ECON Final

which of the following is an entity of the Federal Reserve System?

The FOMC

Bank ________ is/are listed on the liability side of the bank's balance sheet.

capital

High-powered money minus reserves equals

currency in circulation

The monetary base minus reserves equals

currency in circulation

When the Federal Reserve extends a discount loan to a bank the monetary base ______ and reserves _____

increases; increase

When Jane Brown writes a $100 check to her nephew and he cashes the check, Ms. Brown's bank ________ assets of $100 and ________ liabilities of $100.

loses; loses

Open market sales ________ reserves and the monetary base thereby ________ the money supply.

lower; lowering

Purchases and sales of government securities by the Federal Reserve are called

open market operations

Moral hazard is an important concern of insurance arrangements because the existence of insurance

provides increased incentives for risk taking

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

$100

If reserves in the banking system increase by $100, then checkable deposits will increase by $667 in the simple model of deposit creation when the required reserve ratio is

.15

If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is

.25

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the excess reserves - checkable deposits ratio is

0.001

If the required reserve ratio is 15 percent, the simple deposit multiplier is

6.67

There are ______ members of the Board of Governors of the Federal Reserve System

7

Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a _____ expansion of deposits than the simple model predicts.

currency; smaller

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ______ in the reserve requirement ______ the demand for reserves, lowering the federal funds interest rate, everything else held constant.

decline; decreases

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a _______ in the reserve requirement decreases the demand for reserves, ______the federal funds interest rate, everything else held constant.

decline; lowering

All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system

decrease by $100

When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking system

decrease by $100

When the Federal Reserve sells a government bond to a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decreases, decreases

When banks borrow money from the Federal Reserve, these funds are called

discount loans

The two types of open market operations are

dynamic; defensive

There are two types of open market operations: ________ open market operations are intended to change the level of reserves and the monetary base, and ________ open market operations are intended to offset movements in other factors that affect the monetary base.

dynamic; defensive

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has _____ million dollars on deposit with the Federal Reserve.

eight

When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system

increase by $100

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

increase by $100

Assuming initially that rr = 15%, c-d = 40%, and e r = 5%, a decrease in e r to 0% causes the M1 money multiplier to ________, everything else held constant.

increase from 2.33 to 2.55

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement _____ the _____ for reserves and causes the federal funds interest rate to rise, everything else held constant.

increases; demand

When the Federal Reserve purchases a government bond from a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.

increases; increases

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement _____the demand of reserves and causes the federal funds interest rate to ______, everything else held constant.

increases; rise

Banks may borrow from or lend to another bank in the Federal Funds market. A loan of excess reserves from one bank to another bank is recorded as a(n) ________ for the borrowing bank and a(n) ________ for the lending bank.

liability; asset

Bank's make their profits primarily by issuing

loans

High - powered money minus currency in circulation equals

reserves

The monetary base minus currency in circulation equals

reserves

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a _____ in the reserve requirement increases the demand for reserves, _____ the federal funds interest rate, everything else held constant.

rise, raising

Although the FDIC was created to prevent bank failures, its existence encourages banks to

take too much risk

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves, then, in the bank's final balance sheet,

the assets at the bank increase by $1 million.

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then

the liabilities of Citibank increase by $10

Bank capital is equal to ________ minus ________.

total assets - total liabilities