chpt 15 - federal reserve
An increase in money growth will cause inflation to increase in
both the short run and the long run
If the Fed sells $200 million in government bonds, the total money supply will
decrease by more than $200 million
Which of the following assets would you classify as being most liquid?
demand deposits
When banks borrow directly from the Fed, the interest rate on those loans is the
discount rate
Moral hazard occurs when
financial institutions take on too much risk because they are insured
An increase in the banking system's willingness to lend will cause the money multiplier to
increase.
When the Federal Reserve makes an open market purchase, the reserves of the banking system will
increase.
The Federal Reserve acquires its exclusive powers through its ability to
issue money
The amount by which the money supply expands with each additional dollar in reserves is the
money multiplier
An increase in money growth will cause the economy's AD curve to
shift outward
The Fed has the greatest influence over ____ interest rates. Investment spending depends on _____ interest rates
short-term; long-term
The Federal Reserve can influence the economy by shifting
the AD curve
What is the overnight lending rate from one bank to another?
the Federal Funds rate
When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on
the Federal Funds rate
Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change?
$1.6 million
Table: Statistics for a Small Economy Cash held by public 7 mil Small-time deposits 30 mil Money market mutual funds 18 mil Checkable deposits 36 mil Currency & total reserves at the Fed 12 mil Large-time deposits 20 mil Demand deposits 14 mil Using only the information provided, M2 in this country amounts to
$105 million
Table: Statistics for a Small Economy Cash held by public 7 mil Small-time deposits 30 mil Money market mutual funds 18 mil Checkable deposits 36 mil Currency & total reserves at the Fed 12 mil Large-time deposits 20 mil Demand deposits 14 mil Using only the information provided, the monetary base amounts to
$12 million
The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus
they are somewhat insulated from the political process.
What is the purpose of the Fed's structure?
to keep the power of the Fed dispersed
The reserve ratio is the ratio of bank reserves to
bank deposits
How many regional banks comprise the Federal Reserve System?
12
Bank A has $100 million in deposits, $15 million in required reserves, and $85 million in loans. Bank A's reserve ratio is
15 percent
Table: Statistics for a Small Economy Cash held by public 7 mil Small-time deposits 30 mil Money market mutual funds 18 mil Checkable deposits 36 mil Currency & total reserves at the Fed 12 mil Large-time deposits 20 mil Demand deposits 14 mil Using only the information provided, M1 in this country amounts to
43 million
Why are debit cards not listed as money
Debit cards draw on checkable deposits, which are already counted as money
The Federal Reserve is the
Each of these answers is correct. government's bank. regulator of bank safety. central bank for the United States.
What was the rationale for the Fed lending billions of dollars to the insurance company American International Group (AIG)?
The money AIG owed to banks posed a systemic risk
Which of the following is NOT a function of the Federal Reserve?
providing loans to small businesses
Commercial banks make profits primarily through
the interest differential between deposits and loans
The Fed has the most control over
the monetary base
Systemic risk is
the risk of contagion that occurs when a failing financial institution owes significant sums of money to other financial institutions