BNAD301 - Ch. 14

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The effects of large increases in monetary base during the Great Recession were nullified by...

rise in excess reserves ratio

As financial​ intermediaries, banks:

accept deposits and make loans

When the Federal Reserve sells a government security on the open​ market, it is called...

an open market sale

Two primary assets of the Federal Reserve System​ are:

government securities and loans to commercial banks.

The monetary base is known as...

high-powered money

When the Fed wants to raise reserves in the banking​ system, it will...

purchase government bonds

Which of the following players can affect the money supply by issuing loans to financial institutions​?

the central bank

The Fed buys​ $100 million of bonds from the public and also lowers the reserve requirement r. What will happen to the money​ supply?

the money supply will increase

The currency that is physically held by banks is known as...

vault cash

The First National Bank receives an extra​ $100 of reserves but decides not to lend any of these reserves. How much deposit creation takes place for the entire banking​ system?

$0

If the required reserve ratio on checkable deposits increases to​ 20%, how much multiple deposit creation will take place when reserves are increased by​ $100? Assume that banks do not hold any excess reserves and the​ public's holdings of currency do not change.

$500

Reserves​ are:

-assets for banks. -deposits at the Fed plus vault cash. -liabilities for the Fed.

The monetary base is affected​ by:

-the Federal Reserve through open market operations.th -the Federal Reserve through its extension of discount loans. -float and Treasury deposits at the Federal Reserve.

The balance sheet of a hypothetical​ bank, ABC​ Bank, is shown below. The reserve requirement is​ 10%. ABC Bank Assets Vault Cash ​ $90 Deposits at the Fed 10 Loans 800 Liabilities Deposits 900 In the balance sheet​ above, the excess reserve ratio of ABC bank is​ _________ and its excess reserves are​ _________.

0.011; $10

The ___ lists the changes that occur in balance sheet​ items, starting from the initial balance sheet position.

T account

The money multiplier declined significantly during the period​ 1930-1933 and also during the recent financial crisis of​ 2008-2010. Yet the M1 money supply decreased by​ 25% in the Depression period but increased by more than​ 20% during the recent financial crisis. What explains the difference in​ outcomes?

There was a significant increase in the monetary base during the recent financial crisis.

When the nonbank public decides to hold more ​currency, then we expect...

a fall in the money supply

Which of the following players can affect the money supply by its holdings of excess reserves?

banks

By​ definition, when the Fed conducts an open market​ purchase, it​ is:

buying & selling bonds

The Federal Reserve System is the​ ___________ for the United​ States, which is defined as the government agency responsible for​ __________.

central​ bank; the conduct of monetary policy

The monetary base is comprised​ of:

currency in circulation & reserves

The interest rate charged to banks that borrow funds from the Fed is known as​ the:

discount rate

the interest rate charged for borrowed reserves is known as...

discount rate

The money supply is expected to rise when a decrease in ___ is observed

excess reserves

reserves that the banks choose to hold in addition to the amount required is known as...

excess reserves

A purchase of government bonds from the public by the Federal Reserve​ Bank:

increases the monetary base directly and may increase reserves.

____ is comprised of currency in circulation plus total reserves.

monetary base

The ratio of the money supply to the monetary base is​ called...

money multiplier

Predict what will happen to the money supply if there is a sharp rise in the currency ratio

money supply falls

An open market purchase has ____ when the proceeds from the sale are kept in currency.

no effect

The Federal​ Reserve's act of controlling the monetary base through its purchases or sales of securities is known as...

open market operation

When the Fed wants to reduce reserves in the banking​ system, it will...

sell government bonds

The M2 money multiplier is​ ___________ the M1 multiplier.

substantially larger

The players in the money supply process include all of the following except​:

the Treasury

A bank has a required reserve ratio of​ 10%. If the bank has deposits of​ $100,000 and is holding​ $12,000 in​ reserves:

the bank is holding​ $2,000 in excess reserves.


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