macro final

If the monetary multiplier is 6, then the reserve ratio must be

0.167

Raising the interest paid on reserves has the effect of making it A. More costly for banks to hold excess reserves B. Less costly for banks to hold excess reserves C. More attractive for banks to lend out their excess reserves D. Less attractive for banks to hold required reserves

B

The Federal Reserve System performs all of the following functions, except A. Issuing the paper currency in the economy B. Providing banking services to the general public C. Providing financial services to the Federal government D. Lending money to banks and thrifts

B

The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will A. Not be able to pay back the bail-out money B. Have an incentive to make highly risky investments C. Now have to play it safer to reduce their risks D. Be limited in terms of the securities and services that they get involved in

B

The transactions demand for money is least likely to be a function of the A. Price level B. Interest rate C. Level of national income D. Frequency of wage and salary payments

B

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10% of all deposits on reserve. How much does this transaction increase the loan capacity of the bank?

10,800

A commercial bank has actual reserves of $1 million and checkable deposit liabilities of $9 million. The required reserve ratio is 10%. What are the excess reserves?

100,000

How many districts is the Federal Reserve System divided into?

12

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be ________%

25

A depositor places $5,000 cash in a commercial bank, and the reserve ratio is 20%. The bank sends the $5,000 to the Federal Reserve Bank. How much did the excess reserves increase?

4,000

How many members are on the Board of Governors of the Federal Reserve System?

7

Commercial bank reserves, most of which are held by the Federal Reserve Banks, are A. A liability of the Federal Reserve Banks and commercial banks B. An asset of the Federal Reserve Banks and commercial banks C. A liability of the Federal Reserve Banks and an asset for commercial banks D. An asset of the Federal Reserve Banks and a liability for commercial banks

C

Fractional reserve banking refers to a system where banks A. Grant loans to their borrowing customers B. Deposit a fraction of their reserves at the central bank C. Hold only a fraction of their deposits in their reserves D. Accept a portion of their deposits in checkable accounts

C

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be A. $1 million also B. A fraction of $1 million C. A multiple of $1 million D. $1 million times the required-reserve ratio

C

If the Fed buys government securities from commercial banks in the open market A. The Fed gives the securities to the commercial banks and increases the banks' reserves B. The Fed gives the securities to the commercial banks decreases the banks' reserves C. Commercial banks give the securities to the Fed, and the Fed increases the banks' reserves D. Commercial banks give the securities to the Fed, and the Fed decreases the banks' reserves

C

Lowering the discount rate has the effect of A. Turning required into excess reserves B. Turning excess into required reserves C. Making it less expensive for commercial banks to borrow from central banks D. Forcing commercial banks to call in outstanding loans from their best customers

C

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2? A. M1 decreases and M2 increases B. M1 increases and M2 decreases C. M1 increases and M2 stays the same D. M2 increases and M1 stays the same

C

Money functions as a store of value if it allows you to A. Measure the value of goods in a reliable way B. Make exchanges in a more efficient manner C. Delay purchases until you want the goods D. Increase your confidence in money

C

The Fed can induce banks to increase their reserve holdings by A. Increasing the discount rate B. Reducing the required reserve ratio C. Increasing the interest on reserves D. Selling securities in the open market

C

The causes of the skyrocketing mortgage default rates that triggered the financial crisis of 2007-2008 include the following, except A. Mortgage lending became very lax B. Many people took on mortgages that they were simply incapable of repaying C. Housing prices increased drastically D. Real estate values started declining after having risen for many years

C

The fundamental objective of monetary policy is to assist the economy in achieving A. A rapid pace of economic growth B. A money supply which is based on the gold standard C. A full-employment, noninflationary level of total output D. A balanced-budget consistent with full-employment

C

The level of GDP, ceteris paribus, will tend to increase when A. Reserve requirements are increased B. There is an increase in the discount rate C. The Federal Reserve buys government securities in the open market Correct D. The Federal Reserve sells government securities in the open market

C

US currency has value primarily because it A. Is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the Federal government B. Is generally acceptable in exchange for goods or services, is backed by the gold and silver of the Federal government, and facilitates trade C. Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services D. Facilitates trade, is legal tender, and permits the use of credit cards and near-monies

C

When the Fed, acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing in its role of A. Controlling the money supply B. Setting the reserve requirements C. Being the bankers' bank D. Providing for check clearing and collection

C

When the Federal Reserve raises the target Federal funds rate, it A. Sells government securities to increase the excess reserves available for overnight loan B. Buys government securities to increase the excess reserves available for overnight loan C. Sells government securities to decrease the excess reserves available for overnight loan D. Buys government securities to decrease the excess reserves available for overnight loan

C

Which of the following institutions does not provide checkable-deposit services services to the general public? A. Commercial banks B. Savings and loan associations C. U.S. Treasury Correct D. Credit unions

