Econ ch.13-16
Currency (paper money plus coins) constitutes about?
51% of the U.S M1 money supply
A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the?
Asset demand for money
A checkable deposit at a commercial bank is?
Asset to the depositor and a liability to the bank
Money is created when?
Banks make loans
A commercial bank can add to its actual reserve by?
Borrowing from a Federal Reserve bank
A bank temporarily short of required reserves may be able to remedy this situation by?
Borrowing funds in the Federal funds market
A bank can get additional excess reserves by doing any of the following EXCEPT?
Buying treasury securities from the Fed
"Thrifts" refer to the following institutions EXCEPT?
Commercial banks
An expansionary monetary policy may be less effective than a restrictive monetary policy because?
Commercial banks may not be able to find loan customers
As expansionary monetary policy tools, quantitative easing (QE) and traditional open-market purchase differ in terms of the following, EXCEPT?
Expansionary monetary policy: increases the supply of credit in the economy, aggregate demand, and real output Open-market purchase: where the Fed either buys or sells gov. bonds outright or uses them as collateral on loans of money
All else equal when the Federal Reserve Bank engage in an expansionary monetary policy, the interest rates received on gov. bonds usually?
False
Banks can lend their excess reserves to other banks in the?
Federal find market
As it relates to Federal Reserve activities, the acronym FOMC describe the
Federal open market committee
Money is destroyed when?
Loans are repaid
Lowering the reserve ratio does what?
Lowering the reserve ratio transforms required reserves into excess reserves and enhances the ability to create new money by lending. A change in the reserve ratio changes the amount of excess reserves and it changes the size of the monetary multiplier.
Currency & checkable deposits are?
Major components of the money supply M1
Monetary policy actions by the Fed are?
Mange money supply, interest rates, to pursue its macroeconomics policy objective
A $20 bill is a?
Note
An important routine function of the Federal Reserve Bank is to?
Provide facilities by which commercial banks & thrift institutions may collect checks
According to the Taylor Rule, if the inflation rate has risen by 6% points above its target of 2% the Fed, should?
Raise the real federal fund rate by 3% points
Money is created when?
The bank makes loans
Banks create money when they?
They make loans
Leverage in finance refers to the?
Using other people's money to purchase real estate
An increase in the money supply, ceteris paribus, usually?
Would cause a decline in the equilibrium interest rate
A fractional reserve banking system?
a bank where the deposits are actually back by real cash
Money functions as?
a store value, a unit of account, a medium of exchange
Checkable deposits are?
are checking, savings, and money market accounts
"Near monies" are included in?
both M1 and M2
Commercial banks and thrift institutions
both accept deposits of household and businesses
An expansionary monetary policy is less effective in influencing aggregate demand compared to a restrictive monetary policy?
commercial banks may not be able to find loan customers
An increase in the legal reserve ratio?
decreases the size of the monetary multiplier
Bank panics?
financial crises that occurs when many banks suffer runs at the same time
"subprime mortgage loan" refer to?
high-interst- rate loans to home buyers with above-average credit risk
An expansionary monetary policy may be frustrated if the?
investment-demand curve shifts to the left
According to the Taylor Rule, when real GDP is at its potential and inflation is at its target rate of 2% the Fed should
keep the federal fund rate at 4%
An increase in money supply will do what?
leads to an increase in the amount of money that people and firms will hold and they will spend more
Monetary policy is thought to be?
more effective in controlling demand- pull inflation than in moving the economy out of a recession
Credit balances are part of money supply M2?
not a part of the money supply
A checking account entry is money because it?
preforms the functions of money
The taylor rule if the target rate of inflation for the Fed is 2% and real GDP rises by 1% above the potential GDP, then the Fed should?
raise the federal funds rate 1.5% points
According to the Taylor Rule, if inflation has risen by 6% points above its target of 2% the Fed, should
raise the real federal funds rate by 3% points
A banks net worth is the?
the difference between the banks assets and liabilities
A liquid trap occurs when the Fed Reserve reduces reserves in the system, chocking off aggregate demand
this will cause federal fund rate to decrease
Actual reserves equal required reserves plus excess reserves
true
A television report states: "The Federal Reserve will lower the discount rate for the 4th time this year." This report indicates that the Fed reserves is most likely trying to?
trying to stimulate the economy
Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held out at the Fed, we would except Big Bunks Bank to do what?
use those excess reserves to increase its lending
