Edam 3

ll of the following are functions of the Federal Reserve District Banks except:

accepting deposits from individuals.

When it was first created by Congress in 1913, the primary role of the Federal Reserve System was to:

act as lender of last resort to the banking community.

The Keynesian perspective of the impact of money on the economy suggests that an increase in the money supply will result in a(n) _____________ in interest rates, a(n) ______ in investment spending, and a(n)_____in aggregate demand.

decrease; increase; increase

The "liquidity" of an asset refers to:

the ease with which the asset may be converted into a medium of exchange without loss of value.

When depositors move funds from their saving accounts into their checking accounts:

M2 stays the same, M1 increases, and the system becomes more liquid.

The equation of exchange can be expressed algebraically as:

MV = PQ.

Which of the following is not one of the three main functions of money?

Protection against inflation

Ceteris paribus, the short-run impact of the Fed pursuing an expansionary monetary policy is:

a decrease in interest rates and an increase in spending.

Money is best defined as:

an asset that is generally accepted as a means of payment for goods and services.

According to Monetarists, sustainable and long-term economic growth is the result of:

improvements in resource productivity and technology.

Monetarists argue that continual increases in the growth rate of the money supply that are greater than the growth rate of real GDP will:

increase the price level in the long run.

Ceteris paribus, a decrease in the required reserve ratio will:

increase the value of the simple deposit multiplier

The Keynesian view argues that:

investment spending and some consumer spending depend on the current interest rate, which means a decrease in the interest rate may lead to an increase in aggregate demand.

If a bond with a face value of $10,000 and coupon rate of 4.5% sells for $9,000, the current yield on the bond:

is 5%.

M1 is the most liquid measure of the money supply because its components:

may be used to purchase goods and services directly.

The investment demand function would most likely shift to the right as a result of:

more optimistic business expectations.

The federal funds rate is the rate of interest that:

one bank pays another bank for an overnight loan of reserves.

The most important and most frequently used tool of the Fed for controlling the money supply is:

open market operations

A bank is likely to charge its biggest and most important, or most-favored, customers the _________________ rate.

prime

If the required reserve ratio is 10%, the banking system has total reserves in the amount of $40 billion, there are no currency leakages, and each bank makes loans until excess reserves equal zero, then total checkable deposits for the banking system will equal:

$400 billion.

Mr. Jones deposited $5,000 cash into his account at Bank A. If the required reserve ratio is 10%, Bank A has to keep _____ in the form of required reserves and can make a loan equal to _____.

$500; $4,500

If the nominal rate of interest is 2.5 percent and the inflation rate is 2.5 percent, then the actual real rate of interest is equal to:

0 percent.

Ceteris paribus, if bond prices increase, then

bond yields (interest rates) will decrease.

According to Monetarists, the most important determinant of inflation in U.S. history has been:

decisions by the Fed to allow the money supply to grow too quickly.

The investment demand function is assumed to be:

downward sloping because firms will likely undertake more investment projects when the cost of borrowing is lower.

When the Fed buys bonds in the open market, ceteris paribus:

the monetary base, bank loans, and the money supply increas

he notion that the Fed should adhere to a policy of steady and predictable expansion of the money supply represents:

the monetary rule advocated by the Monetarists.

Suppose the money market is initially in equilibrium. If the Fed raises the discount rate and sells bonds on the open market, then, ceteris paribus:

the money supply will decrease and interest rates will rise.

If interest rates rise, ceteris paribus:

the opportunity cost of holding money as an asset increases and people will want to hold more interest-earning assets, like bonds

To support checkable deposits, banks are legally required to hold reserves equal to:

total checkable deposits multiplied by the required reserve ratio.

The nominal rate of interest is equal to the expected or desired real rate of interest

us the expected inflation rate

Money is more efficient than barter for conducting transactions because:

using money does not require satisfying a double coincidence of wants, which reduces transaction times.