Ch 13 Exam 3 Rev

Members of the Board of Governors of the Federal Reserve System are appointed by Congress for 14-year terms. elected by member banks to serve four-year terms. appointed by the president for 14-year terms.

appointed by the president for 14-year terms.

Proponents of Fed independence maintain that independence helps ensure low unemployment rates. money is too important to be left to the bankers. only the Federal Reserve knows how to act wisely. independence permits objective decisions not based on politics.

independence permits objective decisions not based on politics.

If the Fed lends to member banks, what happens to reserves and the money supply? Reserves decrease and the money supply increases. Both decrease. Reserves increase and the money supply decreases. Both increase.

Both increase.

Who is considered to be the most powerful person in the economic world by many observers? Director-General of the WTO World Bank President EU Central Bank President Federal Reserve Chair

Federal Reserve Chair

If the Fed sells a T-bill to an individual rather than to a commercial bank, how will this affect the money supply? It will decrease the money supply. It will have no effect on the money supply. It will increase the money supply. It will increase the checking account balance of the individual.

It will decrease the money supply.

If banks choose to hold excess reserves None of these. Lending decreases, and the money supply increases. Lending increases, and the money supply increases. Lending decreases, and the money supply decreases.

Lending decreases, and the money supply decreases.

Which of the following will increase interest rates in the short run? An decrease in reserve requirements Open-market sales by the Fed A decrease in real GDP A decrease in the price level

Open-market sales by the Fed

In Figure 29-1, which panel shows the effect of an expansionary monetary policy on the interest rate? Panel (B) Panel (D) Panel (A) Panel (C)

Panel (B)

Which of the following policies by the Federal Reserve is likely to increase the money supply? Reducing reserve requirements Selling government bonds Increasing interest on reserves

Reducing reserve requirements

The Federal Reserve System was established because Americans believe in centralization of authority. after four severe bank panics between 1873 and 1907. as part of the Treasury Department.

after four severe bank panics between 1873 and 1907.

The Fed cannot predict the effects of open-market operations with perfect accuracy because of banks' desires to hold excess reserves. foreigners desire to hold U.S. dollars. all of the above are correct. changes in people's desires for cash.

all of the above are correct.

Assume the required reserve ratio is 10 percent and the FOMC orders an open-market sale of $50 million in government securities from member banks. If the oversimplified money multiplier is assumed, then the money supply will increase by $100 million. increase by $500 million. decrease by $500 million. decrease by $100 million.

decrease by $500 million.

The principal objective of the Federal Reserve System is to make profits to remit to the Treasury Department. circulate coins and paper Federal Reserve Notes. subsidize the income of member banks. help stabilize the economy through monetary policy.

help stabilize the economy through monetary policy.

Assume the required reserve ratio is 20 percent and the FOMC orders an open-market purchase of $100 million in government securities from member banks. If the oversimplified money multiplier is assumed, then the money supply will decrease by $500 million. increase by $500 million. increase by $100 million. decrease by $100 million.

increase by $500 million

If the Federal Open Market Committee decides to expand the money supply, then it will issue directions to sell government securities, thus taking reserves from member banks. issue directions to purchase government securities, thus putting more reserves in member banks. order new Federal Reserve notes delivered to member banks. raise the discount rate to member banks.

issue directions to purchase government securities, thus putting more reserves in member banks.

If the Fed sells a U.S. Treasury bill to a member of the public, the banking system has less reserves and the money supply tends to grow. more reserves and the money supply tends to grow. more reserves and the money supply tends to fall. less reserves and the money supply tends to fall.

less reserves and the money supply tends to fall.

The demand for reserves increases as the price level rises because higher prices reduce the value of dollar assets. the opportunity cost of holding money increases. people want money to buy goods that will appreciate with inflation. people need more money to finance transactions.

people need more money to finance transactions.

The main purpose of expansionary monetary policy is to insure deposits. increase reserve requirements. reduce interest rates. expand Treasury borrowing.

reduce interest rates.

A decrease in the reserve requirements causes the money multiplier to rise. the money multiplier to fall. reserves to rise. reserves to remain the same.

the money multiplier to rise.

Suppose that all banks maintain a 100 percent reserve ratio. If an individual deposits $ 3,000 of currency in a bank, the money supply decreased by less than $3,000. the money supply rises by more than $3,000. the money supply is unaffected. the money supply rises by less than $3,000.

the money supply is unaffected.