My Pearson Econ ch. 13

If a customer withdrew ​$3,000 in cash from a bank and the reserve ratio was 0.9​, checking account balances would eventually be reduced by____________

$3,333.33 = 3000/.9

If the reserve ratio is 0.05 and a deposit of $400 is placed into a​ bank, that bank can lend out $______

$380

1.) The most basic measure of money in the United States is called_____________ 2.) M1 is the sum​ of: A. currency in the hands of the​ public, demand​ deposits, savings​ deposits, and​ traveler's checks. B. currency in the hands of the​ public, demand​ deposits, savings​ deposits, and money market mutual funds. C. currency in the hands of the​ public, demand​ deposits, other checkable​ deposits, and money market mutual funds. D. currency in the hands of the​ public, demand​ deposits, other checkable​ deposits, and​ traveler's checks.

1.) M1 2.) D.) currency in the hands of the​ public, demand​ deposits, other checkable​ deposits, and​ traveler's checks.

If the required reserve ratio is 0.20​, and there is a cash withdrawal of $10,000​, there would be a total decrease in checking account balances of ​$50,00050,000 throughout all of the banks. ​(Enter your response as a whole​ number.)

1/.2 x -10000= 50000

To help ensure political​ independence, each member of the Board of Governors is appointed to ▼ 7 9 10 14 16 year terms.

14

If the required reserve ratio is 0.25​, and there is an increase in cash deposits of $7,000​, there would be a total increase in checking account balances of ​$nothing throughout all of the banks._______

28,000

Some critics of the​ Fed's actions with AIG and Bear Stearns said that the government was just bailing out failing financial firms and they should have been allowed to fail. The rationale of the Fed was A. a complete collapse of the companies would devastate the financial system and cause a global panic. B. these companies could lend money to banks. C. not very well thought out. D. these companies owed too much to the Fed to allow them to fail.

A.) a complete collapse of the companies would devastate the financial system and cause a global panic.

The Federal Reserve arranged for JPMorgan Chase​ & Co. to ▼ buy invest in sell Bear Stearns during the financial crisis in 2008.

Buy

In​ 1973, several major companies went bankrupt and were not going to be able to pay interest on their​ short-term loans. This caused a crisis in the market. There was concern that the​ short-term credit market would​ collapse, and that even healthy corporations would not be able to borrow. How did the Fed handle this​ situation? A. The Fed did nothing and let the market adjust on its own. B. The Fed extended additional credit to make sure the economy had plenty of liquidity. C. The Fed took credit away from banks to punish them for making bad loans.

B.) The Fed extended additional credit to make sure the economy had plenty of liquidity.

The Federal Reserve is not​ the: A. lender of last resort. B. agency that decides the tax rate. C. U.S. central bank. D. agency that conducts monetary policy.

B.) agency that decides the tax rate.

In a financial crisis like those that occurred in 2001 and​ 2008, the Fed can A. use contractionary policy to offset expansionary fiscal policy and prevent inflation. B. help stabilize the economy by adjusting its policies and relationships with banks. C. coordinate with central banks in other countries to weaken their economies. D. keep interest rates a bit higher to prevent deflation.

B.) help stabilize the economy by adjusting its policies and relationships with banks.

Which of the following is not a key function of the Federal​ Reserve? A. providing a system of check collection and clearing B. printing currency C. conducting monetary policy D. holding reserves from banks and other depository institutions

B.) printing currency

If a bank fails a stress​ test, the Fed A. will shut it down. B. will not let a bank pay dividends to its shareholders. C. requires a bank to pay dividends to its shareholders. D. will take over operations of the bank.

B.) will not let a bank pay dividends to its shareholders.

Money solves the problem of double coincidence of wants that would regularly occur under a system of___________

Barter

The Federal Open Market Committee​ (FOMC) is a​ 12-person board consisting of the seven members of the Board of State Governors ​, the president of the Federal Reserve Bank of Dallas ​, and the presidents of four of the other 50 regional Federal Reserve Banks on a rotating basis.​ (The seven nonvoting bank presidents attend the meetings and offer their​ opinions.) The chairperson of the FOMC is the chairperson of the New York Fed . The FOMC is assisted by vast teams of professionals at the Board of Governors and at the regional Federal Reserve Banks. The FOMC is responsible for A. the reserve requirement. B. the discount rate. C. monetary policy. D. discount loans.

