Chapter 14 Macro

The United States is divided into ________ Federal Reserve Districts.

12

The Federal Reserve​ Bank's Board of Governors consists of __________ members appointed by the president of the U.S. to​ 14-year, ​ non-renewable terms. One of the board members is appointed to a _____ ​year, renewable term as the chairman.

7, 4

An initial decrease in a​ bank's reserves will decrease checkable deposits A. by an amount greater than the decrease in reserves. B. by an amount equal to the decrease in reserves. C. by an amount less than the decrease in reserves. D. An initial decrease in reserves will increase checkable deposits.

A

How do the banks​ "create money"? A. When there is an increase in checking account​ deposits, banks gain reserves and make new​ loans, and the money supply expands. B. When there is a decrease in checking account​ deposits, banks lose reserves and reduce their​ loans, and the money supply expands. C. Banks sell bonds in the open market and lose​ reserves; the excess cash holding by households increases the money supply. D. Banks buy bonds in the open market and gain​ reserves; this excess reserve holding increases the money supply.

A

Suppose the reserve requirement is 5​%. What is the effect on total checkable deposits in the economy if bank reserves increase by ​$60 ​billion? A. ​$1,200 billion increase B. ​$300 billion increase C. ​$12 billion increase D. ​$60 billion increase

A

The Federal Reserve uses two definitions of the money​ supply, M1 and​ M2, because A. M1 is a narrow definition focusing more on​ liquidity, whereas M2 is a broader definition of the money supply. B. M2 is also known as cash and cash​ equivalent, whereas M1 represents the standard of deferred payment function. C. M2 is a narrow definition focusing more on​ liquidity, whereas M1 is a broader definition of the money supply. D. M2 satisfies the medium of exchange function of​ money, whereas M1 satisfies the store of value function.

A

The central bank of a country controls the money​ supply, which equals the currency held by A. the public plus their checking account balances. B. the public plus their checking and saving account balances. C. the public. D. banks.

A

The most important role of the Federal Reserve in​ today's U.S. economy is A. controlling the money supply to pursue economic objectives. B. balancing the​ government's budget by increasing taxes and cutting spending. C. negotiating with foreign nations to reduce the enormous trade deficit. D. managing the Wall Street investment banking and hedge fund operations.

A

Which tool is the most​ important? A. The Fed conducts monetary policy principally through open market operations. B. The Fed conducts monetary policy principally by tax cuts and government spending increases. C. The Fed conducts monetary policy principally through discount policy. D. The Fed conducts monetary policy principally by changing the reserve requirement.

A

According to the quantity theory of money​, inflation results from which of the​ following? A. The money supply grows slower than real GDP. B. The money supply grows faster than real GDP. C. The money supply grows at the same rate as GDP.

B

An initial increase in a​ bank's reserves will increase checkable deposits A. by an amount less than the increase in reserves. B. by an amount greater than the increase in reserves. C. by an amount equal to the increase in reserves. D. An initial increase in reserves will decrease checkable deposits.

B

Credit cards are A. included in the M2 definition of the money​ supply, but not in the M1 definition. B. included in neither the M1 definition of the money supply nor in the M2 definition. C. included in the M1 definition of the money​ supply, but not in the M2 definition. D. included in both the M1 and the M2 definitions of the money supply.

B

Evaluate the following​ statement: Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit. A. False. In​ reality, banks are rarely able to find borrowers for all of their deposits. B. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve. C. True. Deposits that sit in a bank as vault cash earn no interest. D. True. Any money that is left over after a bank loans money to businesses and households will be loaned to other banks.

B

How does the quantity theory provide an explanation about the cause of ​ inflation? A. The quantity equation shows that if the money supply grows at a slower rate than real​ GDP, then there will be inflation. B. The quantity equation shows that if the money supply grows at a faster rate than real​ GDP, then there will be inflation. C. The quantity equation shows that if the money supply grows at the same rate as real​ GDP, then there will be inflation. D. The quantity equation shows that if the money supply grows at a faster rate than nominal ​ GDP, then there will be inflation.

B

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. A. Your​ bank's balance sheet shows an increase in reserves by​ $100 and an increase in deposits by​ $100. B. Your​ bank's balance sheet shows a decrease in reserves by​ $100 and a decrease in deposits by​ $100. C. Your​ bank's balance sheet shows an increase in reserves by​ $100 and a decrease in deposits by​ $100. D. Your​ bank's balance sheet shows a decrease in reserves by​ $100 and an increase in deposits by​ $100.

B

What are the largest asset and the largest liability of a typical​ bank? A. Cash in its vault is the largest asset and bonds are the largest liability of a typical bank. B. Loans are the largest asset and deposits are the largest liability of a typical bank. C. Loans are the largest liability and deposits are the largest asset of a typical bank. D. Reserves are the largest asset and deposits are the largest liability of a typical bank.

B

Which of the following best explains the difference between commodity money and fiat​ money? A. All money is commodity​ money, as it has to be exchanged for gold by the central bank. B. Fiat money has no value except as​ money, whereas commodity money has value independent of its use as money. C. Commodity money is usually authorized by the central​ bank, whereas fiat money has to be exchanged for gold by the central bank. D. Commodity money has no value except as​ money, whereas fiat money has value independent of its use as money.

