Chapter 14: Econ 111

If Megan writes a check on her San Francisco bank to LaNica who deposits it in her Cleveland bank, how does the Cleveland bank collect the money represented by the check drawn against the San Francisco bank? Multiple choice question. 1. Using the Federal Reserve Banks 2. The Cleveland bank is unable to collect money from the San Francisco bank. 3. Using the National Banks 4. Using the Department of Treasury

1. Using the Federal Reserve Banks

Until 1914, the risks of bank failures were borne by Multiple choice question. 1. depositors. 2. taxpayers. 3. bank managers.

1. depositors.

Commercial banks' borrowing from the Federal Reserve banks ______.

1. enhances the commercial banks' ability to extend credit 2. increases reserves of the commercial banks

Who aids the Board of Governors in making the basic policy decisions that provide monetary control of the U.S. money and banking system? Multiple choice question. 1.The Federal Open Market Committee 2.The U.S. Department of Treasury 3.The FDIC 4.The National Bankers Association

1.The Federal Open Market Committee

The following highlight how bonds work (select all that apply) ______. Multiple select question. 1.The government or firm promises to make a series of payments in addition to returning the initial money at the end of a predetermined period of time. 2.The series of payments made is called interest. 3.An investor is lent money by the government or a firm for a certain period of time. 4.An investor promises to make a series of payments in addition to returning the initial money at the end of a predetermined period of time. 5.An investor lends the government or a firm a certain amount of money for a certain period of time.

1.The government or firm promises to make a series of payments in addition to returning the initial money at the end of a predetermined period of time. 2.The series of payments made is called interest. 5.An investor lends the government or a firm a certain amount of money for a certain period of time.

f you paid $900 for a $1000 25-year bond that pays a 10% annual interest payment, the bond's yield is

11.1%

Which of the following prompt banks, securities firms, and individual holders of government bonds to sell them to the Federal Reserve banks? Select all that apply. Multiple select question. higher bond prices higher interest lower interest lower bond prices

1;3

Who establishes reserve requirements or the fraction of checking account balances that banks must maintain as currency reserves? Multiple choice question. 1. The U.S. Treasury 2. The Fed 3. The FDIC 4. The U.S. Mint

2. The Fed

In the United States, the monetary authorities are members of the Board of Governors of what institution? Multiple choice question. 1. National Bank 2. United States Mint 3. Federal Reserve System 4. FDIC

3. Federal Reserve System

If Mick writes a check on his San Francisco bank to Greg who deposits it in his Cleveland bank, how does the Cleveland bank collect the money represented by the check drawn against the San Francisco bank? The Federal Reserve banks ______. Multiple choice question. 1. let the Cleveland bank know they must contact the San Francisco bank 2. hold the money until Cleveland requests the money 3. have no role in this transaction 4. clear the checks

4. Clear the checks

If you paid $1100 for a $1000 25-year bond that pays a 10 percent annual interest payment, the bond's yield is ___.

9.1 Reason: yield = interest payment/price paid for bond = (10 x $1000)/$1100 = 9.1%

Because banks continually seek to keep excess reserves at _______, they run the risk of falling below reserve requirements. Multiple choice question. a maximum a minimum a moderate amount

A minimum

Whom are bond markets open to?

All buyers and sellers of corporate and government bonds

The central authority of the U.S. money and banking system is the _________ of _________ of the Federal Reserve System.

Board; Governors

Which of the following are actions that the Federal Reserve may take to increase the money supply? Select all that apply.

Buy government bonds in the open market. Lower the discount rate. Lower the reserve requirement.

If a bank's reserves are $5,000 and its required reserves are $4,000, how much does it have in excess reserves? Multiple choice question. $10,000 $5,000 $500 $1,000

Excess = Total - Required 5000-4000 = 1000

The banking crisis of 1907 inspired the creation of the ______.

Federal Reserve Act of 1913

(Higher/Lower) bond prices and (higher/lower) interest yields prompt banks, securities firms, and individual holders of government bonds to sell them to the Federal Reserve banks.

Higher; Lower

If the Fed increases the reserve requirement and a bank does not have excess reserves, the commercial bank would be forced immediately to do which of the following?

Increase its total reserves. Increase its required reserves.

Which of the following are functions that the Federal Reserve banks perform? Select all that apply. Multiple select question. Setting taxation levels Lending money Clearing checks Issuing currency Holding reserves Government spending

Lending money Clearing checks Issuing currency Holding reserves

The Fed can manipulate the reserve ratio in order to influence the ability of commercial banks to do what? Multiple choice question. Raise interest rates Make loans Borrow from the Fed Purchase Treasuries

Make loans

What type of operations serve to control the nation's money supply and influence interest rates? Multiple choice question. Free market Open market Limited market Public market

Open Market

Which of the following consists of the buying and selling of government bonds to and from the general public?

