Chapter 13
Bank of Sun city has $800 million in deposits. The required reserve ratio is 20%. Bank of Sun city must keep _______ in reserves
$160 million
Bank A has $100 million in reserves. Bank A is meeting its reserves requirement and has no excess reserves. The requires reserve ratio is 20%. Bank A's demand deposit are
$500 million
The transactions demand for money is most closely related to the function of money as
A medium of exchange
The difference between a bank's total reserves and its required reserve is its
Excess Reserve
Reserve Requirement
Regulations imposed on banks by the central bank that specify a minimum reserve-deposit ratio
Which of the following is not used by the Federal Reserve to change the money supply
The Federal tax code
Central Bank
The institution responsible for the conduct of monetary policy, such as the Federal Reserve in the United States
Federal Funds Rate
The interest rate for interbank reserve loans
Prime Rate
The interest rate that banks charge their most creditworthy customers
Discount Rate
The interest rate that the Fed charges when it makes loans to bank
The interest rates represent
The opportunity cost of holding money
Open Market Operation
The purchase or sale of government bonds by the central bank for the purpose of increasing or decreasing the money supply
If interest rates increase
The quantity of money demanded will decrease
Moral Suasion
A Federal Reserve policy that is used to pursue banks to implement its policies, such as asking them to purchase bonds to reduce the money in circulation
Which of the following activities is not one of the responsibilities of the Federal Reserve
Administering the Federal Tax Code
Monetary policy in the United States is controlled by the Congress
False; Monetary policy is controlled and implemented by the Fed
Money supply is controlled by local banks (lenders) and bank customers (borrowers)
False; Money supply is controlled by the Federal Reserve
According to information presented in the chapter, most economists attribute passive Fed policies in the 1930s as the main cause for the major decrease in the money supply
False; bank failures were attributed as the cause of the major decrease
The chairman of the Federal Reserve reports to the President of the United States and the Congress.
False; the Fed chairman enjoys a great deal of independence and does not have to directly report to the Congress or President
The main tool to control money supply used by the Fed is setting and changing the reserve ratio
False; the main tool used is open-market operations, selling bonds on the open market
The reserve ratio is defined as the amount of money banks can lend to customers and is set by the Federal government
False; the reserve ratio is the amount of money banks must keep in their vaults and is set by the Fed
In the United States, monetary policy is formally set by the
Federal Open Market Committee
The desire to keep assets in cash to take advantage of favorable changes in the value of noncash assets is called the
Speculative Demand for Money
Clearing House
The Federal Reserve Bank clears checks for its member banks by debiting and crediting them to different bank accounts
Supervisory Function
The Federal Reserve Bank examines banks to make sure banks are complying with regulations and maintaining financial stability
Fiscal Agent
The Federal Reserve Bank takes fiscal responsibilities for the federal government
Moral suasion is the attempt to get local banks to adopt Federal Reserve policies
True
The different types of money supply include currency, M1, M2, M3
True
The discount rate is the rate set by the Federal Reserve when lending money to other banks
True
The main functions of the regional Federal Reserve banks are to manage check clearing and to supervise banking and financial activities in the district
True