ECON UNIT 3

Which of the following might lead banks to hold more reserves?

Fear that customers will want to withdraw most of their deposits

In order to impact aggregate demand and the economy, the Fed needs to be able to influence:

M1 and M2

Which of the following is true about M1 and M2?

M2 includes saving deposits and money market mutual funds, but M1 does not.

which of the following asset would be considered money?

an assest can be easily converted into widely used means of payment with little loss in value

In normal times, the actual money multiplier in the United States is:

approx. equal to 3

If the Fed wanted to use open market operations to reduce interest rates, it would: sell T-bills to banks. grant banks permission to issue T-bills. issue T-bills on behalf of banks. buy T-bills from banks.

buy T-bills from banks.

How does the Federal Reserve inject reserves into the banking system?

by creating new money it uses to buy finacnial assets

For the most part, prior to 2008, banks typically held: absolutely no excess reserves. excess reserves equal to less than 1% of deposits. excess reserves equal to approximately 100% of deposits. excess reserves equal to between 10 and 20% of deposits.

excess reserves equal to less than 1% of deposits.

when banks use the money they recieve from deposits to make loans, they:

increase the money supply through the money multiplier

which of these is not of the definitions of money supply mentioned in the video

m0

The ___ tells us how many additional dollars of deposits are created with each additional dollar of reserves.

money multiplier;calculated as 1 divided by the reserve ratio

Large banks in the United States:

must keep at least 10% or deposits in reserve

are comic books money

no because selling a comic book takes work and provies an uncertain amount of funds

which is included in MB that is not included in either M1 or M2?

reserve deposits

econmists jave

several different mearsues of supply of money

for a bank, "reserves" refers to:

the cash it keeps on hand to meet withdrawal requests

If people hold onto some money as cash, rather than depositing it into banks:

the money multiplier will be smaller

if a bank customer deposits $100 in cash in the bank lends $90 deposit to another customer by crediting $90 to her account:

the money supply has increased by crediting by $90.

When the Fed buys T-bills from banks: the supply of T-bills rises. the supply of bank reserves falls. the demand for bank reserves rises. the supply of bank reserves rises.

the supply of bank reserves rises.

Economists typically define money as

a widely accepted means of payment

The Federal Reserve is powerful because it can influence _______ through its control over _______. aggregate demand; the money supply interest rates; aggregate supply the money supply; aggregate demand aggregate supply; interest rates

aggregate demand; the money supply

The Fed's communication: is irrelevant, all that matters is the actions that it takes. is itself an important tool of monetary policy. is often used as a distraction to hide its true agenda. is the single most important tool of fiscal policy.

is itself an important tool of monetary policy.

are savings accounts money

yes even though they technically can't be used to buy goods and services

In the "old days" (prior to 2008), the Fed typically conducted monetary policy by: targeting the federal funds rate with open market operations. buying long-term assets like mortgage-backed securities. adjusting government spending and taxation. changing the interest rate that it paid banks on their reserves.

targeting the federal funds rate with open market operations.

mru17: #10 Which one of these charities most likely avoids the knowledge and incentive problems associated with gift giving and charitable giving? Soles4Souls.org NegativeTrade.org GiveDirectly.org Cows4Humans.org

GiveDirectly.org

Which of the following summarizes the limitations of monetary policy? The Fed can directly influence many different interest rates, but it can only influence them a little bit. The Fed is most effective at influencing long-term interest rates but is unable to have a short-run impact on the economy. The Fed has a lot of control over just one interest rate, and interest rates influence economic activity in the short run only. The Fed directly sets all interest rates, but no interest rate has any short-run effect on the economy.

The Fed has a lot of control over just one interest rate, and interest rates influence economic activity in the short run only.

Prior to 2008, a bank might have borrowed reserves from another bank because: it kept its reserves too low and could not meet Fed requirements. borrowing reserves from other banks is the only way to gain access to reserves. it was in danger of becoming insolvent and collapsing. banks never borrowed from the Fed.

it kept its reserves too low and could not meet Fed requirements.

What does a bank do with the money that you deposit?

lend most of the money to people who want to borrow

How much additional money will be created if you deposit a $200 check into your bank, which holds a 10% reserve ratio?

no money will be created since the $200 check does not represent an increase in reserves

How long does it take for the rate to adjust when the Fed announces a change to its target for the federal funds rate? The rate never fully adjusts because the Fed announces planned changes so frequently. Sometimes it adjusts before the Fed even takes any action. The rate usually adjusts immediately after the Fed takes action to change the rate. It can take several days or weeks for rates to fully adjust to announced changes from the Fed.

Sometimes it adjusts before the Fed even takes any action.

are checking accounts money

yes;because they can be used to buy goods and services