Board of governors, New York, 11, Board of governors. C.) monetary policy

During the financial crisis in​ 2007, there was an increased demand to hold U.S.​ dollars, despite the fact that the U.S. was the main source of the crisis. Which of the following statements best explains​ this? A. The U.S. adopted export promotion policies that resulted in an increase in demand for​ U.S.-produced goods. B. In response to the​ crisis, the Federal Reserve raised the interest​ rate, lowering the exchange​ rate, making U.S. dollars cheaper. C. Even with all the uncertainty surrounding the 2007 financial​ crisis, the U.S. dollar was seen as safe. D. In response to the​ crisis, the Treasury Department increased the supply of​ dollars, which increased the money​ multiplier, thus increasing the demand to hold U.S. dollars.

C.) Even with all the uncertainty surrounding the 2007 financial​ crisis, the U.S. dollar was seen as safe.

In recent​ years, several members of Congress have sponsored bills that would subject the Fed to audits of its monetary policy. This is a form of intensive Congressional oversight. What are the pros and cons of more Congressional oversight of the​ Fed? Increased oversight can A. result in financial default. B. result in a merger of the executive and the congressional branches of government. C. create pressure to help finance a​ country's government deficit by creating money. D. add to a​ country's deficit since the oversight of the central bank is expensive.

C.) create pressure to help finance a​ country's government deficit by creating money.

The Federal Open Market Committee​ (FOMC) votes​ on: A. the reserve requirement. B. discount loans. C. monetary policy. D. the discount rate.

C.) monetary policy.

Decisions about the supply of money are made by A. the president of the New York Federal Reserve Bank and Congress. B. the Federal Open Market Committee which includes the members on the Senate and the president of the New York Federal Reserve Bank. C. the Federal Open Market Committee which includes the seven members on the Board of Governors and the president of the New York Federal Reserve Bank. D. Congress and the seven members on the Board of Governors.

C.) the Federal Open Market Committee which includes the seven members on the Board of Governors and the president of the New York Federal Reserve Bank.

The Fed provides a system of check collection and_______________

Clearing

The largest component of M1 is/are____________

Currency held by the population

Which of the following is a reason that the president of the New York Federal Reserve Bank is always a voting member of the Federal Open Market​ Committee? A. NY is the​ world's financial center. B. NY is a major economic power of the U.S. C. The FRB of NY conducts monetary policy. D. All of the above.

D.) All of the above.

The three functions of money do not include money as a A. unit of account. B. store of value. C. medium of exchange. D. collectible.

D.) Collectible

The most basic measure of money in the United States is called A. M2 and is the sum of currency in the hands of the​ public, demand​ deposits, other checkable​ deposits, and​ traveler's checks. B. M1 and is the sum of currency in the hands of the​ public, demand​ deposits, savings​ deposits, and one year certificates of deposit. C. M2 and is the sum of currency in the hands of the​ public, demand​ deposits, savings​ deposits, and one year certificates of deposit. D. M1 and is the sum of currency in the hands of the​ public, demand​ deposits, other checkable​ deposits, and​ traveler's checks.

D.) M1 and is the sum of currency in the hands of the​ public, demand​ deposits, other checkable​ deposits, and​ traveler's checks.

Bitcoins are a new form of​ electronic, privately issued money that can potentially preserve the anonymity of transactions. In recent​ years, the prices of a single Bitcoin has varied between​ $400 and​ $19,000. From the point of view of money as a store of​ value, Bitcoins are A. a poor store of value because their interest earning capacity is low. B. no store of value since they cannot be used for all purchases. C. a good store of value because their prices​ don't fluctuate too much. D. a poor store of value because their prices fluctuate too much.

D.) a poor store of value because their prices fluctuate too much.

If the Fed set an interest rate on reserves close to the market interest rate on commercial​ loans, A. banks would have little incentive to make loans. B. banks would have more incentive to make loans. C. banks would have more incentive to borrow funds. D. banks would be unnecessary.

