Test 4 Questions (3)

When the Fed wants to lower the Federal funds rate, it: Question 10 options: A) Increases the reserve ratio B) Sells bonds to banks and the public C) Buys bonds from banks and the public D) Increases the discount rate

Buys bonds from banks and the public

What function is money serving when you deposit money in a savings account? Question 19 options: A) A unit of account B) A store of value C) A medium of exchange D) A checkable deposit

A store of value

The Federal backing for money in the United States comes from: Question 20 options: A) Providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation B) Pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency C) Controlling the money supply in order to keep the value of money relatively stable over time D) Protecting checkable deposits at financial institutions with deposit guarantees

Controlling the money supply in order to keep the value of money relatively stable over time

A decrease in the interest rate will cause a(n): Question 8 options: A) Increase in the transactions demand for money B) Increase in the amount of money held as an asset C) Decrease in the transactions demand for money D) Decrease in the amount of money held as an asset

Increase in the amount of money held as an asset NOT: Increase in the transactions demand for money

When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market: Question 11 options: A) Decreases and the Federal funds rate decreases B) Decreases and the Federal funds rate increases C) Increases and the Federal funds rate increases D) Increases and the Federal funds rate decreases

Increases and the Federal funds rate decreases

The Federal Reserve alters the amount of the nation's money supply by: Question 4 options: A) Minting coins and printing currency that is distributed to banks B) Manipulating the size of excess reserves held by commercial banks C) Controlling the assets of the nation's largest banks D) Reducing the liabilities of the banking system

Manipulating the size of excess reserves held by commercial banks

Money eliminates the need for a coincidence of wants in trading primarily through its role as a: Question 30 options: A) Medium of deferred payment B) Medium of exchange C) Unit of account D) Store of value

Medium of exchange

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks? Question 14 options: A) Issuing currency B) Open-market operations C) Required reserve ratio D) Check collection

Open-market operations

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the: Question 25 options: A) Prime interest rate B) Real interest rate C) Term auction rate D) Discount rate

Prime interest rate

The Federal Reserve System performs the following functions, except: Question 13 options: A) Providing banking services to the general public B) Lending money to banks and thrifts C) Providing financial services to the Federal government D) Issuing the paper currency in the economy

Providing banking services to the general public

Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate? Question 16 options: A) Buy government securities in the open market and increase taxes B) Buy government securities in the open market and decrease taxes C) Sell government securities in the open market and decrease government spending D) Sell government securities in the open market and increase government spending

Sell government securities in the open market and decrease government spending

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to: Question 5 options: A) Reduce inflation B) Stimulate the economy C) Improve the savings rate D) Save the banking industry

Stimulate the economy

Which of the following statements is correct? Question 3 options: A) Excess reserves may be found by subtracting actual from required reserves B) Commercial banks reduce the supply of money when they purchase government bonds from the public C) The supply of money declines when the public purchases securities from commercial banks D) Commercial bank reserves are a liability to commercial banks but an asset to Federal Reserve Banks

The supply of money declines when the public purchases securities from commercial banks NOT: Excess reserves may be found by subtracting actual from required reserves

Which of the following is not true about the Federal Reserve banks? Question 2 options: A) They are privately owned but government-controlled B) They serve as bankers' banks C) They compete with commercial banks in their basic functions D) Unlike other banks, they are not motivated by profits

They compete with commercial banks in their basic functions

The lending ability of commercial banks increases when the: Question 6 options: A) Fed buys securities in the open market B) Reserve ratio is raised C) Treasury collects tax revenues D) Fed sells securities in the open market

Fed buys securities in the open market

The fundamental objective of monetary policy is to assist the economy in achieving: Question 1 options: A) A full-employment, noninflationary level of total output B) A rapid pace of economic growth C) A money supply which is based on the gold standard D) A balanced-budget consistent with full-employment

A full-employment, noninflationary level of total output

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? Question 12 options: A) Buying government securities and raising the discount rate B) Selling government securities and raising the discount rate C) Buying government securities and lowering the reserve ratio D) Selling government securities and raising the reserve ratio

Buying government securities and raising the discount rate NOT: Buying government securities and lowering the reserve ratio

A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." This headline indicates that the Federal Reserve is most likely trying to: Question 28 options: A) Ease monetary policy B) Reduce inflation in the economy C) Raise interest rates D) Tighten monetary policy

Ease monetary policy

Which of the following is considered an advantage of monetary policy compared to fiscal policy? Question 27 options: A) Its relative isolation from political pressure B) It does not have any of the time lags of fiscal policy C) Its cyclical asymmetry D) It is blunter and more politically obvious than fiscal policy

Its relative isolation from political pressure

The Federal Reserve can increase aggregate demand by: Question 22 options: A) Reducing the discount rate B) Reducing the money supply C) Raising the reserve requirement D) Selling government securities in the open market

Reducing the discount rate

Refer to the table. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are: Checkable Deposits Reserve Requirement $7.8 - $48.3 Million 3% Over 48.3 Million 10% Noncheckable personal savings and time deposits 0% Question 24 options: A) $1.2 million B) $30 million C) $1.8 million D) $3 million

$1.2 million

What is one significant characteristic of fractional reserve banking? Question 29 options: A) Banks hold a fraction of their loans in reserve B) Banks use deposit insurance for loans to customers C) Bank loans will be equal to the amount of gold on deposit D) Banks can create money through lending their reserves

Banks can create money through lending their reserves

If real GDP is 2% below potential GDP, and the inflation rate is 1%, then according to the Taylor rule, the Fed should make the real federal funds rate: Question 23 options: A) Decrease by 3% B) Increase by 3% C) Decrease by 1% D) Decrease by 1.5%

Decrease by 1.5%

Which of the following is a monetary policy intended to rein in inflation? Question 15 options: A) Reduce the interest paid on banks' reserves B) Reduce interest rates to increase investment spending C) Decrease the money supply to shift the aggregate demand curve leftward D) Increase the money supply to shift the aggregate demand curve rightward

Decrease the money supply to shift the aggregate demand curve leftward

The ZIRP (zero interest rate policy) of the Fed led to the so-called zero lower bound problem, which refers to the problem of: Question 9 options: A) Having a very low level of employment with zero new jobs created B) Interest rates that can't go any lower, i.e. they cannot be driven down below zero C) Zero real-GDP growth due to very weak aggregate demand D) Huge budget deficits leaving the government no more ability to spend

Interest rates that can't go any lower, i.e. they cannot be driven down below zero

United States currency has value primarily because it: Question 26 options: A) Is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the Federal government B) Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services C) Is generally acceptable in exchange for goods or services, is backed by the gold and silver of the Federal government, and facilitates trade D) Facilitates trade, is legal tender, and permits the use of credit cards and near-monies

Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

If the Fed sells government securities to the general public in the open market: Question 7 options: A) The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed B) The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed C) The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed D) The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed

The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a: Question 18 options: A) Legal tender B) Unit of account C) Store of value D) Medium of exchange

Unit of account

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are: Question 17 options: A) $50,000 B) $1 million C) $100,000 D) $900,000

$100,000

Checkable deposits are included in: Question 21 options: A) M2 but not in M1 B) neither M1 nor M2 C) both M1 and M2 D) M1 but not in M2

both M1 and M2 NOT: M1 but not in M2