Econ Chapter 11

The Fed's policy decisions have an important influence on a. inflation in the long run and employment and production in the short run. b. inflation in the long run and employment and production in the long run. c. inflation in the short run and employment and production in the short run. d. inflation in the short run and employment and production in the long run.

a. inflation in the long run and employment and production in the short run.

When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. b. it buys Treasury securities, which decreases the money supply. c. it borrows money from member banks, which increases the money supply. d. it lends money to member banks, which decreases the money supply.

a. it buys Treasury securities, which increases the money supply.

The Fed increases reserves if it conducts open market a. purchases or auctions term credit. b. purchases but not if it auctions term credit c. sales or auctions term credit d. sales but not if it auctions term credit

a. purchases or auctions term credit.

The 2008 credit crunch occurred when banks reduced lending in response to a. the loss of asset value for mortgage backed securities and mortgage loans. b. having too little capital to satisfy capital requirements. c. an excess of bank capital. d. an increase in the required reserve ratio.

a. the loss of asset value for mortgage backed securities and mortgage loans.

Which of the following is included in M1 and M2? a. traveler's checks b. savings deposits c. money market mutual funds d. small time deposits

a. traveler's checks

Refer to Table 29-7. Assume the Fed's reserve requirement is 10 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? a. $37,800 b. $18,000 c. $2,000 d. $16,300

b. $18,000

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves? a. $15 million b. $19.5 million c. $25.5 million d. $0 million

b. $19.5 million

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement. a. It has $25 in reserves and $4,975 in loans. b. It has $250 in reserves and $4,750 in loans. c. It has $1,000 in reserves and $4,000 in loans. d. None of the above is correct.

b. It has $250 in reserves and $4,750 in loans.

Which of the following is a liability of a bank and an asset of its customers? a. deposits of its customers and loans to its customers b. deposits of its customers but not loans to its customers c. loans of its customers but not the deposits of its customers d. neither the deposits of its customers nor the loans to its customers

b. deposits of its customers but not loans to its customers

Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it a. has $10,000 of excess reserves. b. needs $10,000 more reserves to meet its reserve requirements. c. needs $20,000 more reserves to meet its reserve requirements. d. just meets its reserve requirement.

b. needs $10,000 more reserves to meet its reserve requirements.

The Fed wants to increase the quantity of funds available through the Term Auction Facility. The Fed sets the a. price of the loan, and money supply increases. b. quantity of borrowing, and money supply increases. c. price of the loan, and money supply decreases. d. quantity of borrowing, and money supply decreases.

b. quantity of borrowing, and money supply increases.

The discount rate is a. the rate at which public banks lend to other public banks. b. the rate at which the Fed lends to banks. c. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. d. the percentage of deposits banks hold as excess reserves.

b. the rate at which the Fed lends to banks.

The Fed can influence unemployment in a. the short run and in the long run. b. the short run, but not in the long run. c. the long run, but not in the short run. d. neither the short nor the long run.

b. the short run, but not in the long run.

If the public decides to hold less currency and more deposits in banks, bank reserves a. decrease and the money supply eventually decreases. b. decrease but the money supply does not change. c. increase and the money supply eventually increases. d. increase but the money supply does not change.

c. increase and the money supply eventually increases.

If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $1,000, a. it must increase its required reserves by more than $150. b. its total reserves initially increase by $120. c. it will be able to make new loans up to a maximum of $880. d. None of the above is correct.

c. it will be able to make new loans up to a maximum of $880.

A central bank's setting (or altering) of the money supply is known as a. open-market operation. b. interest rate policy. c. monetary policy. d. employment policy.

c. monetary policy.

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds, a. reserves and the money supply increase by less than $100 million. b. reserves increase by $100 million and the money supply increases by $100 million. c. reserves increase by $100 million and the money supply increases by more than $100 million. d. both reserves and the money supply increase by more than $100 million.

c. reserves increase by $100 million and the money supply increases by more than $100 million.

Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase? a. $10,833.33. b. $13,000. c. $8,333.33. d. $10,000.

d. $10,000.

Which of the following is a store of value? a. currency b. U.S. government bonds c. fine art d. All of the above are correct.

d. All of the above are correct.

