Macroeconomics- Test 4 Study Set
The M2 money supply includes
individual shares in money market mutual funds
The Federal Reserve System
is basically an independent agency
The amount of money reported as M2
is larger than the amount reported as M1
The purchasing power of the dollar
is the reciprocal of the price level
The Federal Reserve System changes the money supply by
issuing a statement about any monetary actions the Fed intends to take
In terms of the mechanics of quantitative easing
it works the same as open-market operations
Which of the following is not part of the M2 money supply?
large-denominated time deposits
Actions or communications by a central bank intended to help it achieve its macroeconomic policy objectives defines
monetary policy
Currency held by banks is part of
neither the M1 nor the M2 definition of the money supply
If the inflation rate was on target at 2 percent and the unemployment rate was 3.4 percent, the Fed would likely adopt a(n)
neutral monetary policy
Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as
no change in the money supply because the $200 decrease in currency has been converted to a $200 increase in checkable deposits
Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as
no change in the money supply because the $200 decrease in currency has been converted to a $200 increase in checkable deposits.
Time deposits of $100,000 or more are
not a component of M1 or M2
Currency held in the vault of First National Bank is
not counted as part of the money supply
(Consider This) Credit cards are
not money, as officially defined
Which of the following is a tool of monetary policy?
open-market operations
The three main tools of monetary policy are
open-market operations, forward guidance, and changing the administered interest rates
The term "bankers' banks" means that the Federal Reserve
performs essentially the same functions for banks and thrifts as those institutions perform for the public
A checking account balance is money because it
performs the functions of money
An important routine function of the Federal Reserve System is to
provide facilities by which commercial banks and thrift institutions may collect on checks
Open-market operations include
quantitative easing
Which of the following Fed actions will decrease the money supply?
raising the overnight reverse repo rate
The discount rate is the interest
rate at which the Federal Reserve Banks lend to banks
Open-market operations refer to
the purchases and sales of U.S. government securities by the Fed
The Federal Open Market Committee (FOMC) is made up of
the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis
In defining money as M1, economists exclude time deposits because
they are not directly or immediately a medium of exchange
To say that the Federal Reserve Banks are quasi-public banks means that
they are privately owned but managed in the public interest
Checkable deposits are
included in M1
Reserve balances are so-called because
they are the funds that the Federal Reserve keeps on deposit for banks and thrifts to take care of ongoing commercial bank and thrift operations
Checkable deposits are classified as money because
they can be readily used in purchasing goods and paying debts
The functions of money are to serve as a
unit of account, store of value, and medium of exchange
To say "money is what money does" means that
whatever performs the functions of money extremely well is considered to be money
If the price index rises from 100 to 110, the purchasing power value of the dollar
will fall by one-eleventh
Interest paid on reserve balances held at the Fed
will incentivize banks to hold more reserves and reduce riskier lending
Stabilizing a nation's price level and the purchasing power of its money can be achieved
with both fiscal and monetary policy
What function is money serving when you deposit money in a savings account?
a store of value
Money functions as
a store of value, a unit of account, and a medium of exchange
A $80 price tag on a sweater in a department store window is an example of money functioning as a
a unit of account
The members of the Federal Reserve Board
are appointed for 14-year terms
Near monies
are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1
Small-denominated time deposits, by definition
are less than $100,000
If the Fed wants to encourage nonbank lending, it will
decrease the ON RRP
Money functions as a store of value if it allows you to
delay purchases until you want the goods
Money market deposit accounts are included in
M2 only
One major advantage of money serving as a medium of exchange is that it allows society to
escape the complications of barter
The Federal Reserve System was created in
1913
PayPal and Venmo are
cash transfer systems
Money Market Mutual Fund Balances Held by Individuals- $220. Money supply M1 for this economy is
220
If the price index rises from 100 to 180, then the purchasing power of the dollar will fall by about
44%
How many members can serve on the Board of Governors of the Federal Reserve System?
7
The Board of Governors of the Federal Reserve has _________ members.
7
Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances?
Banks will choose to lend into the money market instead of lending to the Fed
If the Federal Reserve authorities were attempting to reduce inflation, the proper policies would be to
Decrease the money supply with negative forward guidance, a higher federal funds target range, increases in the IORB and ON RRP, and/or quantitative tightening
As it relates to Federal Reserve activities, the acronym FOMC describes the
Federal Open Market Committee
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the
Federal Open Market Committee (FOMC)
The discount rate is the rate of interest at which
Federal Reserve Banks lend to banks
The paper money used in the United States is
Federal Reserve Notes
In the United States, monetary policy is the responsibility of the
Federal Reserve System
The Federal Reserve System's three administered rates are the
IORB rate, ON RRP rate, and discount rate.
"Near-monies" are included in
M2 only
When economists say that money serves as a medium of exchange, they mean that it is
a means of payment
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
a medium of exchange
Purchasing groceries using a debit card best exemplifies money serving as a
a medium of exchange
When economists say that money serves as a unit of account, they mean that it is
a monetary unit for measuring and comparing the relative values of goods
If you are estimating your total expenses for school next semester, you are using money primarily as
a unit of account
When economists say that money serves as a store of value, they mean that it is
a way to keep wealth in a readily spendable form for future use
An interest rate set by a central bank to help it manage market-determined interest rates defines
an administered rate
Members of the Federal Reserve Board of Governors are
appointed by the president to staggered 14-year terms
The seven members of the Board of Governors of the Federal Reserve System are
appointed by the president with the confirmation of the Senate
During periods of rapid inflation, money may cease to work as a medium of exchange
because people and businesses will not want to accept it in transactions
In a reverse repo transaction, the Fed _________ money.
borrows
Currency in circulation is part of
both M1 and M2
The money supply is backed
by the government's ability to control the supply of money and therefore to keep its value relatively stable
Checkable deposits are
debts of commercial banks and savings institutions
Which of the following is not a tool of monetary policy?
changes in banking laws
In the United States, the money supply (M1) includes
coins, paper money, checkable deposits, and savings deposits
The money market comprises short-term lending markets that include markets for
commercial paper
The federal backing for money in the United States comes from
controlling the money supply in order to keep the value of money relatively stable over time
The interest rate at which the Federal Reserve Banks lend to banks is called the
discount rate
Which of the following is paid to the Fed as a source of low-cost liquidity?
discount rate
The collateral used for overnight reverse repos is (are)
government securities
If the Fed wants to discourage bank lending, it will
increase the interest paid on reserve balances held at the Fed
The administered rates are the rates of interest at which
set by a central bank to help it manage market-determined interest rates
The Federal Open Market Committee (FOMC)
sets policy on the sale and purchase of government bonds by the Fed
Quantitative easing refers to
the Fed buying longer-term bonds to reduce longer-term interest rates
In a reverse repo transaction,
the Fed is the borrower and the nonbank firm is the lender
Money in the U.S. is essentially debt of
the Federal Reserve System and the banks
Which of the following is not a tool of monetary policy?
the Taylor rule
What "backs" the money supply of the United States?
the U.S. government's ability to keep the value of money relatively stable
U.S. monetary policy is conducted by
the central bank
Research suggests that
the less independent the central bank, the higher the average annual rate of inflation
The sale of government securities by the Fed will cause
the money supply to decrease
If the Federal Reserve System buys government securities,
the money supply will increase
