Chapter 14-Money, Banks and the Federal Reserve System

A bank panic occurs when:

Many banks experience runs at the same time

On the balance sheet of a bank:

loans are the most important asset

Which body of the Federal Reserve System sets the majority of U.S. monetary policy

The Federal Open Market Committee

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committee

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called _____________

Monetary Policy

Credit Cards are:

Not part of the money supply

"Loans are the most important asset"

On the balance sheet of a bank

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

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

Velocity is defined as:

v=(PxQ)/M

The quantity equation is:

MxV=PxQ

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 deposits

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:

$100 x (1/.25) = $400

If real GDP increases:

The money demand curve shifts to the right

The money multiplier for the United States is...:

Between 2 and 3

Graph A: moving from left to right Graph B: Moving from right to left Which of these graphs depicts the impact of a decrease in the aggregate price level?

Graph B: Right to left

Which of these is not one of the four main goals of monetary policy?

Home ownership

Which of these predictions can be made using the growth rates with the quantity equation?

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

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

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is defined as:

M1

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

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

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

Which of these facts is true about the creation of the Federal Reserve System (the Fed)

The fed was created in 1913

If the FOMC orders the trading desk to sell Treasury securities:

The money supply curve will shift to the left and the equilibrium interest rates will rise

Required Reserves

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

When is the opportunity cost of holding money higher?

When interest rates are high

When many depositors decide simultaneously to withdraw their money from a bank, there is___________

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

If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct

Open Market Sale

The Fed conducts monetary policy primarily through:

Open Market operations

When we say that money serves as unit of account, we mean that:

Prices are quoted in terms of money