D.) banks would have little incentive to make loans

In the United​ States, the A. Federal Reserve Board members are elected by all citizens. B. chairperson of the Board of Governors is elected by Congress. C. Federal Reserve Board members are elected by Congress. D. chairperson of the Board of Governors is required to report to Congress on a regular basis.

D.) chairperson of the Board of Governors is required to report to Congress on a regular basis.

Banks create money by A. making loans which decreases deposits because the required reserve ratio is a fraction of loans. B. lending from bank to bank. C. printing money which is then deposited into banks. D. making loans which increases deposits because the required reserve ratio is a fraction of deposits.

D.) making loans which increases deposits because the required reserve ratio is a fraction of deposits.

The Fed can supply funds to the markets in the case of a financial panic because A. they control the Treasury. B. panic raises interest rates. C. more funds are demanded. D. they are the lender of last resort.

D.) they are the lender of last resort.

Occasionally, some economists or politicians suggest that the Secretary of the Treasury become a member of the Federal Open Market Committee. This would most likely ▼ increase decrease have no impact on the independence of the Federal Reserve.

Decrease

In recent​ years, debit cards have become popular. Debit cards allow the holder of the card to pay a merchant for goods and services directly from a checking account. The introduction of debit cards most likely _______________ on the amount of currency in the economy.

Decreased

Where Should Regional Banks Be Located​ Today? Given the changes in the location of economic activity that have occurred since the founding of the Federal​ Reserve, how would the location of the regional banks change if they were allocated by economic​ activity? The locations of the banks and the branches would be different since economic activity has geographically shifted. There would probably be more banks in the ▼ EastWest​, and the ▼ ClevelandPhiladelphiaSan Francisco district would be​ smaller, or have more banks.

Different, west, san Francisco

Economist Kenneth Rogoff at Harvard has recommended removing​ $100 bills from circulation. He made this recommendation because he believed these bills_________________

Facilitate illegal transactions and tax evasion.

Even though both insurance companies and banks are financial​ intermediaries, macroeconomists study insurance companies more intensively because insurance companies have a much larger and direct impact on the money supply. T or F

False

The San Francisco Federal Reserve Bank is the only one in the West because San Francisco outbid Los Angeles to be its host. t or f

False

Money market mutual funds are hard to classify in a definition of money because they are only held to facilitate transactions. T or F

False (M2)

The Secretary of the Treasury who developed the idea of stress tests was Henry Paulson. T or f

False (Timothy)

The actual money multiplier in the United States today is close to 5. T or F

False, below 1

In​ 2014, a major bank paid the government​ $13 billion to settle a lawsuit. This payment immediately ▼ increasedhad no effect ondecreased ​assets, ▼ increasedhad no effect ondecreased ​liabilities, and ▼ increasedhad no effect ondecreased ​owners' equity.

Had no effects on, Had no effects on, decreased.

A $100 bill________

Has no intrinsic value

The president of the Minneapolis Federal​ Reserve, Neel​ Kashkari, argues that banks today are too big to let fail and the government would have to bail them out in a true emergency. He believes the banks should be downsized to prevent this possibility. You may wish to see President Kashkari discuss this idea at​ www.minneapolisfed.org/publications/special-studies/endingtbtf. Accessed March 2018. By​ "too big to​ fail," he means that if a bank is too​ big, ▼ its scale of operation would be large enough to shield it from incurring lossesits failure would cause extensive financial disruption, forcing the government to bail out the bank. The costs of breaking up the large banks would depend on whether A. fewer services would be​ provided, thereby reducing the efficiency of the financial system. B. any cost savings would disappear if the bank was forced to reduce its size. C. there are significant cost savings from having larger institutions. D. All of the above are factors to consider when breaking up the large banks.

Its failure would cause extensive financial disruption, forcing gov to bail out the bank D.) All of the above are factors to consider when breaking up the large banks.

Part 1.) Gifts cards have grown in popularity as a mechanisms to give gifts. Cards are available for popular book stores and for coffee shops. Gift cards A. are not considered part of the money supply since they have a fixed value paid for in advance. B. are not considered part of the money supply since they have a variable value depending on the purchaser. C. are considered part of the money supply since they can be used for spending. D. are considered part of the money supply since they transmit funds from the checking account. Part 2.) Traveler's checks are sold by A. vendors for purchases in their enterprise. B. vendors but must be redeemed at a bank. C. banks and can be used for specific vendors. D. banks and​ non-banks and can be used for purchases in any enterprise.

