Ch 14: Money, Banks, and the Federal Reserve System

Suppose that the reserve ratio is 25% and that banks loan out all their excess reserves. If a person deposits $100 cash in a bank, checking account balances will increase by a maximum of: $400 $100 $25

$400

Which body of the Federal Reserve System sets the majority of U.S. monetary policy? The Federal Open Market Committee The Board of Governors The Open Market Desk

The Federal Open Market Committee

When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed: provides funds to troubled banks that cannot find any other source of funds. serves as a clearinghouse for interbank payments. sets reserve requirements.

provides funds to troubled banks that cannot find any other source of funds.

When we say that money serves as a unit of account, we mean that: Prices are quoted in terms of money. Exchange is made through the use of money. Money eliminated the double coincidence of wants that exists under barter.

Prices are quoted in terms of money.

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate. Seven, 14-year terms, President Seven, 8-year terms, President Twelve, 14-year terms, House of Representatives

Seven, 14-year terms, President

Credit cards are: not part of the money supply. part of M1 but not part of M2. part of M2.

not part of the money supply.

The Fed conducts monetary policy primarily through: open market operations. discount policy. reserve requirements.

open market operations.

Which of these facts is true about the creation of the Federal Reserve System (the Fed)? The Fed was created in 1913. Creation of the Fed followed a long period of banking and financial stability in the U.S. Congress created the Fed to serve as the primary bank for Washington D.C.

The Fed was created in 1913.

On the balance sheet of a bank: loans are the most important asset. reserves are on the liability side. deposits are the most important asset.

loans are the most important asset.

A bank panic occurs when: many banks experience runs at the same time. the central bank carries out open market operations. there is an increase in bank lending.

many banks experience runs at the same time.

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the: quantity theory of money. quantity equation. velocity theory.

quantity theory of money.

The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________. required reserves total reserves excess reserves

required reserves

How many Federal Reserve districts are there? 12 50 25

12

Assume that banks are always fully loaned and people hold no cash. Given a required reserve ratio of 10%, an infusion of $100 billion in reserves will result in a maximum of: $1,000 billion in deposits. $100 billion in deposits. $10 billion in deposits.

$1,000 billion in deposits.

Suppose that velocity is 3 and the money supply is $500 million. According to the quantity theory of money, nominal output equals: $1.5 billion. $150 million. $150 billion.

$1.5 billion.

Velocity is defined as: V = (P x Q) / M V = M / (P x Q) V = M x P x Q

V = (P x Q) / M

When many depositors decide simultaneously to withdraw their money from a bank, there is __________. a bank run inflation in increase in bank lending

a bank run

Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that: each additional dollar of reserves creates $5 of deposits. an additional $5 of reserves creates one dollar of deposits. each additional dollar of deposits creates $5 of reserves.

each additional dollar of reserves creates $5 of deposits.

Who is the chairperson of the Federal Open Market Committee (FOMC)? The chairperson of the Board of Governors The President of the New York Federal Reserve Bank Any member of the Board of Governors

The chairperson of the Board of Governors

Which of these predictions can be made using the growth rates associated with the quantity equation? If the money supply grows at a faster rate than real GDP, there will be inflation. If the money supply grows at a slower rate than real GDP, there will be inflation. If the money supply grows at the same rate as real GDP, there will be deflation.

If the money supply grows at a faster rate than real GDP, there will be inflation.

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of: M1 M2 M3

M1

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________. Monetary policy Fiscal policy Open market operations

Monetary policy

The money multiplier for the United States is __________. between 2 and 3 approximately 10 between 5 and 6

between 2 and 3

To increase the money supply, the FOMC directs the trading desk located at the Federal Reserve Bank of New York to: buy U.S. Treasury securities from the public. sell U.S. Treasury securities to the public. print U.S. Treasury securities and put them in circulation.

buy U.S. Treasury securities from the public.