chapter 32-34

The Federal Reserve System was created in

1913

A restrictive monetary policy is designed to shift the

Aggregate demand curve leftward

Which if the following best describes the cause and effect chain of an expansionary monetary policy

An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP

As it relates to Federal Reserve activities, the acronym FOMC describes the

Federal Open Market Committee

the group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, bonds) is the

Federal Open Market Committee (FOMC)

the paper money used in the US is

Federal Reserve Notes

In the US economy system, the money supply is controlled by the

Federal Reserve System

The interest rates that bank charge on one another on overnight loans is called the

Federal funds rate

Monetary policy is expected to have its greatest impact on

Ig

A contraction of the money supply

Increase the interest rate and decrease aggregate demand

If the amount of money demanded exceeds the amount supplied, the

Interest rate will rise

An increase in the money supply will

Lower interest rates and increase the equilibrium GDP

Which if the following actions by the fed would cause the money supply to increase

Purchase of government bond from the banks

The purpose of a restrictive monetary policy is to

Raise interest rates and restrict the availability of bank credit

Upon which of the following industries is a restrictive monetary policy likely to be most effective

Residential construction

If the federal reserve authorities were attempting to reduce demand pull inflation, the proper policies would be to

Sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the fed banks

If severe demand pull inflation was occurring in the economy, proper government policies would involve a government

Surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements

Which of the following statements is true

The federal reserve does no set the federal funds rate, but it influences it through the use of its open market operations

federal reserve notes in circulation are

a liability as viewed by the federal reserve banks

an asset's liquidity refers to its ability to be

a means of payment

if you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

a medium of exchange

what function is money serving when you use it when you go shopping

a medium of exchange

if product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as

a unit of account

if you are estimating your total expenses for school next semester, you are using money primarily as

a unit of account

when a consumer wants to compare the price of one product with another, money is primarily functioning as

a unit of account

the federal reserve system regulates the money supply primarily by

altering the reserves of commercial banks, largely through sales and purchases of government bonds

a decrease in the reserve ratio increases the

amount of excess reserves in the banking system

the federal reserve banks sell government securities to the public. As a result, the checkable deposits

and reserves of commercial banks both decrease

the federal reserve system consists of which of the following

board of governors and the 12 federal reserve banks

a commercial bank can add to its actual reserves by

borrowing from a federal reserve bank

the federal reserve system of the US is the country's

central bank

which of the following is not a tool of monetary policy

changes in banking laws

In the US the money supple (M1) is comprised of

coins, paper currency, and checkable deposits

which of the following will happen when the federal reserve buys bonds from the public in the open market and the amount of crash held by the public does not change

commercial bank reserves will increase

the main function of the federal reserve system is to

control the money supply

to keep high inflation from eroding the value of money, monetary authorities in the US

control the supply of money in the economy

the federal reserve system performs many functions but its most important one is

controlling the money supply

an increase in the legal reserve ratio

decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier

money functions as a store of value if it allows you to

delay purchases until you want the goods

projecting that it might temporarily fall short of legally required reserves in the coming days, the bank of beano decides to borrow money from its regional federal reserve bank. the interest rate on the loan is called the

discount rate

the interest rate at which the federal reserve banks lend to commercial banks is called the

discount rate

which of the following is correct? when the federal reserve buys government securities from the public, the money supply

expands and commercial banks reserves increase

Which group aids the board of governors of the federal reserve system in conducting monetary policy

federal open market committee

which group is responsible for the policy decision of changing the money supply

federal open market committee

the discount rate is the rate of interest t which

federal reserves bank lend to commercial banks

if the fed wants to discourage commercial bank lending, it will

increase the interest paid on reserves held at the fed

when the required reserve ratio is decreased, the excess reserves of member banks are

increased and the multiple by which the commercial banking system can lend is increased

when the fed lends money to a commercial bank, the bank

increases its reserves and enhances its ability to extend credit to bank customers

the federal reserve system is an

independent agency of government

which of the following monetary policy tool was introduced in 2008

interest on reserves held at the fed

if the federal reserve system buys government securities from commercial banks and the public

it will be easier to obtain loans at commercial banks

money eliminates he need for a coincidence of wants in trading primarily through its role as a

