements regarding inflation is true? When inflation is extreme, it can destroy a country's currency. All of the following are examples of expansionary policy EXCEPT __________. selling Treasury bonds Which of the following is associated with contractionary monetary policy? Increasing the reserve requirement