TUCKER ECON2013 EXAM 3-CH9/10 MULTIPLE CHOICE
If the reserve requirement is 25% and a new deposit leads to a potential increase in the money supply of $4,000, the amount of the new deposit must equal:
$1,000
Traditional Individual Retirement Accounts (IRAs) are taxed:
ONLY WHEN YOU MAKE WITHDRAWLS
When a financial institution provides a standardized financial product such as a mortgage, it is:
REDUCING TRANSACTION COSTS
An interest rate that is low for only a short period of time is called
TEASER RATE
Which statement concerning the structure of the Federal Reserve System is correct?
The Chair and Vice Chair of the Board of Governors are appointed by the president and confirmed by the Senate for terms of 4 years.
If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after five years?
$2,552.56
Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's required reserves?
$375
If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of
$5,000
Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How much money can the banking system create?
$6,000
(Table) SCENARIO: Assume that the Empathy State Bank begins with the balance sheet below and is fully loaned up. This bank's reserve ratio is
.10
Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's yield?
6.4%
All of the following are functions of money EXCEPT
AS A STANDARD VALUE
Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price:
FALLS TO $875
The main policymaking arm of the Fed is the:
Federal Open Market Committee
Liquidity refers to:
How easily/ quickly can be converted into a medium of exchange
The demand curve for loanable funds represents _____ and is _____.
INVESTORS, DOWMWARD SLOPING
Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____
LOWER, MORE LIQUID
Which statement is correct?
M2 included M1
If a perpetuity bond has an interest payment of $80 and your required yield is 10%, the most you would be willing to pay for the bond is:
an excess supply of funds
If Abigail withdraws $300 cash from her checking account, her bank's assets then:
fall by $300 and liabilities fall by $300.
Suppose that while households are deciding to increase savings, the demand by firms for investment funds falls. In the market for loanable funds, the real interest rate will _____ and the quantity of loanable funds will _____.
fall: rise, fall or stay the same
Which of these is a basic goal of the Federal Reserve System?
full employment
Which of these is NOT a way financial institutions reduce risk?
guaranteeing a high rate of return for all lenders
Which of these will cause the supply of loanable funds curve to shift leftward?
increase in gov't deficit
A lower reserve requirement
increases the ability of banks to make loans.
When the Fed buys bonds, its demand _____ the price of bonds, _____ nominal interest rates.
increasing; decreasing
Monetary policy, like fiscal policy, is subject to _____ lags.
information, implementation, decision
The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases:
interest rate will rise
The main tool of monetary policy is
open market operations
Which list represents monetary policy actions that are consistent with one another?
sell government bonds, raise reserve requirements, raise the discount rate
If Jack Sparrow buries a chest of gold on a deserted island and plans to come back for it later, then the gold is functioning as a
store of value
If banks increase excess reserves to increase their ability to absorb a higher rate of defaults
the actual multiplier will fall.
As the real interest rate falls:
the quantity demanded of loanable funds rises
The discount rate is:
the rate regional Federal Reserve banks charge depository institutions to borrow reserves.
Open market operations involve the purchase and sale of:
gov't securities