ECON TEST 3

The Federal Reserve system of the United States is the Countries

Central Bank

The 12 Federal Reserve Banks can be best Characterized as

Central Banks, Banker's Banks, and Quasi-public banks.

If P equals the price level expressed as an index number $V equals the value of the dollar, then

$V=1/P

The Members of the Federal reserve board are appointed for

14 Year terms

The federal reserve system was created in

1913

How many members can serve on the Board of governenrs of the Federal reserve system?

7

The board of Governers of the Federal Reserve has how many members

7

Which of the following is correct

A bank can grant loans to customers only if it has excess reserves

Which of the following transactions has the immediate effect of increasing the money supply M1?

A commercial bank buys government securities from the general public.

The paper money, or currency, in the United States essentially represents

A debt of the Federal Reserve system

What Function is money serving when you use it when you go shopping?

A medium of Exchange

What Function is money serving when you deposit money in a savings account?

A store of Value

The functions of Money are to serve as

A unit of account, store of value, and medium of exchange.

Which of the following is correct?

Actual reserves minus required reserves equals excess reserves

Holding the money deposots of Businesses and households and making loans to the public are basic functions of

Commercial Banks and Thrift Institutions.

Which of the following would reduce the money supply?

Commercial banks sell government bonds to the public.

To keep high inflation from eroding the value of money, monetary authorities in the United States

Control the supply of money in the economy.

Checkable Deposits are

Debts of commercial banks and savings institutions.

If the portion of the loans extended by commercial banks is taken cash rather than as checkable deposits, the maximum money creating potential of the commercial baking system will

Decrease

Other things equal, an excessive increase in the money supply will

Decrease the purchasing power of each dollar

Which of the following are liabilities of a bank?

Demand and time deposits

The reserves of a commercial bank consist of

Deposits at the Federal Reserve Bank and Vault Cash.

The market for immediately available reserve balance at the federal reserve is known as the

Federal Funds Market

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

Federal Funds rate

The group that sets the Federal Reserve systems policy on Buying and selling securities is the

Federal Open Market Committee

Which Group aids the Board of Governors of the Federal reserve system in conducting Monetary policy?

Federal Open Market Committee

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

Federal reserve System

In prosperous, commercial banks are likely to hold very small amounts of excess reserves because

Federal reserve banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

Which of the following statements is true as a result of the Federal Reserve Efforts to rescue the financial industry from financial crisis from 2007 and 2008?

From February 2008 to March 2009, Fed assets doubled to nearly 2 trillion.

Sub-Prime Mortgage loans refer to

High interest rate loans to home buyers with above average credit risk

The purchasing power of money and the price level vary

Inversely

Which of the following does not explain what backs the money supply in the United States?

Its backed by gold

The claims of creditors of a bank against the banks assets are called

Liabilities

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of

The reserve ratio

The Federal Open Market Committee is made up of

The seven members of the board of directors of the federal reserve system along with president of the new York federal reserve bank, and four other bank presidents on a rotating basis.

Other things equal, if the required reserve ratio was lowered,

The size of the monetary multiplier would increase

When banks borrow and lend reserves in the federal funds market

The total reserves of the banking system stay the same

Which of the following is true about the U.S Federal reserve system

There are 12 regional Federal reserve banks.

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

Unit Of account

Which of the following are all assets to the commercial bank?

Vault cash, property, and reserves

The required reserve ration is equal to

a commericial banks required reserves divided by it's checkable deposit liabilities

An Asset's liquidity refers to its ability to be

a means of payment

Checkable deposits are money because they are

acceptable as payment.

The primary reason commericial banks must keep required reserves on deposit at the fed is to

allow the fed to control the amount of bank lending

When cash is deposited in a checkable-deposit account as a bank there is

an increase in the bank's liabilities

A bank is in the position to make loans when required reserves

are less than actual reserves

A checkable deposit at a commercial bank is an

asset to the depositor and a liability to the bank

A commercial banks reserves are

assets to the commercial bank and liabilities to the federal reserve bank holding them.

When a check is drawn and cleared, the

bank against which the check is cleared loses reserves and deposits equal the amount of the check.

