Money, banking and the Fed review
Which of the following best explains the difference between commodity money and fiat money?
Fiat money has no value except as money, whereas commodity money has value independent of its use as money
Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if banks reserves increase by $40 billion?
$800 billion increase
The most important role of the fed reserve in today's U.S. economy is
Controlling money supply to pursue economic objectives
The U.S. Is divided into _____ FR distrixts
12
One of the board members is appointed to a ___ year, renewable term as chairman
4
The FR bank's board of governors consists of ____ members appointed by the pres of the US to a 14 year non renewable terms
7
If something is to be considered money, it has to fulfill
All four functions
The FOMC
All the above
The economic definition of money is:
Any asset that people are generally willing to accept in exchange for goods and services
Reserve requirements are changed infrequently because
Banks set long term policy , loan and deposit decisions based on the reserve requirement
To increase the money supply, the FOMC directs the trading desk, located at the FR bank of NY, to
Buy U.S. Treasury securities from piblic
The FR banks of NY is always a voting member of the FOMC because
Carries out the policy directives of the fomc
The use of money
Eliminates double coincidence of wants Allows for greater specialization Reduces the transaction costs of exchange
Congress passed legislation to create the Federal Reserve system in 1913 in order to
End instability created by bank panics by acting as a lender of last resort
The quantity theory of money is better able
Explain the inflation rate in the long run
By raising the discount rate, the fed leads banks to make _____ loans to households and firms, which will _____ checking account deposits and the money supply
Fewer; decrease
What are the largest asset and largest liability of a bank?
Loans are the largest asset and deposits are largest liability
Which of the following is not the formula for the quantity theory of money?
M*Y = P*V
The federal reserve uses two definitions of the money supply, M1 and M2, because
M1 is narrow, M2 is broader
When the FR buys bonds through open market operations
Money supply will increase
Which one of the following is not a function of money?
Open market operation
Which of the following policy tools is the FR least likely to use in order to actively change the money supply?
Reserve requirements
When the fed reserve sells treasury securities in the open market
The buyers pay for them With checks and bank reserves fall
How does the quantity theory provide an explanation about the cause of inflation?
The quantity equation shows that if money grows at a faster rate than real GDP, then there will be inflation
When the federal reserve purchases treasury securities in the open market
The sellers deposit the funds in their banks and bank reserves increase
How do the banks "create money"?
When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply extends
Suppose you decide to withdraw $100 in cash from your checking account. Which one of the following choices accurately shows the effect of this transaction on your bank's balance sheet?
Your banks balance sheet shows a decrease in reserves and deposits