Econ exam 3
A commercial bank has actual reserves f $50,000 and checkable deposits of $200,000, and the required reserve ratio is 20%. The excess reserves of the bank are:
10,000
Only one commercial bank in the banking system has an excess reserve, and its excess reserve is $400,000. This bank makes a new loan of $300,000 and keeps an excess reserve of $100,000. If the required reserve ratio for all banks is 12.5%, the potential expansion of the money supply from this new loan is
2.4 million
how large is the federal government debt currently
22 trillion
How much did the U.S congress allocate to the troubled asset relief program in 2008
700 billion
Example of fiscal policy action to increase aggregate supply
An increase in government spending on infrastructure that increases private sector productivity
What is one significant characteristic of fractional reserve banking?
Banks can create money through lending their reserves
In the united states monetary policy is the responsability of
Board of Governers of the Federal Reserve System
The basic policy-making body in the U.S. banking system is the:
Board of governers of the federal reserve
Which of the following is considered a legitimate concern of a large public debt
Crowding out of private investment
Maximum check able deposit expansion in the banking system is equal to
Excess reserve times the money multiplier
The group that sets the federal reserve systems policy on buying and selling government securities (bills, notes, and bonds) is the
Federal open market committee (fomc)
When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:
Fiscal policy?
The various lender-of-last resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008:
Increased the moral hazard program by limiting losses from bad financial decisions
Current chairman of the Fed
Jerome Powell
the difference between M1 and M2 is
M2 includes small time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.
WHat is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008
Prior to the rise in defaults banks had become lax in their lending practices resulting in a huge number of bad loans.
the asset demand of money is most closely related to money functioning as
a store of value
Money functions as:
a store of value, a unit of account, a medium of exchange
The federal reserve banks sell government securities to the public. as a result, the checkable deposits:
and reserves of commercial banks both decrease
In the financial industry, "securization" refers to
bundling groups of loans, bond, mortgages, and other financial debts into new securities
the money supply is backed:
by the government's ability to control the supply of money and therefore to keep its value relatively stable.
in the US, the money supply is comprised of
coins, travelers checs, paper currency, and checkable deposits
what is the best example of infrastructute investment
construction of highways
What is a basical economic policy function of the federal reserve banks
controlling the supply of money
When the federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are designed to be:
countercyclical
the interest rate that banks chare one another on overnight loans is called
federal funds rate
What is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008
from Febuary 2008, to march 2009, the Fed assets more than doubled to nearly 2 trillion.
the desire to hold money for transactions purpose arises because
households want money on hand in case a good financial investment opportunity arises
What might offset a crowding - out effect of financing a large public debt?
increase in infrastructure investment
In a certain year the aggregate amount demanded at the existing level consists of $100 billion of consumption, $40 b of investment, 10 billion of net exports, and 20 billion of government purchases. Full-employment GDP is 120B. To obtain price level stabiliy under these conditions the government should:
increase tax rates and or reduce government spending.
a contraction of the money supply
increases the interest rate and decreases aggregate demand.
collateralize default swaps:
insured holders of loan backed securities in case the underlying loans were not repaid
if the federal reserve system buys government securities from commercial banks and the public
it will be easier to obtain loans at commercial banks
the real burden of an increase in public debt:
may be very small or conceivably zero when the economy is in a severe depression.
the transactions demand for money is most closely related to money functining as a
medium of exchange
when changes to taxes and spending occur in the economy without explicit action by the federal government, such policy is called
nondiscresionary
Banks lost money during the mortgage default crisis because:
of defaulted loans to investors in mortgage backed securities, they held mortgage backed securities they had purchased from investment firms, homebuyers defaulted on mortgages held by the banks
what tool of monetary is considered most important on a day to day basis
open market operations
An important routine function of the federal reserve bank is to
provide facilities by which commercial banks and thrift institutions may collect checks.
A major advantage of the built in or automatic stabilizers is
require no legislative action by congress to be made effective
Glass-Steagall Act of 1933
seperated high risk and low risk financial activites across different financial firms
The four main tooks of monetary policy are
the discount rate, the reserve ratio, interest on reserves, and open market operations
The financial services modernization act of 1999 repealed the glass stegall act of 1933 and thereby opened the door for which of the following actions
the merger of financial service companies, insurance companies and banks.
the "shadow banking system" refers to:
the process by which banks and securities exchanges provide credit for personal and business needs apart from traditional bank lending
built in stability means that:
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.
WHat best describes the twelve federal reserve banks
They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
When banks bundled mortgage loans and sold the resulting mortgage-backed securities:
They reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage-back securities.
TARP created in 2008, stands for
Troubled Asset Relief Program