ECON TEST 3 PT 2
The sum of all currency in the hands of the public, checkable deposits and traveler's checks is the official definition of------.
M1
the two main official measures of money in the United States today are
M1 and M2
In the long run, an increase in the quantity of money ---- the interest rate
does not change
Assuming there are no leakages out of the banking system, a money multiplier equals to 5 means that:
each additional dollar of reserves creates $5 of deposits
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
The quantity theory of money is that in the ----, an increase in the quantity o f money brings an equal percentage increases in the -----
long run; increases 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 monitoring browsers
The actions the deferral reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called
monetary policy
The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits ar the Fed, is--------
required reserves
the price of a bond ---- and the interest rate in the short run
rises, falls
The long-run historical evidence and international evidence show ys that the relationship between money growth and inflation rate-----
supports the quantity theory, but the correlation is not perfect
The Federal reserve system is
the central bank of the United States
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
How many Federal Reserves districts are there?
12
If monetary base increases by 1 million and the quantity of money increases by 2.5 million, then the money multiplier is
2.5
Which of these will shift the money demand curve to the right?
An increase in real GDP
Choose the correct statement A. A benefit of a money market mutual fund is that shareholders can write checks on their accounts with no restrictions. B. A bank's reserves are notes and coins in the bank's vault or in a deposit account at the Federal Reserve. Your answer is correct. C. Money market mutual funds represent 13 percent of M1. D. In 2017 about 700 commercial banks operated in the United States
B
Choose the correct statement: A. A check is money because while it is in circulation the quantity of money increases by the amount of the check. B. Deposits are money, checks are not money, and credit cards are not money. Your answer is correct. C. Currency is money and credit cards are money because they are means of payment, but deposits are not money. D. A credit card is money because it allows you to take a loan at the instant you buy something.
B
Which body of the Federal Reserve System sets the majority of US monetary policy?
The Federal Open Market Committee
When is the opportunity cost of holding money higher?
When interest rates are high
The Fed is the lender of last resort, which means that if ----- is short of reserves, it can borrow from the -----.
a bank; Fed
The two main official measures of money in the United States ------ really money
are
Credit cards
are not part of the money supply
To increase the money supply, the Fed------.
buys securities from the public
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
A depository institution is a ----
financial firm that takes deposits from households and firms
An open market purchase ---- the monetary base. An open market sale ---- the monetary base
increases; decreases
A central bank----. A commercial bank-----
is a banks bank; is a firm that takes deposits from households and firms
The Fed conducts monetary policy primarily through
open market operations
Starting from a short-run equilibrium, when the Fed increases the quantity of money,
people enter the loanable funds market and buy bonds
When we say that money serves as a unit of account, we mean that:
prices are quoted in terms of money
