Economics final pt.2 (34-37)

The Federal Reserve System was established by the Federal Reserve Act of

1913

A bank's net worth is equal to its

Assets minus its liabilities

Between September 2007, and September 2009: A. the Fed oversaw the conversion of all thrifts into commercial banks. B. the FDIC closed more than 200 U.S. banks and shifted their deposits to other banks. C. the Fed increased capital requirements for larger financial institutions in an effort to reduce moral hazard. D. the FDIC paid out more than $500 billion to depositors who held money in failed banks.

B

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

M1 increases and M2 stays the same

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the financial crisis of 2007-2009?

The Fed effectively lost the ability to use the target for expansionary monetary policy, as the actual federal funds rate fell to nearly zero.

The bailout money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler, during the Financial Crisis and the Great Recession, came from the

Troubled Assets Relief Program

A mutual fund company uses the funds of its investors to

buy stocks and bonds

A stockholder owning 5 percent of a company's stock

gets 5 percent of the votes at the shareholders' meetings.

The Federal Reserve System was established by the Federal Reserve Act of

hold only a fraction of their deposits in their reserves.

The Fed can regularly influence and change the risk-free rate of financial investments through its

open market operations

Other things equal, an excessive increase in the money supply will

decrease the purchasing power of each dollar

The Financial Crisis of 2007-2008 started in which sector of the economy?

real estate

Myrna borrows $500 at an annually compounded interest rate of 8 percent that she will repay at the end of 10 years. How much will be required to pay off the loan at the end of 10 years?

$1079.46

Arbitrage is the process by which investors simultaneously sell

assets with lower rates of return and buy otherwise identical assets with higher rates of return.

Commercial banks create money when they

create checkable deposits in exchange for IOUs

Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction,

each dollar of bank reserves will now support a maximum of $5 of checkable deposits

Nondiversifiable risk refers to potential losses from

events that move all investments in the same direction.

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and the following, except

exchange rate

When a commercial bank has excess reserves,

it is in a position to make more notes

the federal funds rate is

lower than both the prime interest rate and the discount rate

Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate?

sell government securities in the open market, do bond reverse-repos, and cut government spending Correct

Time value of money refers to the idea that a specific amount of money

sooner than received