macro ch 16

A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to

$50

If the reserve ratio is 5 percent, then the money multiplier is

20

At any meeting of the Federal Open Market Committee, that committee's voting members consist of

5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.

To decrease the money supply, the Fed could

All of the above are correct

A double coincidence of wants

All of the above are correct.

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 20 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

It falls by $45 billion.

Most financial assets other than money function as

a store of value, but not a unit of account nor a medium of exchange

money

all of the above

During the Great Depression in the early 1930s

bank runs closed many banks

During the Great Depression in the early 1930s,

bank runs closed many banks

When the Federal Reserve conducts open-market operations to increase the money supply, it

buys government bonds from the public.

Which of the following is a store of value?

cash and stocks

Demand deposits are a type of

checking account

When prisoners use cigarettes or some other good as money, cigarettes become

commodity money and function as a store of value.

If an economy used gold as money, its money would be

commodity money, but not fiat money.

The ease with which an asset can be

converted into the economy's medium of exchange determines the liquidity of that asset.

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

creates dollars and uses them to purchase government bonds from the public.

To increase the money supply, the Fed could

decrease the discount rate

As the reserve ratio increases, the money multiplier

decreases

credit cards

defer payments

Which of the following is included in both M1 and M2?

demand deposits

The existence of money leads to

greater specialization and to a higher standard of living

Fiat money

has no intrinsic value

You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency

has no intrinsic value. The exchange is not an example of barter.

If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves

increase by $20 million and the money supply eventually increases by $250 million.

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

increased both the money multiplier and the money supply.

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

increased. The central bank could have reduced the size of this increase by selling bonds

If an economy uses silver as money, then that economy's money

is commodity money.

The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?

it decreases by $250,000

The Fed can directly protect a bank during a bank run by

lending reserves to the bank.

The money supply increases when the Fed

lowers the discount rate. The increase will be larger the smaller the reserve ratio is.

Which of the following items is included in M2?

money market mutual funds

Which tool of monetary policy does the Federal Reserve use most often?

open-market operations

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,

reserves increase by $100 million and the money supply increases by more than $100 million.

The money supply decreases if the Fed

sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

A decrease in the money supply might indicate that the Fed had

sold bonds in an attempt to increase the federal funds rate.

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

store of value

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

the FOMC

A problem that the Fed faces when it attempts to control the money supply is that

the Fed does not control the amount of money that households choose to hold as deposits in banks.

If the money multiplier decreased from 20 to 12.5, then

the Fed increased the reserve ratio from 5 percent to 8 percent.

In recent years the Federal Open Market Committee has focused on a target for

the federal funds rate.

Today, bank runs are not a major problem for the U.S. banking system because

the federal government now guarantees the safety of deposits at most banks.

The agency responsible for regulating the money supply in the United States is

the federal reserve

The discount rate is

the interest rate the Fed charges banks.

One surprising thing about the U.S. money stock is that

there is so much currency per person.

When we measure and record economic value, we use money as the

unit of account.

The measure of the money stock called M1 includes

wealth held by people in their checking accounts.

The New York Federal Reserve Bank

- President always gets to vote at the FOMC meetings - Conducts open market transactions - Is one of 12 regional Federal Reserve Banks

If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

12500

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $355 million dollars in loans. Given this information you find that the reserve requirement must be

35/400.

If the reserve ratio is 2.5 percent, then the money multiplier is

40

bank runs

are a problem because banks only hold a fraction of deposits as reserves.

The members of the Federal Reserve's Board of Governors

are appointed by the president of the U.S. and confirmed by the U.S. Senate.

The federal funds rate is the interest rate

banks charge each other for short-term loans of reserves.

Treasury Bonds are

both liquid and a store of value

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?

buy bonds to increase reserves

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

buying bonds. This buying would increase reserves.

If the reserve ratio is 10 percent, banks do not hold excess reserves, people hold only deposits and no currency, then when the Fed sells $10 million worth of bonds to the public, bank reserves

decrease by $10 million and the money supply eventually decreases by $100 million.

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves

decrease by $65 million and the money supply eventually decreases by $433.33 million.

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

increased. The central bank could have reduced the size of this increase by selling bonds.

An open-market purchase

increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public

the federal reserve

is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks.

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

medium of exchange

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

members of the Board of Governors but not the regional Federal Reserve Bank Presidents.

The president of each regional Federal Reserve Bank is appointed by

the board of directors of that regional Federal Reserve Bank.

In an economy that relies upon barter,

there is no item in the economy that is widely accepted in exchange for goods and services.

Economists use the term "money" to refer to

those types of wealth that are regularly accepted by sellers in exchange for goods and services.