Chapter 14 -Money, Banks and the Federal Reserve System
required reserves
The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is ________
M1
The sum of all currency in the hands of the public, checkable deposits and traveler's checks is the official definition of ________
quantity theory of money
The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the __________.
V = (P x Y) / M
Velocity of circulation is defined as __________.
low, high
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be _______
When interest rates are high
When is the opportunity cost of holding money higher?
there is movement down a stationary money demand curve
When the interest rate decreases, __________.
Prices are quoted in terms of money.
When we say that money serves as a unit of account, we mean that:
each additional dollar of reserves creates $5 of deposits.
Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that
not part of the money supply.
Credit cards are:
growth of the money supply
In the long run, the rate of inflation is determined by the __________.
loans are the largest asset
On the balance sheet of commercials banks __________.
$1.5 billion
Suppose that velocity of circulation is 3 and the quantity of money is $500 million. According to the quantity theory of money, GDP equals ____
Seven, 14-year terms, President
The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate
open market operations
The Fed conducts monetary policy primarily through __________.
the central bank of the United States
The Federal Reserve System is __________.
equation of exchange
The __________ links the quantity of money, velocity of circulation, price level, and real GDP
Monetary policy
The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________
M x V = P x Q
The equation of exchange is:
12
How many Federal Reserve districts are there?
the money demand curve shifts to the right.
If real GDP increases:
something less than 5% annual inflation
If the Federal Reserve increases the money supply at 5% a year, in the long run there will be ______
buys securities from the public
To increase the money supply, the Fed __________
lends to banks that are short of reserves and cannot find any other source of funds
When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed _________
The Federal Open Market Committee
Which body of the Federal Reserve System sets the majority of U.S. monetary policy?
If the money supply grows at a faster rate than real GDP, there will be inflation.
Which of these predictions can be made using the growth rates associated with the equation of exchange?
An increase in real GDP
Which of these will shift the money demand curve to the right?