C

Which of the following is included in money supply M2 but not M1? A. Federal Reserve notes B. Coins C. Savings deposits D. Checkable deposits

C

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment? A. The purchase of government securities in the open market and an increase in taxes B. The sale of government securities in the open market and a decrease in taxes C. The sale of government securities in the open market and a decrease in government spending D. The purchase of government securities in the open market and an increase in government spending

D

Loans of the Federal Reserve Banks to commercial banks are A. A liability of the Federal Reserve Banks and of the commercial banks B. An asset of the Federal Reserve Banks and of the commercial banks C. A liability of the Federal Reserve Banks and an asset for commercial banks D. An asset of the Federal Reserve Banks and a liability for commercial banks

D

What group aids the Board of Governors in conducting monetary policy?

Federal Open Market Committee

The paper currencies of the US are also called

Federal Reserve notes

A bank owns a 10-story office building. In the bank's balance sheet this would be listed as part of its

assets

A bank has $2 million in checkable deposits. In the bank's balance sheet this would be listed as part of its

liabilities

If the Fed is trying to make the interest rates go down, it wants ________ to decrease.

unemployment

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

unit of account

If the Fed sells government securities to the general public in the open market A. The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed B. The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed Correct C. The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed D. The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed

B

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would A. Increase by $5 billion B. Decrease by $5 billion C. Be added to net worth D. Remain the same

B

The functions of money are to serve as a A. Resource allocator, method for accounting, and means of income distribution B. Unit of account, store of value, and a medium of exchange C. Determinant of consumption, investment, and government spending D. Factor of production, exchange, and aggregate supply

B

The transactions demand for money will shift to the A. Left when nominal GDP increases B. Left when nominal GDP decreases C. Right when nominal GDP decreases D. Right when the interest rate increases

B

When a bank's loans are written off, then the bank's A. Ability to make more new loans increases B. Ability to make more new loans is restricted C. Assets will grow while its liabilities stay the same D. Assets stay the same while its liabilities grow

B

Which of the following "backs" the value of money in the United States? A. The gold stored in the Federal Reserve Bank of New York B. The acceptability of it as a medium of exchange C. The willingness of foreign government to hold U.S. dollars D. The size of the budget surplus in the U.S. government

B

A bank's checkable deposits fall from $40 million to $33 million. By how much will the required reserve amount fall if the reserve ratio is 3%?

0.2 million

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of

1,500

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be

4

A depositor places $5,000 cash in a commercial bank, and the reserve ratio is 20%. The bank sends the $5,000 to the Federal Reserve Bank. How much did the reserves increase?

5,000

If the required reserve ratio were 15 percent, the value of the monetary multiplier would be

6.67

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about ________ million

660

A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20%. It grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited in another bank. The first bank will find its reserves decrease by

8,000

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

9,000

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately A. Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million Correct B. Increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million C. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million D. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million

A

Assume that the required reserve ratio is 20%. A business deposits $50,000 check at Bank A; the check is drawn against Bank B. What happens to the excess reserves at both banks? A. Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B B. Increase by $10,000 at Bank A, and decrease by $50,000 at Bank B C. Reserves stay the same in both banks D. Increase by $50,000 at Bank A, and decrease by $50,000 at Bank B

A

In essence, which one of the following groups "creates" money? A. Bank's loan officers when they grant loans B. Consumers when they go shopping C. Depositors when they deposit or withdraw money from their banks D. Firms when they pay workers their wages and salaries

A

The use of a debit card is most similar to A. Paying with a check B. Using a stored-value card C. Using currency D. Obtaining a short-term loan

A

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks? A. Bank purchases of Treasury bonds from the Fed B. Bank sales of government bonds to meet liquidity demands C. Banks expand the approval and granting of loans D. A decrease in the required reserve ratio

A

An asset's liquidity refers to its ability to be A. Bought and stored B. Increasing in value over time C. Used and enjoyed D. A means of payment

D

A bank can get additional excess reserves all of the following ways, except A. Borrowing from other banks B. Buying Treasury securities from the fed C. Receiving additional deposits D. Borrowing from the Fed

B

A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has A. Decreased by $10,000 multiplied by the reciprocal of the required reserve ratio B. Decreased by $10,000 C. Increased by $10,000 D. Not been affected

B

Assume that the required reserve ratio is 20%. A business deposits $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at both banks? A. Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B B. Increase by $10,000 at Bank A, and decrease by $50,000 at Bank B C. Reserves stay the same in both banks D. Increase by $50,000 at Bank A, and decrease by $50,000 at Bank B

D

The FOMC is primarily for A. Maintaining cash reserves that can be used to settle international transactions B. Supervising banks to make sure that markets are open to all and remain competitive C. Issuing currency and acting as the fiscal agent for the Federal government D. Setting the Fed's monetary policy and directing the purchase and sale of government securities