medium of exchange

which of the following functions of money enables society to gain the benefits of geographic and labor specialization

medium of exchange

the federal reserve banks are owned by the

member banks

which of the following is a tool of monetary policy

open-market operations

the federal reserve system performs the following functions, except

providing banking services to the general public

the discount rate is the interest

rate at which the federal reserve banks lend to commercial banks

when the required reserve ratio is increased, the excess reserves of member banks are

reduced and the multiple by which the commercial banking system can lend is reduced

which of the following actions by the Fed most likely increases commercial bank lending

reducing the interest paid on reserves held at the fed

the reserve ratio refers to the ratio of a bank's

required reserves to its checkable-deposit liabilities

the federal open market committee (FOMC)

sets policy on the sale and purchases of government bonds by the fed

he federal open market committee (FOMC) of the federal reserve system is primarily for

setting the fed's monetary policy and directing the purchase and sale of the government securities

if you place a part of your summer earnings in a saving account, you are using money primarily as a

store of value

when a commercial bank borrows from a federal reserve bank

the commercial bank's lending ability is increased

the four main tools of monetary policy are

the discount rate, the reserve ratio, interest on reserves , and open-market operations

the purchase of government securities from the public by the fed will cause

the money supply to increase

research for industrially advanced countries indicates that

the more independent the central bank, the lower the average annual rate of inflation

which of the following will increase commercial bank reserves

the purchase of government bonds in the open market by the federal reserve banks

open-market operations refer to

the purchase or sale of government securities by the fed

which of the following tools of monetary policy has not been used since 1992

the reserve ratio

which of the monetary policy tools can alter both the level of excess reserves and the money multiplier

the reserve ratio

The Federal Open Market Committee (FOMC) is made up of

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis

Which one of the following is true about the US federal reserve system

there are 12 regional Federal reserve banks

to say that the federal reserve banks are quasi-public banks means that

they are privately owned but managed in the public interest

which of the following is not true about the federal reserve bank

they compete with commercial banks in their basic functions

the securities as assets by the federal reserve banks consists mainly of

treasury bills, treasury notes, and treasury bonds

a $70 price tag on a sweater in a department store window is an example of money functioning as a

unit of account

when a banker records how many dollars each of his borrowers owes the bank, money is serving as a

unit of account

Assuming government wishes to either increase or decrease the level of aggregate demand, high if the following pairs are not consistent policy measures

A tax increase and an increase in the money supply

interest paid on reserves held at the fed

incentivizes financial institutions to hold more reserves and reduce risky lending

which of the following tools of monetary policy is considered the most important on a day-to-day basis

open market operations

which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts

open market operations

The reason for the Fed being set up as an independent agency of government is to

protect it from political pressure

one major advantage of money serving as a medium of exchange Is that it allows society to

escape the complications of barter

the federal reserve system

is basically an independent agency

The federal fund rate is the interest rate that ___changes _____

Banks, other banks

the central authority of the US banking system is the

Board of Governors of the Federal Reserve

in the US, monetary policy is the responsibility of the

Board of the Governors of the federal Reserve System

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for

Buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at fed banks, and a budgetary deficit

members of the federal reserve board of governors are

appointed by the president to staggered 14-year terms

Which of the following best describes the cause and effect chain of a restrictive monetary policy

Decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ___, which will _____ investment spending

Decrease, increase

All else equal, when the federal reserve banks engage in a restrictive monetary policy, the prices of government bonds usually

Fall

All else equal, when the federal reserve banks engage in an expansionary monetary policy, the interest rates received on government bonds usually

Fall

what function is money serving when u deposit money in a savings account

a store of value

money functions are

a store of value, a unit of account, a medium of exchange

which of the following is the basic economic policy function of the federal reserve banks

controlling the supply of money

if the fed were to reduce the legal reserve ratio, we would expect

lower interest rates, an expanded GDP, and a higher rate of inflation

the commercial banking system borrows from the federal reserves banks. As a result, the checkable deposits

of commercial banks are unchanged, but their reserves increase

the federal reserve banks buy government securities from commercial banks. As a result, the checkable deposits

of commercial banks are uncharged, but their reserves increase