Economics Exam 2

Which of the following statements about the Federal Reserve is not correct?

a. The members of the Board of Governors are also presidents of the Federal Reserve's regional banks.

In a fractional-reserve banking system, a decrease in reserve requirements

a. increases both the money multiplier and the money supply.

Which list ranks assets from most to least liquid?

b. Currency, stocks, fine art

The most important policy making body of the Federal Reserve System is the

b. Federal Open Market Committee.

according to the quantity theory of money, inflation is caused by

b. The money supply growing faster than GDP.

The process by which financial institutions accept deposits and then lend those deposits is

b. financial intermediation.

The purchasing power or value of money

b. varies inversely with the price level.

Suppose a bank receives a $4,000 deposit, and the required reserve ratio is 10 percent. As a result of transaction, the bank has excess reserves of

c. $3,600

Why doesn't the Fed follow both a money supple target and an interest rate target?

c. The Fed does not control money demand.

The "double coincidence of wants" is

c. The main problem with barter.

Stocks and bonds

c. and checking accounts are all stores of value, but only checking accounts commonly function as mediums of exchange.

Modern bank notes, such as those issued by the Fed are

c. fiat money, which means they have NO value as a commodity.

A trade-off between inflation and output exists

c. only in the short run

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your backyard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

d. $5,000.

To alter the rate of growth of the money supply the Fed can do all but

d. Change the tax rate.

Which of the following describes the degree of control that the Fed has over money supply?

d. The Fed has substantial control over the money supply.

If the Fed orders a contrationat monetary policy, then the money supply _______. The aggregate demand curve would shifts to the _______, and the price level _______

d. decreases, left, falls

Bobby deposits $5,000 cash in his checkable deposit at the Bank of America. If the required reserve ratio is 20 percent, Bank of America's required reserves

d. required reserves increase by $1,000

If the Fed loans $50,000 ti Wachovia Bank. The required reserve ratio is 5 percent. How much can the banking system create in new deposits?

e. 1,000,000

An economics student says "The demand for money is infinite since everyone wants more money." which of the following is an accurate response.

e. That is not correct because you are confusing money with income. This is not correct. it is a demand to hold money balances so that one can purchase goods and services.

To increase the money supply, the FOMC directs the trading desk, located in the Federal Reserve Bank of New York to

e. buy U.S. Treasury securities from the public.

In the money market, if the price level rises, then the demand for money____ and the equilibrium nominal interest rate _____.

e. increases; rises