D

The Federal Reserve alters the amount of the nation's money supply by A. Reducing the liabilities of the banking system B. Controlling the assets of the nation's largest banks C. Minting coins and printing currency that is distributed to banks D. Manipulating the size of excess reserves held by commercial banks

D

The lending ability of commercial banks increases when the A. Reserve ratio is raised B. Treasury collects tax revenues C. Fed sells securities in the open market D. Fed buys securities in the open market

D

The paper money or currency in the US essentially represents A. A debt of commercial banks and savings institutions B. A debt of the U.S. Treasury C. An asset of the Federal government D. a debt of the Federal Reserve System

D

The use of a credit card is most similar to A. Paying with a check B. An ACH (automatic clearinghouse) transaction C. Purchasing a certificate of deposit D. Obtaining a short-term loan

D

What is one significant characteristic of fractional reserve banking? A. Banks hold a fraction of their loans in reserve B. Banks use deposit insurance for loans to customers C. Bank loans will be equal to the amount of gold on deposit D. Banks can create money through lending their reserves

D

When cash is deposited in a checkable deposit account at a bank, there is A. A decrease in the money supply M1 B. An increase in the money supply M1 C. An increase in the bank's net worth D. An increase in the bank's liabilities

D

Banks can lend their excess reserves to other banks in the

Federal funds market

The interest rate that banks charge one another for the loan of excess reserves is the

Federal funds rate

Which definition(s) of money supply include(s) only items which are directly and immediately usable as a means of exchange?

M1

Which money supply definition(s) include(s) checkable deposits?

M1 and M2

A bank's net worth is equal to its

assets minus liabilities

As of February 2013, more than half of the US money supply was in the form of

checkable deposits

When a check is cleared against a bank, the bank will lose

checkable deposits and reserves

The M1 money supply is composed of

currency and checkable deposits

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

federal funds rate

If bond prices increase, then interest rates

increase

Bond prices and interest rates are __________ related.

inversely

The relative importance of various asset items on a commercial bank's asset items on a commercial bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

liquidity and profit

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

medium of exchange

The purchase and sale of government securities by the Fed is called

open market operations

The Federal funds rate is the rate that banks pay for loans from

other banks

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the

prime interest rate

The Financial Crisis of 2007-2008 started in which sector of the economy?

real estate and housing

Cash held by the bank in its vaults are part of its

reserves

What is one of the advantages of monetary policy over fiscal policy?

speed

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to

stimulate the economy

What function is money serving when you deposit money into a savings account?

store of value

The interest rate that the Fed charges banks for loans to them through the traditional channel is called

discount rate

A checkable deposit at a commercial bank is a(n) A. Liability to the depositor and an asset to the bank B. Liability to both the depositor and the bank C. Asset to the depositor and a liability to the bank D. Asset to both the depositor and the bank

C

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has A. Not been affected B. Decreased by $50,000 C. Increased by $50,000 D. Increased by $50,000 multiplied by the reserve ratio

C

A consumer holds money to meet spending needs. This would be an example of the A. Use of money as a measure of value B. Use of money as legal tender C. Transactions demand for money D. Asset demand for money

C

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective? A. Selling government securities and raising the discount rate B. Selling government securities and lowering the discount rate C. Buying government securities and lowering the discount rate D. Buying government securities and raising the reserve ratio

C

The major wave of defaults on home mortgages in 2007 destabilized A. Only the banks that directly made the mortgage loans B. Only the mortgage brokers; not the commercial banks C. Many banks including those that made the loans indirectly D. Mostly large banks, but not too many small ones

C

When bankers hold excess reserves A. The size of the monetary multiplier increases B. The money-creating potential of the banking system increases C. The money-creating potential of the banking system decreases D. There is no change in the money-creating potential of the banking system

C

When the Fed wants to lower the Federal funds rate, it A. Increases the discount rate B. Increases the reserve ratio C. Buys bonds from the banks and the public D. Sells bonds to banks and the public

C

Which of the following best describes what occurs when monetary authorities sell government securities? A. There is a decrease in the size of commercial banks' excess reserves, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP B. There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP C. There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP D. There is an increase in the size of commercial bank reserves, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP

B

Which of the following statements is true? A. The Federal funds rate is higher than the prime interest rate B. The prime interest rate is higher than the Federal funds rate C. The Federal funds rate and the prime interest rate are often the same D. The prime interest rate is often the same as the discount rate

B

What two main aspects does the Federal Reserve System consist of?

Board of Governors and 12 Federal Reserve Banks

When the Fed buys government securities in the open market, it A. Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate B. Increases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate C. Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus increasing the Federal funds rate D. Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate

D

Which of the following Fed actions increases the excess reserves of commercial banks A. Selling bonds to the public B. Selling bonds to commercial banks C. Increasing the discount rate D. Lower the reserve ratio

D

Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves? A. A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment B. A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment C. The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease D. The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase

D