Macro Ch. 14
Vault cash is equal to $2 million, deposits at the central bank are $1 million, monetary base is $15 million, and bank deposits are $35 million. currency held by the nonbank public is
$12 million
The money supply is $6 million, currency held by nonbank public is $2 million, reserve ratio is .1. The monetary base equals
$2.4 million
Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank deposits are $30 millon. Bank reserves are equal to
$3 million
Assume that the currency-deposit ratio is .2 and the reserve deposit ratio is .1. The Fed carries out open market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by
$4 million
The money supply is $10 million, currency held by the nonbank public is $2 million, and the reserve deposit ratio is .2. Bank reserves are equal to
1.6 million
In a fractional reserve banking system with no currency where res is the ratio of reserves to deposits, the money multiplier is
1/res
If the money multiplier is 10, the purchase of 1 billion of securities by the Fed on the open market causes a
10 billion increase in the money supply
Assume that the currency deposit ratio is .3 and the reserve deposit ratio is .2. What is the money multiplier?
2.6
Which of the following are depository institutions?
Banks and thrifts
When U.S. banks borrow from one another, they must pay the
Fed funds rate
In the Keynesian model, suppose the Fed sets a target for the money supply. If the IS curve shifts to the left, and the Fed wants to keep output unchanged, what should the Fed do?
Increase the money supply
What are the major characteristics of an inflation targeting regime?
Inflation targeting is a system in which a central bank decides on a specific numerical target for inflation and a plan for achieving it
If banks choose to hold more reserves, what happens to the money multiplier, all else equal?
It decreases
Which of the following might the Fed rely on as an intermediate target?
M2
does the fact that the public and banks can affect the money multiplier imply that the central bank cannot control the money supply?
No
Which of the Fed's instruments is most frequently used?
Open-market operations
Who determines monetary policy in the US?
The Federal Reserve System
What is the effect on the monetary base when the Federal Reserve purchases U.S. Treasury securities in the open market? What is the effect on money supply?
The monetary base increases. The money supply increases.
Which of the following statements would Milton Friedman agree with concerning the conduct of monetary policy?
There are long and variable lags between monetary policy actions and their economic results
The largest asset of the Fed from those on this list is
U.S. Treasury securities
a bank run is
a large scale, panicky withdrawal of deposits from a bank
The basic Keynesian argument for discretionary monetary policy is that
aggregate demand is unstable and monetary policy can help stabilize it
How is the board of Governors of the Federal Reserve system appointed?
all members of the board of governers, including the chairman, are appointed by the president
Fractional reserve banking is the system that
allows banks to keep smaller reserves than their deposits
Which of the following is not a policy instrument of the Fed?
changing the federal government budget deficit
Which of the following is not an example of an intermediate target of the Fed?
core inflation
The largest liability of the Fed from those on this list is
currency outstanding
If the Fed decreases the monetary base by 100 million and the money multiplier is 4, M1 will
falls by $400 million
true or false: these intermediate targets are macroeconomic variables the fed can directly control
false
suppose there was a banking crisis, the money supply would shrink by the greatest amount if the public _________ their currency deposit ratio and the banks _____________ their reserve deposit ratio
increased; increased
Why does Bernanke seem to be moving away from proposing inflation targeting for the US?
inflation targeting appears to focus exclusively on inflation, but the Fed has a dual mandate
if the public elects to increase their currency holdings, what happens to the money multiplier?
it decreases
In response to an unanticipated tightening of monetary policy, output _________ at first then __________ after about four months
remains unchanged; falls significantly
what is the main disadvantage of inflation targeting?
the central bank may not know how to change policy and the public might not know if the policy is the best policy
The FOMC consists of all the following people except
the chairman of the President's Council of Economic Advisors
If a bank borrows from a Federal Reserve Bank, the interest rate is called
the discount rate
Changes in reserve requirements directly and immediately affect
the money multiplier
How does the monetary base differ from the money supply?
the money supply equals the monetary base times the money multiplier
define money multiplier
the number of dollars that can be created from each dollar of monetary base
The currency-deposit ratio is determined by
the public
How does the use of inflation targeting improve central bank credibility?
the public can easily observe whether the central bank has achieved its goals
In the Keynesian model, suppose the Fed wants to keep output unchanged. If the IS curve shifts to the left, and the Fed acts to keep output unchanged, then
the real interest rate will decrease
Which of the following is not a source of uncertainty affecting monetary policy?
the size of the central bank's balance sheet
define monetary base
the total amount of currency held by the non-bank public and money held by banks as reserves