The Fed decreases reserves if it conducts open market a. purchases or auctions term credit. b. purchases but not if it auctions term credit c. sales or auctions term credit d. sales but not if it auctions term credit

d. sales but not if it auctions term credit

When conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply.

d. sells government bonds, and in so doing decreases the money supply.

Refer to Table 29-9. Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase? a. $190,000 b. $200,000 c. $240,000 d. None of the above are correct.

b. $200,000

Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement? a. 8.1 percent b. 11.0 percent c. 12.4 percent d. 89.0 percent

b. 11.0 percent

Refer to Table 29-6. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold? a. $500 b. $250 c. $2,000 d. $3,600

a. $500

Lisa deposits $750 with her bank. The T-account for her bank account is now: Assets Liabilities Reserves $750 Deposits $750 What is the change in the money supply? a. No change, and Lisa's bank is an example of 100-percent-reserve banking b. No change, and Lisa's bank is an example of fractional-reserve banking c. $750, and Lisa's bank is an example of 100-percent-reserve banking d. $750, and Lisa's bank is an example of fractional-reserve banking

a. No change, and Lisa's bank is an example of 100-percent-reserve banking

Which list ranks assets from most to least liquid? a. currency, demand deposits, money market mutual funds b. currency, money market mutual funds, demand deposits c. money market mutual funds, demand deposits, currency d. demand deposits, money market mutual funds, currency

a. currency, demand deposits, money market mutual funds

In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have a. increased both the money multiplier and the money supply. b. decreased both the money multiplier and the money supply. c. increased the money multiplier and decreased the money supply. d. decreased the money multiplier and increased the money supply.

a. increased both the money multiplier and the money supply.

If a bank desires to hold no excess reserves, the reserve requirement is 8 percent, and it receives a new deposit of $500, a. its required reserves increase by $40. b. its total reserves initially increase by $460. c. it will be able to make a new loan of up to $492. d. All of the above are correct.

a. its required reserves increase by $40.

When colonists in Virginia used tobacco as money, their money a. was commodity money. b. had no intrinsic value. c. was fiat money. d. had no store of value.

a. was commodity money.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. None of the above is correct.

b. It has $800 in reserves and $9,200 in loans.

An open-market purchase a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

Which of the following is not included in M1? a. a $5 bill in your wallet b. $100 in your checking account c. $500 in your savings account d. All of the above are included in M1.

c. $500 in your savings account

Which of the following does the Federal Reserve not do? a. It controls the supply of money. b. It acts as a lender of last resort to banks. c. It makes loans to any qualified business that requests one. d. It tries to ensure the health of the banking system.

c. It makes loans to any qualified business that requests one.

Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings? a. New York is the traditional financial center of the U.S. economy. b. All Fed purchases and sales of bonds go through the New York Fed's trading desk. c. New York has higher population than other cities in the U.S. d. All of the above are reasons.

c. New York has higher population than other cities in the U.S.

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do? a. sell bonds to increase reserves b. sell bonds to decrease reserves c. buy bonds to increase reserves d. buy bonds to decrease reserves

c. buy bonds to increase reserves

The Fed's primary tool to change the money supply is a. changing the interest rate on reserves. b. changing the reserve requirement. c. conducting open market operations. d. redeeming Federal Reserve notes.

c. conducting open market operations.

The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept a. cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. b. American dollars in exchange for goods and services, because rubles were extremely hard to come by. c. goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. d. All of the above are correct.

c. goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money.

The Fed can directly protect a bank during a bank run by a. increasing reserve requirements. b. selling government bonds to the bank. c. lending reserves to the bank. d. doing any of the above.

c. lending reserves to the bank.

Which of the following is NOT an example of monetary policy? a. The Federal Open Market Committee decides to sell bonds. b. The Federal Open Market Committee decides to buy bonds. c. The Federal Reserve reduces the reserve requirements. d. The Federal Reserve facilitates bank transactions by clearing checks.

d. The Federal Reserve facilitates bank transactions by clearing checks.

Which of the following is an example of commodity money? a. Rare baseball cards b. Euros c. Stocks d. The gold standard

d. The gold standard