Quiz 8, 9

A bank is legally required to hold a fraction of its ________ as ________.

deposits; required reserves

A problem confronting government regarding the penny is that

it costs more to produce than its face value.

The Fed seeks to promote stability of financial markets because

resources are lost when there is not an efficient matching of savers and borrowers.

If the Federal Open Market Committee wants to decrease the money supply through open market operations it will

sell U.S. Treasury Securities

Suppose the Fed decreases the money supply. In response households and firms will ________ short term assets and this will drive ________ interest rates.

sell; up

Which of the following is not a major function of the Federal Reserve System?

setting income tax rates

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

the Fed's expansionary policy will result in too large of an increase in GDP.

The federal funds rate is

the interest rate banks charge each other for overnight loans.

Monetary policy refers to the actions the Federal Reserve takes to manage

the money supply and interest rates to pursue its economic objectives.

If the bank of Waterloo receives a $10,000 deposit, and the reserve requirement is 10 percent, how much can the bank loan out? (Assume that before the deposit this bank is just meeting its legal reserve requirement.)

$9,000

Gold is an example of

Commodity money

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%

Contractionary monetary policy refers to the Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.

False

Your income will increase if the Federal Reserve buys a Treasury bill from you and pays you with a check from the Fed.

False

The quantity theory of money seeks to explain the connection between money and

Prices

Among potential stores of value, money

has the advantage of being the most liquid asset.

If you liquidate $3,000 of your mutual fund and transfer the funds to your checking account, then initially, M1 will ________ and M2 will ________.

increase; not change

When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a

medium of exchange.

The money demand curve, against possible levels of interest rates, has a

negative slope.

If households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially

not change M1 and not change M2.