Ch 14-15 Macro Test
they can be readily used in purchasing goods and paying debts
Checkable deposits are classified as money because
both M1 and M2
Checkable deposits are included in
debts of commercial banks and savings institutions
Checkable deposits re
Federal Reseve Note
A $20 bill is a
unit of account
A $80 price tag on a sweater in a department store window is an example of money functioning as a
performs the functions of money
A checking account balance has money because it
increase the interest rate from 4 percent to 6 percent
All of the numbers are in billions of dollars. IF the interest rate is 4 percent and the Fed desires to reduce or eliminate demand-pull inflation, it should
a means of payment
An asset's liquidity refers to its ability to be
provide facilities by which commercial banks and thrift institutions may collect on checks
An important faction of the Federal Reserve System is to
not money, as officially defined
Credit cards are
the purchase of government bonds in the open market and an increase in government spending
Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment
the purchase of government bonds in the open market and an increase in government spending
Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?
M1 and M2 money supplies will not change
Assuming no other changes, if balances in money market mutual fund accounts increase. by $50 billion and small denominated time deposits decrease by $59 billion, the
M1 money supply will decline and M2 money supply will remain unchanged
Assuming no other changes, if checkable deposits decrease by $40 billion and balances in the money market mutual funds increase by $40 billion, the
because people and businesses will not want to accept it in transactions
During periods of rapid inflation, money may cease to work as a medium of exchange
Whatever amount of money is lent by banks to the Fed at the IORB rate is money that sits in the Feds vaults rather than circulating through the economy. So higher IORB rates will decrease the money supply, while lowering the rate will incrase the money supply.
Explain how a change in the interest rate on reserve balances (IORB) affects the money supply
$V= 1 / P
IF P equals the price level expressed as an index number and $V equals the value of the dollar, then
True
IN order to stimulate the economy and reduce unemployment, the Fed would traditionally set a lower target for the federal funds rate
increase the interest rate and reduce the price level, assuming it is flexible downward
If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will
the securities go into the Fed's vault, and the fed creates new money to pay for them
If the fed buys government securities in the open market,
False
If the monetary authorities wished to rein in inflation, they would buy government securities in the open market
will fall by 20 percent
If the price index value rises from 200 to 250, the purchasing power value of the dollar
store of value
If you place a part of your summer earnings in a savings account, you are using money primarily as a
the Fed borrows money from nonbank financial firms
In a reverse repo transaction,
True
In order to stimulate the economy and reduce unemployment, the Fed would traditionally set a lower target for the federal funds rate.
coins, paper money, checkable deposits, and savings deposits
In the US, the money supply (M1) includes
an increase in the money supply will decrease the rate of interest
In the cause-effect chain linking changes in Fed policy and the resulting changes in aggregate demand and real GDP in the economy,
no change in the one supply because the $200 decreases 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
25 percent
The purchasing power of the dollar would fall by 20 percent if the price index rises by
increase interest rates to rein in spending
The purpose of a restrictive monetary policy is to
not a component of M1 or M2
Time deposits of $100,000 or more are
their face value is greater than their intrinsic value
To say that coins are "token money" means that
they are privately owned but managed in the public interest
To say that the Federal Reserve Banks are quasi public banks means that
is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services
United States currency has value primarily because it
the U.S. governement's ability to keep the value of money relatively stable
What backs the money supply of the United States?
a medium of
What function is money serving when you use it when you go shopping
$100
What is the desired level of investment spending in this economy if it is to achieve a noninflationary, full-employment level of real GDP?
a way to keep wealth in a readily spendable form of future use
When economists say that money serves as a store of value, they mean that it is
it is a means of payment by law
When paper money is designated as legal tender, it means that
True
When the Fed raises the interest rate on reserve balances, it discourages bank lending.
nonbanks that operate in the money market
When the Fed undertakes "reverse repo" transactions withe nonbank financial firms, it is trying to influence behavior of the
"sell then buy back" a US Treasury
When the Fed undertakes a "reverse repo" transaction with a nonbank financial firm, this is in essence an agreement for the fed to
false
When the fed sells government securities in the open market, its intent is to try to increase aggregate demand
price index is rising and the purchasing power of money is falling
Where there is inflation in the economy, it implies that the
Federal Open Market Committee
Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy
raising the overnight reverse repo rate
Which of the following Fed actions will decrease the money supply?
reduce the interest paid on reserve balances held a the Fed
Which of the following actions by the fed will most likely increase bank lending?
a decrease in the money supply will raise the interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation
Which of the following best describes the cause-effect chain of a restrictive monetary policy
U.S Treasury
Which of the following institutions does not provide checkable-deposit services to the general public?