B

Which one of the following is not one of the policy tools the Fed uses to control the money​ supply? A. Discount policy. B. Moral suasion. C. Open market operations. D. Reserve requirements.

B

In​ 2008, the required reserve ratio for a​ bank's first​ $9.3 million in checking account deposits was zero. It was 3 percent on deposits between​ $9.3 million and​ $43.9 million, and 10 percent on deposits above​ $43.9 million. In most​ cases, and for​ simplicity, we assume that the required reserve ratio is 10 percent on all deposits.​ Therefore, the simple deposit multiplier is 10. Is the​ real-world deposit multiplier greater​ than, less​ than, or equal to the simple deposit​ multiplier? A. Greater. Inflation plays a large role in the increase in checkable deposits. B. Equal. There is no difference between the two. C. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier. D. None of the above. They are very different concepts.

C

In addition to the Federal Reserve​ Bank, what other economic actors influence the money​ supply? A. The U.S. Senate and the U.S. House of Representatives. B. The U.S. Mint and the U.S. Treasury. C. The U.S. President and Vice President. D. ​Households, firms, and banks.

D

The M2 definition of the money supply includes A. ​M1, savings​ accounts, small time​ deposits, money​ markets, and credit cards. B. ​M1, savings​ accounts, mutual​ funds, and credit cards. C. savings​ accounts, mutual​ funds, small time​ deposits, and credit cards. D. ​M1, savings​ accounts, small time​ deposits, and money markets.

D

The quantity theory of money is better able A. to explain the inflation rate in the short run. B. to explain the natural rate of unemployment in the long run. C. to explain the full employment in the long run. D. to explain the inflation rate in the long run.

D

The use of money A. reduces the transaction costs of exchange. B. eliminates the double coincidence of wants. C. allows for greater specialization. D. all of the above.

D

Which of the following is a monetary policy tool used by the Federal Reserve​ Bank? A. Buying​ $500 million worth of government​ securities, such as Treasury bills. B. Increasing the reserve requirement from 10 percent to 12.5 percent. C. Decreasing the rate at which banks can borrow money from the Federal Reserve. D. All of the above.

D

Which of the following is true with respect to ​hyperinflation? A. It can be hundreds—even thousands—of percentage points per year. B. In the presence of​ hyperinflation, firms and households avoid holding money. C. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP. D. All of the above.

D

Which one of the following is not the formula for the quantity theory of​ money? A. M=1V×P×Y. B. M×V=P×Y. C. V=P×YM. D. M×Y=P×V.

D

Which of the following is true with respect to Irving​ Fisher's quantity​ equation, M×V=P×Y​? A. V=P×YM B. P​ = the GDP deflator C. V​ = Average number of times a dollar is spent on goods and services D. M​ = M1 definition of the money supply E. All of the above

E

Which of the following is included in M2 but not​ M1? A. Money market deposit accounts in banks B. ​Traveler's checks C. Currency D. Checking account deposits at banks

a

Which of the following is NOT a function of​ money? A. Medium of exchange B. Acceptability C. Store of value D. Unit of account

b

A baseball fan with a Mike Trout baseball card wants to trade it for a Giancarlo Stanton baseball​ card, but everyone the fan knows who has a Stanton card​ doesn't want a Trout card. Economists characterize this problem as a failure of the A. market clearing mechanism. B. theory of comparative advantage. C. principle of a double coincidence of wants. D. irrational exuberance doctrine.

c

Congress passed legislation to create the Federal Reserve System in 1913 in order to A. take the monetary control over the economy away from the Treasury Department. B. end the instability created by a huge crude oil price hike during that time. C. end the instability created by bank panics by acting as a lender of last resort. D. end the instability created by a savings and loan fiasco that occurred during that time.

c

Distinguish among​ money, income, and wealth. A. A​ person's money is the currency plus all bank accounts​ owned, income is equal to the earning from work and wealth is equal to the profit from investment. B. A​ person's money is the currency in the​ pocket, income is the earning and wealth is equal to asset value. C. A​ person's money is the currency held and the checking account​ balance, income is the earning and wealth is equal to value of assets minus all debts. D. A​ person's money is the currency held and the earning from​ work, income is equal to the bank balance and wealth is equal to the profit from investment.

c

In a fractional reserve banking system​, what is the difference between a​ "bank run" and a​ "bank panic?" A. A bank run is a U.S.​ issue; a bank panic is an international issue. B. A bank run involves many​ banks; a bank panic involves one bank. C. A bank run involves one​ bank; a bank panic involves many banks. D. A bank run is a local​ issue; a bank panic is a national issue.

c

In addition to the Federal Reserve​ Bank, what other economic actors influence the money​ supply? A. The U.S. President and Vice President. B. The U.S. Mint and the U.S. Treasury. C. ​Households, firms, and banks. D. The U.S. Senate and the U.S. House of Representatives.

c

The U.S. dollar can best be described as A. reserve money. B. ​commodity-backed money. C. fiat money. D. commodity money.

c