During periods of rapid inflation, money may cease to work as a medium of exchange

because people and business will not want to accept it in transactions.

Banks create money when they

buy government bonds from households.

Money supply (M1) does not include the currency held by

commercial banks

The Federal Backing for money in the United States comes from

controlling the money supply in order to keep the value of money relatively stable.

Which of the following is the basic economic policy function of the Federal reserve

controlling the supply of money

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

delay purchases until you want the goods

A commercial Bank can expand its excess reserves by

demanding and receiving payment on an overdue loan.

Excess Reserves refer to the

difference between actual reserves and required reserves.

A commericial bank's checkable deposit liabilities can be estimated by

dividing its required reserves by the reserve ratio.

The amount that a commerical bank can lend is determined by it's

excess reserves.

The basic requirement for an item to function as one is that it be

generally accepted as a medium of exchange.

Which of the following is correct?

granting a bank loan creates money; repaying a bank loan destroys money.

When a bank accepts a checkable deposit from a customer, it's deposits will increase and it's excess reserves will

increase by less than the deposits

The value of money varies

inversely with the price level

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

is larger, the smaller the required reserve ratio

The purchasing power of the dollar

is the reciprocal of the price level

When paper money is degignated as legal tender, it means that

it is a means of payment by law.

United states Currency has value primarily because it

it's relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services.

The amount of reserves that a commerical bank is required to hold is equal to

its checkable deposits multiplied by the reserve requirement.

A bank has 2 million in checkable deposits. In the balance sheet, this would be part of

liabilities

One major component of money supply M1 is part of a banks

liabilities

The two major income earning assets of commerical banks are

loans and securities

If M equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system

m=1/R

Commerical Banks monetize claims when they

make loans to the public.

A banks required reserves can be calculated by

multiplying its checkable deposit liabilities by the reserve ratio

When there is inflation in the Economy, it implies that the

price index is rising and the purchasing power of money is falling.

The reserve ratio refers to the ratio of a banks

required reserves to its checkable deposit liabilities.

Cash held by a bank in its vault is part of the banks

reserves

The Federal Open Market Committee

sets policy on the sale and purchase of government bonds by the Fed.

The Federal Open Market Committee of the Federal reserve system is primarly for

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

When a bank sells capital stock in return for cash

the capital stock increases the net worth and the cash increases the assets side

When cash is withdrawn from a checkable-deposit account at a bank

the money supply M1 does not change, but it's composition changes.

If purchasing power of the dollar is falling, then it follows that

the price index is rising.

To say that the Federal Reserve Banks are quasi-public banks means that

they are privately owned but managed in the public interest.

If the price index rises from 200 to 250, the purchasing power value of the dollar

will fall by 20 percent

If the price index rises from 100 to 120, the purchasing power value of the dollar

will fall by one sixth

Stabilizing a nations price level and the purchasing power can be achieved

with both fiscal and monetary policy.

Which of the following items are included in Money supply M2 but not M1?

Savings deposits

What "Backs" the money supply of the United States?

The U.S Government's ability to keep the value of money relatively stable.

Money in the U.S is essentially debt of

The federal reserve system and the banks.

The Central Authority of the U.S banking system is the

Board of Governors of the Federal Reserve

A bank temporarily short of required reserves may be able to remedy this situation by

Borrowing funds in the federal funds market

Checkable deposits are included in

Both M1 and M2

A bank can get additional excess reserves by doing any of the following except

Buying treasury securities from the fed

The federal Funds market is the market in which

Banks borrow reserves from one another on an overnight basis

The Federal Reserve system consists of which of the following

Board of Governers and the 12 Federal reserve banks.

The Federal Reserve banks are owned by the

Member banks

The claim of Owners of A firm against the firms assets are called

Net Worth

When commerical banks use excess reserves to buy goverment securities from the public

New Money is created

An important routine function of the Federal Reserve bank is to

Provide Facilities by which commercial banks and thrift institutions may collect checks.

The primary purpose of the legal reserve requirement is to

Provide a means by which the monetary authorities can influence the lending ability of commercial banks.