They compete with commercial banks in their basic functions
Which of the following is NOT true about the Federal Reserve Banks?
They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare
Which of the following statements best describes the 12 Federal Reserve Banks?
checkable deposits
Which of the following would be considered to be the most liquid
the discount rate
Which policy tool of the Federal Reserve relies own banks borrowing to be effective?
not part of the nation's money supply
coins held in commercial bank vaults are
the demand for money increases
if the fed wants to maintain current interest rates, it would buy government bonds in the open market when
13 percent
if the pricing index rises from 100 to 115, then the purchasing power of the dollar will fall by about
a medium of exchange
if you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
decrease net exports and decrease aggregate demand
other things equal, an appreciation of the U.S. dollar would
individual shares in money market mutual funds
the M2 money supply includes
a more interesting investment for the bank than any money market opportunity the pays less than the IORB
Raising the interest on reserve balances has the effect of making it
2,3,6
Refer to the given list of assets. The M1 definition of money includes items
$2.00
Refer to the given table. The value of the dollar in year 4 is
the less independent the central bank, the higher the annual rate of inflation
Research suggests that
are less than $100,000
Small denominated time deposits, by definition
the more independent the central bank, the lower the average annual rate of inflation
Studies show that
sell government securities in the open market, do reverse repos, and cut government spending
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?
They would address this by increasing the money supply. They do this by negative forward guidance, a lower federal funds target range, reductions in IORB and ON RRP, and or quantitive easing.
Suppose the economy is experiencing a recession and high unemployment. How would an expansionary monetary policy address this problem?
7
The Board of Governors of the Federal Reserve has ___ members.
commercial banks and thrifts
The Federal Deposit Insurance Corporation (FDIC) insures deposits in
setting the Fed's monetary policy and directing the purchase and sale of government securities
The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for
Board of Governors and the 12 Federal Reserve Banks
The Federal Reserve System consists of which of the following?
independent agent of government
The Federal Reserve System is an
central bank
The Federal Reserve System of the United states is the country's
checkable deposits, currency in circulation, and savings accounts
The M1 money supply is composed of
individual shares in money market mutual funds
The M2 money supply includes
$3,560
The accompanying table contains hypothetical data for an economy, The size of the M1 money supply is
$4,380
The accompanying table contains hypothetical data for an economy. The size of the M2 money supply is
is larger than the amount reported as M1
The amount of money reported as M2
generally accepted as a medium of exchange
The basic requirement for an item to function as money is that it be
Board of Governors of the Federal Reserve
The central authority of the U.S. banking system is the
Federal Reserve
The conduct of monetary policy in the United Stats is the main responsibility of the
rate at which the Federal Reserve Banks lend to banks
The discount rate is the interest
False
The discount rate is the interest rate at which banks lend to their best corporate customers.
increase the money supply from $75 to $150 billion
The economy is at point X on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary, full-employment level of real GDP
make no change in monetary policy
The economy is at point Y on the investment demand curve. Given these conditions, what policy shoal the Fed pursue to achieve a non-inflamatory, full-employment level of real GDP
make no change in the interest rate
The interest rate and the level of government spending in the economy are at point C on the investment demand curve. To achieve the long-run goal of a noninflationary, full-employment output qf in the economy, the Fed should
decrease aggregate demand by increasing the interest rate from 4 to 6 percent
The interest rate and the level of investment spending in the economy at point D on the investment demand curve. To achieve the long-run goal of a noninflationary, full-employment output qf in the economy, the fed should try to
the Federal Reserve buys government securities in the open market
The level of GDP, ceteris paribus, will tend to increase when
buying government securities and raising the discount rate
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 acheive that directive?
are appointed for 14-year terms
The members of the Federal Reserve Board
less liquid than the M1 components of M2
The near-money components of M2 are
a debt of the Federal Reserve System
The paper money, or currency, in the US essentially represents
hold even more in reserves in its reserve account at the Fed, thereby reducing the amount it is willing to lend
Big Bucks Bank currently holds $20 million in reserve balances. If the fed increases the rate of interest on reserve balances held at the Fed, we would expect Big Bucks Bank to
Ig
Monetary policy is expected to have its greatest impact on
escape the complications of barter
One major advantage of money serving as a medium of exchange is that it allows society to
increase consumption and increase aggregate demand
Other things equal, a reduction in income taxes will
reduce aggregate supply and reduce real output
Other things equal, an increase in input prices will
discount rate
Projecting that it temporarily may not be able to fulfill every request from depositors wanting to withdraw funds in the coming days, the Bank of Beano decides to borrow money from the Federal reserve Bank in its district. The interest rate on the loan is called
medium of exchange
Purchasing groceries using a debit card best exemplifies money serving as a