econ chapter 8
Credit cards are:
not part of the money supply.
Starting from a short-run equilibrium, when the Fed decreases the quantity of money, _______.
people enter the loanable funds market and sell bonds
The Federal Reserve System is __________.
the central bank of the United States
Which body of the Federal Reserve System sets the majority of U.S. monetary policy?
The Federal Open Market Committee
Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:
each additional dollar of reserves creates $5 of deposits.
The price of a bond ______ and the interest rate in the short run ______
falls, rises
When we say that money serves as a unit of account, we mean that:
Prices are quoted in terms of money.
The Fed conducts monetary policy primarily through __________.
open market operations
a banks reserves are notes and coins in the banks vault or in a deposit account at the Federal Reserve.
yop
21
yup
FDIC insurance brings _______ stability to the banking system because _______.
more; depositors know that money they have deposited with a bank will be repaid making bank runs less likely
Deposits are money, checks are not money, and credit cards are not money.
yup
How many Federal Reserve districts are there?
12
two graphs
17
Which of these will shift the money demand curve to the right?
An increase in real GDP
The sum of all currency in the hands of the public, checkable deposits and traveler's checks is the official definition of __________.
M1
When is the opportunity cost of holding money higher?
When interest rates are high
To increase the money supply, the Fed __________.
buys securities from the public
m1
checking deposits and currency and traveler's checks(outside banks)
An open market purchase ______ the monetary base. An open market sale ______ the monetary base.
increases; decreases
A central bank _______. A commercial bank _______.
is a bank's bank; is a firm that takes deposits from households and firms
When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed __________.
lends to banks that are short of reserves and cannot find any other source of funds
FDIC insurance helps to minimize the cost of bank failure by _______.
limiting the loss of each deposit to amounts over $250,000
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage increase in the _______
long run; increase in the price level
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.
low, high
The functions of depository institutions include _______.
lowering the cost of borrowing
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 __________.
required reserves
desired reserved ratio
reserves to deposits
The interest rate will _______.
rise
If the interest rate is 5 percent, people will ______ bonds. Bond prices will ______
sell, fall
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate ______
supports the quantity theory, but the correlation is not perfect
The quantity of money that the banking system can create is limited by _______.
the monetary base, desired reserves, and desired currency holdings
If real GDP increases:
the money demand curve shifts to the right.
money multiplier
the ratio of the change in the quantity of money to the change in monetary base.
The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money.
M1 and M2; are
m2
M1 plus savings accounts, certificates of deposit, and other liquid assets (outside banks)
Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
We call the leakage of bank reserves into currency the currency drain, and we call the ratio of _____ to _____ the currency drain ratio.
currency, deposits
In the long run, an increase in the quantity of money _______ the interest rate.
does not change
A depository institution is a _______.
financial firm that takes deposits from households and firms
The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.
Monetary policy
The Fed is the lender of last resort, which means that if _____ is short of reserves, it can borrow from the _____.
a bank, Fed