Part 1.) A.) are not considered part of the money supply since they have a fixed value paid for in advance. Part 2.) D.) banks and​ non-banks and can be used for purchases in any enterprise.

Part 1.) "Greeks have increased their holdings of euros in cash because they have great faith in the monetary system of​ Europe." This quote is__________ Part 2.) The reason that the Greeks held cash in euros is because they A. thought that Greece might exit the system and the older Greek currency would have less value. B. expected Greece to adopt a brand new currency. C. had great faith in the monetary system of Europe. D. thought that Greece might join the Italian state.

Part 1.) Not accurate part 2.) A.) thought that Greece might exit the system and the older Greek currency would have less value.

Banks are required by law to keep a fraction of their deposits as__________

Reserves

The portion of​ banks' deposits set aside in either vault cash or as deposits at the Federal Reserve. ▼ ​(2) The sources of funds for a​ bank, including deposits and​ owners' equity ​(3) Any additional reserves that a bank holds above required reserves. ​(4) The funds provided to a bank by its owners. ​(5) An account statement for a bank that shows the sources of its funds​ (liabilities) as well as the uses of its funds​ (assets). ​(6) The amount of their deposits that banks are required by law to hold as reserves. ​(7) The uses of the funds of a​ bank, including loans and reserves.

Reserves, liabilities, excess reserves, owners equity, balance sheet, required reserves, assets

Deposits in checking accounts are included in the definition of money because they are a very liquid asset. T or F

True

So much U.S. currency is in global circulation because it is a safe asset compared to assets denominated in foreign currency. T or F

True

During the Great​ Depression, banks held excess reserves because they were concerned that depositors might be more inclined to withdraw funds from their accounts. At one​ point, the Fed became concerned about the​ "excess" reserves and raised the reserve requirements for banks. a. Assuming that banks were holding excess reserves for precautionary​ purposes, would they continue to hold excess reserves even after reserve requirements were​ raised? Yes or no After the Fed raised the reserve​ requirement, the money supply would__________________

Yes decrease

Banks consider loans they make to be ▼ assets liabilities . If a customer brings in​ $2,000 to deposit into a checking​ account, it is ▼ an asset a liability for the bank. If a customer enters the bank and secures a​ $2,000 personal​ loan, it is ▼ an asset a liability for the bank.

assets, a liability, an asset

When reserves paid interest, banks_______________

could keep reserves rather than make loans

If you write a check from your checking account to your money market​ account, M1 will ________ and M2 will ____________

decrease, remain the same

If ​$1,000 is deposited into a checking account in a​ bank, then the money​ supply: A. increases by ​$1,000. B. decreases by ​$1,000. C. does not change. Your answer is correct. D. increases by more than ​$1,000. If the bank that received the ​$1,000 deposit keeps 10​% of it as reserves and loans out the​ remainder, then the money supply will increase by ​$900900. ​(Enter your response using an​ integer.) The money multiplier provides the maximum increase in checking account balances for any initial cash deposit. It is given by the​ ratio: A. 1Initial cash deposit. B. Initial cash depositReserve ratio. Your answer is not correct. C. Reserve ratioInitial cash deposit. D. 1Reserve ratio. This is the correct answer. ​Thus, if the reserve ratio is 10​%, then the money multiplier is 10.010.0. ​(Enter your response rounded to one decimal​ place.) If the reserve ratio is 10​% for all​ banks, banks hold no excess reserves and checking account balances increase by the full amount of all loans​ made, then the initial ​$1,000 deposit will result in a maximum increase in checking account balances throughout all of the banks of ​$2121 and increase the money supply by ​$2121. ​(Enter your responses using​ integers.)

does not change, 900, 1/ reserve ratio, 10, initial cash x 1/ reserve ratio=10,000, max increase - initial cash deposit =9000

The value of the money multiplier ▼ rosefell sharply around 2008.​ Thereafter, its value remained ▼ below 1above 1 until the end of 2017. Post​ 2018, its value came close to ▼ 11.50.5. This change in the series was because the Federal Reserve began paying interest on ▼ depositsreserves.

fell, below 1, 1, reserves