Money and banking exam 2

If GDP is $16 trillion and the money supply is $4 trillion, then the velocity of the money is

4

The Bank of Japans ability to respond to the global financial crisis that began in 2007 was limited by

A bloated balance sheet, which was a result of its response to a financial crisis in Japan in the late 1990's

When the federal reserve began its policy of quantitative easing in November 2008, the was _____ in the monetary base

A dramatic increase

If the public's confidence in the banking system is shaken, it may cause

A run on banks

The loan application process that banks require potential borrowers to go through is an attempt to deal with

Adverse selection

One of the main reasons that banks exist to deal with the issues of _____ and ______

Adverse selection : moral hazard

A one time deposit in a bank will result in

An explanation in the money supply that is larger than the side of the one time deposit.

The channel through which the federal reserve impacts the monetary base is

Bank reserves

An example of asymmetric information in financial markets is that, in baking

Borrowers know more about their capacity to repay loans than lenders

Today in the federal reserve system, the powers rests with the

Chair of the Federal Reserve

Holly goes to her bank to take out a loan, and the bank agrees to the loan on the condition that Holly maintain a balance of $1,000 in her savings account with the bank. This is an example of the bank using a bank a

Compensating balance as a way to mitigate the problem of moral hazard

When a bank repays a loan at the discount window to the federal reserve, it will ____ the monetary base by _____ bank reserves

Decrease ; decreasing

Irving Fishers equation of exchange led to the conclusion that the _______ is a function of the level of ______ income in the economy

Demand for money ; nominal

Banks that have some financial difficulty and borrow from the federal reserve in what is known as secondary credit will pay an interest rate equal to the

Discount rate plus a penalty

During the Great Recession, the price level in the United States

Fell sharply

When central banks were first created, their primary function was to

Finance government spending

Open market operations in which the European central bank specifies an interest rate at which it will lend as then participating banks submit bids on the money they wish to borrow at that rate are know as

Fixed rate standard tenders

The two major goals of Canadian monetary policy are

Flexible exchange rates ; inflation control

The three governing bodies of the European Central Bank

Governing council, general council, and executive board

An example of asymmetric information in financial markets in that, the bond market, bond issues

Have a better insight about their future profitability than bond buyers

An example of asymmetric information in financial markets is that, in equity markets, directors _______________ than shareholders.

Have a better sense of future profitability

If the goal of monetary policy is to keep interest rates stable, the federal reserves response to increase in the demand for money will be to

Increase the supply of money

Those who argue against the pursuit of the dual objectives of stable prices and high employment point to the ______ as evidence that the pursuit of dual objectives is misguided

Inflation of the 1970's

To achieve its goal of monetary stability, the Bank of England sets a target

Inflation rate of 2% per year

The business of banking solves the problem of

Liquidity mismatch with savers desiring liquidity and borrowers desiring illiquid loans

In the face of a credit crunch, the federal reserve will most likely attempt to

Lower interest rates to inject liquidity into the financial system

Within an economy, money gets created when banks

Make loans

The president of which district bank is a permanent member of the Federal open market committee?

New York

The bank of Canada conducts monetary policy by setting a target for the

Overnight interest rates

Overnight bank borrowing from the Federal reserve is known as

Primary credit

The main responsibility of the Bank of Japan is to use monetary policy to

Pursue price stability

Imagine that Roland goes to his bank and deposits $10,000 in cash into his savings account. The bank, wanting to use those funds to generate revenue for itself, will look to make a loan with this cash. An important determination of how much that $10,000 the bank can lend is the

Required resrve ratio

When the excess reserve ratio decreases, the impact of changes in the monetary base in the monetary supply is

Strengthened

When the required reserve ration decreases, the impact of changes in the monetary base in the money supply is

Strengthened

In a very basic sense, banks preform two functions in society: they _____ and _____

Take deposits and make loans

John Maynard Keynes argued that there were three reasons that people demanded money. They are

Transactions motive, precautionary motive, and speculative motive

Unemployment is not only terribly costly to people who are unemployed but also to society as a whole because

Unemployment represents a underutilization of societies available resources

When the currency ration increases, the impact of changes in the monetary base in the money supply is

Weakened