Monetary Policy and the Fed

2. Which of the following best describes the monetary base? * a. Currency plus reserve deposits. b. M1 plus M2. c. Currency plus M1. d. Reserve deposits plus M1 and M2.

a) currency plus reserve deposits

3. The Federal Deposit Insurance Corporation (FDIC) has the power to * a. Insure bank deposits. b. Loan money to banks. c. Increase the economy's money supply. d. a and c only. e. a, b, and c.

a) insure bank deposits

1. If the Federal Reserve sets the minimum reserve ratio for private banks at 25%, then the money multiplier is: * a. 2.5 b. 4 c. 1 d. 0.4

b) 4

1. Prima Bank has the following characteristics: Short-term assets: $100M; Short-term liabilities: $120M; Total assets: $500M; Total Liabilities: $400M. Which type of bank is it? * a. Liquid and solvent. b. Illiquid and solvent. c. Liquid and insolvent. d. Illiquid and insolvent.

b) illiquid and solvent

3. Over which aspect of the money supply does the Fed have the most direct control? * a. Checkable deposits. b. Monetary base. c. M2. d. M1 and M2.

b) monetary base

1. The Federal Reserve is considered a powerful institution because it has the power to: * a. Act as a lender of last resort, control money supply in the long term, and print money. b. Create money, buy government bonds, and control long-term economic growth. c. Buy government bonds, act as a lender of last resort, and create money. d. Control short-term growth, create money, and buy government bonds.

c) buy government bonds, act as a lender of last resort, and create money

2. The Federal Reserve can control short-run growth better than long-term growth but even then, there are limits to its powers to influence short-term growth, in part because: * a. It cannot buy bonds, cannot use executive orders, and it cannot control the supply of money. b. It has a lack of direct control, incomplete data about the economy, and lack of the executive order. c. It has incomplete data about the economy, lagged results from policy to growth, and limited control. d. It cannot increase the money supply, has incomplete data about the economy, and can buy bonds.

c) it has incomplete data about the economy, lagged results from policy to growth, and limited control

3. The control the Federal Reserve has in manipulating the money supply by setting the minimum reserve ratio is limited because: * a. Banks can decide to hold more cash than the minimum reserve ratio requires. b. More people use credit cards than cash. c. People might not hold their money in banks, which limits the loanability of that cash. d. a and c. e. a and b.

d) banks can decide to hold more cash than the minimum reserve ration requires and people might not hold their money in banks, which limits the loanability of that cash

3. How does the Quantity Theory of Money help us understand the limitations of the Federal Reserve's power to control economic growth? a. The velocity of money does not adjust to monetary policy. b. Increases in the money supply result in increases in output in the long run. c. Increases in the money supply result in increases in velocity in the long run. d. Increases in the money supply result in price increases in the long run.

d) increases in the money supply result in price increases in the long run

1. Which of the following count as money? * a. Currency, checkable deposits, stocks. b. Jewelry, checkable deposits, currency. c. Currency, checkable deposits, savings deposits, bonds. d. Money market mutual funds, currency, checkable deposits.

d) money market mutual funds, currency, checkable deposits

2. If the Federal Reserve increases the minimum reserve ratio that private banks are required to hold, the following will occur: * a. The banks can make more loans and the money supply decreases. b. The banks can make more loans and the money supply increases. c. The banks can make fewer loans and the money supply increases. d. The banks can make fewer loans and the money supply decreases.

d) the banks can make fewer loans and the money supply decreases

4. Gift cards are a part of * a. The monetary base. b. M1 only. c. M2 only. d. M1 and M2. e. None of the above.

e) none of the above

2. The Federal Reserve has the power to * a. Regulate banks. b. Insure bank deposits. c. Loan money to banks. d. Increase the economy's money supply. e. a and c only. f. a, c, and d.

f) regulate banks, loan money to banks, increase the economy's money supply