Chap 14 study guide

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The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________. A) fiscal policy B) open market operations C) monetary policy

C) monetary policy

The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________ reserves. A) excess reserves B) total reserves C) required reserves

C) required reserves

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate. A) seven, 8-year terms, President B) twelve, 14-year terms, House of reps C) seven, 14-year terms, President

C) seven, 14-year terms, President

Which body of the Federal Reserve System sets the majority of U.S. monetary policy? A) the Board of Governors B) the Open Market Desk C) the Federal Open Market Committee

C) the Federal Open Market Committee

How many Federal Reserve districts are there?

12

Suppose that velocity is 3 and the money supply is $500 million. According to the quantity theory of money, nominal output equals: A) $1.5 billion B) $150 million C) $150 billion

A) $1.5 billion

Suppose that the reserve ratio is 25% and that banks loan out all their excess reserves. If a person deposits $100 cash in a bank, checking account balances will increase by a maximum of: A) $400 B) $100 C) $25

A) $400

On the balance sheet of a bank: A) loans are listed as an asset B) reserves are on the liability side C) deposits are the most important asset

A) loans are listed as an asset

Credit cards are: A) not part of the money supply B) part of M1 C) part of M2

A) not part of the money supply

Assume that banks are always fully loaned and people hold no cash. Given a required reserve ratio of 10%, an infusion of $100 billion in reserves will result in a maximum of: A) $10 billion in deposits B) $1,000 billion in deposits C) $100 billion in deposits

B) $1,000 billion in deposits

Who is the chairperson of the Federal Open Market Committee (FOMC)? A) the president of the NY Federal Reserve Bank B) The chairperson of the Board of Governors C) any member of the Board of Governors

B) The chairperson of the Board of Governors

The money multiplier for the United States is __________. A) approx 10 B) between 2 and 3 C) between 5 and 6

B) between 2 and 3

Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that: A) an additional $5 of reserves creates one dollar of deposits. B) each additional dollar of reserves creates $5 of deposits. C) each additional dollar of reserves creates $5 of reserves

B) each additional dollar of reserves creates $5 of deposits.

Which of these predictions can be made using the growth rates associated with the quantity equation? A) If the money supply grows at a slower rate than real GDP, there will be inflation. B) If the money supply grows at the same rate as real GDP, there will be deflation. C) If the money supply grows at a faster rate than real GDP, there will be inflation.

C) If the money supply grows at a faster rate than real GDP, there will be inflation.

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of: A) M3 B) M2 C) M1

C) M1

Velocity equation

V=(PxY)/M

The Fed conducts monetary policy primarily through: A) discount policy B) open market operations C) reserve requirements

B) open market operations

When we say that money serves as a unit of account, we mean that: A) Money eliminated the double coincidence of wants that exists under barter B) prices are quoted in terms of money C) exchange is made thru the use of money

B) prices are quoted in terms of money

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the: A) quantity equation B) quantity theory of money C) velocity theory

B) quantity theory of money

To increase the money supply, the FOMC directs the trading desk located at the Federal Reserve Bank of New York to: A) sell US Treasury securities to the public B) print US Treasury securities and put them in circulation C) buy U.S. Treasury securities from the public.

C) buy U.S. Treasury securities from the public.

When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed: A) provides funds to troubled banks that cannot find any other source of funds B) serves as a clearinghouse for interbank payments C) sets reserve requirements

A) provides funds to troubled banks that cannot find any other source of funds

The Federal Reserve System is __________. A) the central bank of the US B) also known as the US Treasury C) the institution that also regulates stock markets

A) the central bank of the US


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