MCF Final

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion.

$1,200 (currency + deposits)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is

$480.8 billion

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1,000 billion, and excess reserves total $1 billion, then the excess reserves-checkable deposit ratio is

.001 (excess reserves/deposits)

If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per dollar, then the franc depreciates from ________ U.S. dollars per franc to ________ U.S. dollars per franc

.80, .67

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

10

If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is

2.3

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is

2.5

The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.

3,3,3

There are ________ members of the Board of Governors of the Federal Reserve System.

7

What would the Open Market Operations process look like?

FOMC Meeting, Fed purchases Treasury Securities, Fed credits Bank Reserve accounts, Banks use excess reserves to make more loans, Borrowers received deposits which increase the money supply

How are Open Market Operations and Quantitative Easing similar?

Fed Reserve buys bonds (Treasury or other) -> increases the price of the bonds -> lowers the yield -> increases the supply of money

The equation of exchange is

M*V=P*Q

The Federal Reserve Bank of ________ houses the open market desk.

New York

he discount rate is kept ________ the federal funds rate because the Fed prefers that ________.

above, banks borrow reserves from each other

Having interest rate stability

allows for less uncertainty about future planning

Members of the Board of Governors are

appointed by the president of the United States and confirmed by the Senate.

A possible sequence for the three stages of a financial crisis might be ________ leads to ________ leads to ________.

asset price declines; banking crises; unanticipated decline in price level

The three players in the money supply process include

banks, depositors, and the central bank

The monetary liabilities of the Federal Reserve include

currency in circulation and reserves

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

depositors/banks

the interest rate the Fed charges banks borrowing from the Fed is the

discount rate

Total reserves are the sum of ________ and ________

excess reserves/ required reserves

The interest rate charged on overnight loans of reserves between banks is the

federal funds rate

The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the

federal open market committee

A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a

financial crisis

Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to 150% causes the M1 money multiplier to ________, everything else held constant

increase from .73 to .78

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.

increase/ increase

The most common definition that monetary policymakers use for price stability is

low and stable inflations

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

lowering, lowering

The Fed's open market operations normally involve only the purchase of government securities, particularly those that are short-term. However, during the crisis and continuing during the pandemic, the Fed started new programs to purchase

mortgage-backed securities and corporate bonds.

From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because

most of it just flowed into holdings of excess reserve

________ are the most important monetary policy tool because they are the primary determinant of changes in the ________, the main source of fluctuations in the money supply.

open market operations and monetary base.

When asset prices rise above their fundamental economic values, a(n) ________ occurs.- asset

price bubble

The percentage of deposits that banks must hold in reserve is the

required reserve ratio

A decrease in ________ increases the money supply since it causes the ________ to rise

reserve requirements, money multiplier

High unemployment is undesirable because it

results in a loss of output

According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation ________ the Fed's inflation target or when real GDP ________ the Fed's output target.

rises above, rises above

The velocity of money is

the average number of times a dollar is spent in buying financial assets.

Which of the following is NOT an entity of the Federal Reserve System?

the comptroller of the currency

The primary indicator of the Fed's stance on monetary policy is

the federal funds rate

Exchange rates are determined in

the foreign exchange market

Everything else held constant, an increase in currency holdings will cause

the money supply to fall

The exchange rate is

the price of one currency relative to another