Open market operations

Raising the ___________ ratio forces banks to reduce the amount of checkable deposits they create through lending.

Reserve

The Federal Open Market Committee (FOMC) plays a critical role in setting _____-term interest rates for the economy. Multiple choice question. long short medium

Short

Which institution is responsible for issuing currency, holding reserves, lending money, and clearing checks between private banks? Multiple choice question. The U.S. Treasury Department The Federal Reserve banks The FDIC The U.S. Mint

The Federal Reserve banks

To reduce the money supply, the Fed may raise what?

The discount rate

True or false: The Federal Reserve can make available a particular quantity of money and can change that amount through its policy tools.

True

How many Federal Reserve banks are there in the United States?

Twelve

There are _________ Federal Reserve banks in the United States.

Twelve

Certificates acknowledging a debt and the amount of interest to be paid each year until repayment are issued most frequently by governments and corporations and are known as Multiple choice question. 1. certificates of deposit. 2. financial derivatives. 3. stocks. 4. bonds. 5. mutual funds.

bonds

Open markets are open to all buyers and sellers of corporate and government ___________

bonds

The supply of money is directly increased by the Federal Reserve Banks' purchase of government __________.

bonds

_______ are certificates acknowledging a debt and the amount of interest to be paid each year until repayment and are issued most frequently by governments and corporations.

bonds

Governments and large corporations borrow money by selling ________ to investors, in exchange for their promise to pay ________ on the loan.

bonds; interest

Suppose the Fed wishes to use open market operations to increase transaction deposits in the economy by $40 billion. In this case, it must

buy something less than $40 billion of bonds.

Lowering the reserve ratio enhances the ability of banks to Multiple choice question. attract new clients. invest in other institutions. create new money. borrow from the Fed.

create new money

If the Fed uses open market operations to buy bonds from banks and the public, the federal funds rate will (increase/decrease).

decrease

When the Federal Reserve Banks sell government bonds, commercial banks' reserves are (increased/decreased).

decreased

The interest rate that Federal Reserve Banks charge on loans they grant to private banks is called the ___________ rate.

discount

Total reserves minus required reserves equals ________ reserves.

excess

The Federal Reserve focuses monetary policy on the interest rate that it can best control, namely, the federal _______ rate.

funds

The supply of money is directly increased by the Federal Reserve Banks' purchase of what?

government Bonds

Open market operations consist of the buying and selling of ______ to and from the general public.

government bonds

The Federal funds rate is the rate of __________ that banks charge one another on overnight loans made from temporary excess reserves. (Enter one word in the blank.)

interest

The purpose of open market operations is to control the nation's money supply and influence ________ rates.

interest

Increasing the lending ability of banks is made possible through ______.

lowering the reserve ratio; which transforms required reserves into excess reserves

The Fed's major goal is to control ______. Multiple choice question. credit institutions the money supply the price level taxation

money supply

The discount rate is the rate the Federal Reserve Banks charge on loans they grant to ___________ ___________.

private banks

Raising the __________ ratio forces banks to reduce the amount of checkable deposits they create through lending.

reserve

The Fed can manipulate the ________ in order to directly influence the ability of commercial banks to lend. Multiple choice question. reserve ratio demand for money solvent rate interest rate

reserve ratio

Because banks continually seek to keep excess reserves at a minimum, they run the risk of falling below Multiple choice question. borrowing capacity federal funds rate reserve requirements lending capacity

reserve requirements

Because banks continually seek to keep excess reserves at a minimum, they run the risk of falling below: ________ _____________.

reserve requirements

The Federal Reserve Bank sets ______, which are the fractions of deposit account balances that banks must maintain as currency reserves. Multiple choice question. reserve requirements discount rates excess requirements fed funds rates

reserve requirements

The funds being lent and borrowed overnight are called "federal funds" because they are reserves that are required by the Federal Reserve to meet what? Multiple choice question. excess reserves investment costs interest payments reserve requirements

reserve requirements

The Fed targets the Federal funds rate by manipulating the flows of ________ that are in the banking system.

reserves

Borrowing from the Federal Reserve banks by commercial banks increases the ________ of commercial banks and enhances their ability to extend _________.

reserves; loans

The rate of return on a bond is the bond's

yield

The rate of return on a bond is the bond's __________.

yield