Econ Final Exam
If the required reserve ratio is 0.2 in the federal buys $3000 of US government securities, the maximum amount by which the money supply can increase is________
$15,000
If r is the required reserve ratio, which of the following is the simple money multiplier?
1/r
If an increase in $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $100 million, the required reserve ratio would be_______
10 percent
If the simple money multiplier is 10, the required reserve ratio must be equal to_____
10%
If a financial institution pays an interest of 1% to savers and charges borrowers 3%, they earn a profit of_______
2%
If the required reserve ratio is 5 percent, the simple money multiplier must be equal to____
20
If an increase in 10$ million in excess reserves increases checkable deposits in the banking system by a maximum of $50 million, the required reserve ratio would be_________
20%
If the simple money multiplier is 20, the required reserve ratio must be equal to______
5 percent
Raising the discount rate is______
A contractionary policy on the part of the Fed, because it raises the commercial banks cost of borrowing from it
Which of the following changes will shift the money demand curve leftward?
A decrease in real GDP
Which of the following is an example of an expansionary monetary policy?
A reduction in the required reserve ratio
Financial institutions_______
Accumulate funds from savers and lend them to borrowers
Which of the following is an example of a contractionary monetary policy m?
An increase in the discount rate
The FDIC insures deposits in_______
Any banking institution that purchases FDIC insurance
The members of the board of governors of the fed are_____
Appointed by the president with the approval of the senate
Banks act as financial intermediaries by_____
Attracting deposits from savers to lend to borrowers
The earliest type of exchange involved_______
Barter
The federal reserve system has the power to_______
Buy and sell federal government securities
To increase the money supply, the Fed might:
Buy bonds in the open market
Bank deposits that allow the account owner to draw down an account with a check or a debit card are called
Checkable deposits
The M1 money supply consists of______
Coins and currency held by the nonbank public, checkable deposits, and travelers checks
Which of the following was the earliest type of money?
Commodity money
_________ institutions obtain funds primarily by accepting customer deposits.
Depository
The Fed earns revenue from______
Discount lending and other services it provides to banks
Lowering the discount rate_____
Encourages banks to borrow from the Fed so they can more easily accommodate their customers needs for loans
The simple money multiplier______
Equals the reciprocal of the required reserve ratio
The law that established the federal reserve system is the______
Federal reserve act of 1913
Federal reserve notes are________
Flat money
Compared to M1, M2 is nearly_______
Four times larger
A lender of last resort is a financial institution that is willing and able to lend to_______
Fractional reserve system banks experiencing runs on their deposits
________ were among the first bankers.
Goldsmiths
Which of the following is not performed by the Fed?
Holding deposits of households and firms
The demand for money will be high in an economy experiencing________
Hyperinflation
Which of the following statements is true of a barter system?
In a barter system economy, there are as many different rates of exchange as there are pairs of goods to trade.
Which of the following statements is true of a barter system?
In a barter system, an individual offers one good or service to get another good or service
Identify the statement that is true of a barter system.
In a barter system, trade will only occur if there is a double coincidence of wants
If the required reserve ratio is 10 percent and the Fed buys a $1,000 security from a depository institution, the money supply______
Increases by $10,000
The opportunity cost of holding money is measured by the ______
Interest rate
Other things constant, the quantity of money demanded varies________
Inversely with the market interest rate
Which of the following is true of M1?
It is only a fraction of M2
Which of the following is correct regarding the discount rate?
It is the interest rate at which depository institutions can borrow from the federal reserve
Money that is acceptable because the government requires that it be excepted in payment of debt is______
Legal tender
Which of the following identities describes the equation of exchange?
M x P = P x Y
The narrow definition of money is _______
M1
M2 consists of______
M1 plus savings accounts, small-time deposits, money market mutual funds, and miscellaneous near-monies
Am important function of commercial banks is to_____.
Make loans
Which of the following is not an activity of the Fed?
Making loans to the public
The unit of account function of money______
Means that money is used to measure the value of all goods
The demand for money is based primarily on money's Rolfe as a______
Medium of exchange
To maximize profit, a bank will_______
Minimize excess reserves
Token money is____.
Money whose face value exceeds its production cost
If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, the. The bank can lend:
No more than $4,800
The buying or selling of US government bonds in the open market is called______
Open-market operations
The primary tool the Fed uses to control the money supply today is______
Open-market operations
Which of the following statements is true of open-market operations?
Open-market operations involve the Fed's purchase and sale of government securities
Barter is the direct exchange of goods and services for_______
Other goods and services
Which of the following is not a depository institution?
Pension fund
The demand for money in an economy is high when the ________
Price level is high
The least liquid of the assets listed below is_______
Real estate
If the required reserve ratio is 20% and a bank has $100,000 in checkable deposits, then it's_____
Required reserves are $20,000
Suppose the first national bank acquires $500,000 in new deposit in the required reserve ratio is 12 percent. Which of the following is true?
Required reserves on the new deposits are $60,000
Each member of the board of governors of the Fed______
Serves one nonrenewable term
The three important functions of money are_____
Serving as a medium of exchange, a unit of account, and a store of value
The board of governors of the fed consists of______
Seven members appointed by the president
Commodity money is something________
That has an intrinsic value
The velocity of money is defined as______
The average number of times per year each dollar is used to purchase final goods and services
If the quantity of money supplied exceeds the quantity of money demanded at a given point in time,_________
The equilibrium interest rate will fall
The discount rate is the interest rate that______
The fed charges on loans to depository institutions
A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is_______
The federal funds rate
The reserve requirement refers to_______
The fraction of deposits that banks are required by the fed to hold as reserves
Thanks earn a profit on the difference between_____
The interest charged on loans and the interest paid on deposits
The demand for money is a relationship between_______
The interest rate and how much money people choose to hold
The equation of exchange states that the quantity of money multiplied by the velocity of money equals_______
The nominal gross domestic product
How does money function as a unit of account?
The prices of all goods and services are measured in terms of money.
The equation of exchange states that the nominal gross domestic product equals_______
The quantity of money multiplied by the velocity of money
Exhibit 15.3 shows the equilibrium in a money market. The vertical supply curve Sm implies that______
The quantity of money supplied is independent of the interest rate
Suppose the reserve requirement is 15 percent. Which of the following is true?
The simple money multiplier is 1/0.15
Which of the following is not true of the federal reserve notes?
They are redeemable for gold.
Which of the following is true of credit cards?
They are used to postpone the payment of money
Which of the following best illustrates the double coincidence of wants?
Tom has somethings he's willing to trade with jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it.
Which of the following is true of a price level increase in an economy?
When the price level increases, the purchasing power of money decreases
If the required reserve ratio and the Fed buys a $10,000 security from a depository institution that currently has not excess reserves, the money supply_____
increases by $50,000
Exhibit 15.2 shows equilibrium in a money market. If S is the supply curve, the equilibrium interest rate and quantity of money will be _________
r and m, respectively
