Macro Test 4
When the price of a product is stated in terms of dollars and cents, then money is functioning as a unit of account? True or False
True
If the required reserve ratio were 12.5%, the value of the monetary multiplier would be a - 5 b - 6 c - 7 d - 8
d - 8
seven member group controlling the money and banking system of the United States
Board of governors
1/R
Monetary Multiplier
Purchase or sale of Treasury securities by the FED
Open Market Operations
Why do economists nearly uniformly support an independent Fed rather than one beholden directly to either the president or congress?
- Because an independent FED is not under political pressure so they can adopt unpopular policies if they are better for the economy in the long run such as decreasing inflation rights
Why is a single commercial bank able to lend safely only an amount equal to its excess reserve?
- Because it must keep excess reserves so that it has enough money for day-to-day operations. if it lent more than its excess reserves, it would be in danger of not meeting its required reserves if a large deposit left
The monetary multiplier and the GDP multiplier are two ways of referring to the same concept True or False?
- False
When commercial banks retire outstanding loans, the supply of the money is increased True or False?
- False
Generally acceptable as payment
- Medium of Exchange
Name two other functions of the FRS
- determine what to do with the central money supply and reserve requirements - commercial banks
What is the main function of the FRS?
- regulates the U.S. monetary and financial system
When a person deposits cash in a commercial bank and receives a checkable deposit in return, what happens to the size of the money supply? It (rises, falls, remains the same)
- remains the same
What is the number one function of the FED?
- to regulate the currency/money supply
Reserves must be deposited in the Federal Reserve Banks by ; a - all depository institutions, that is, all commercial banks and thrift institutions b - only commercial banks which are members of the Federal Reserve system c - state chartered commercial banks only d - federally charged commercial banks only
A
A depository places $750 in cash in a commercial bank, and the reserve ratio is 33.33%; the bank sends the $750 to the federal reserve bank. As a result, the actual reserves and the excess reserves of the bank have been increased, respectively a - 750 and 250 b - 750 and 500 c - 750 and 750 d - 500 and 500
A or B
The board of governors and 12 federal reserve banks as a system serve as a - a central bank b - a regulator of the stock market c - the stamper of U.S coins d - the issuer of the nations gold certificates
a - a central bank
If the FED were to increase the legal reserve ratio, we would expect; a - lower interest rates, an expanded GDP, and depreciation of the dollar b - lower interest rates, and expanded GDP, and appreciation of the dollar c - higher interest rates, a contracted GDP, and depreciation of the dollar d - higher interest rates, a contracted GDPm and appreciation of the dollar
D
The Tools of monetary policy that could all theoretically be used for altering the reserves of commercial banks are the; a - tax rate, transfer payments, and level of government spending b - consumer price index, inflation, and unemployment rise c - public debt, budget surplus, budget deficit, and interest rates d - discount rate, reserve ratio, open market operations, and interest paid on bank reserves held at the FED
D
Federal Reserve Banks and bankers banks because they make loans to and accept deposits from depository institutions? True or False?
False
The least effective and least used tool of monetary policy is the open market operations, in which government securities are bought, sold, or pledged as collateral? True or False?
False
The interest rate charged by banks on overnight loans of excess reserves
Federal Funds Rate
Board of governors
Group in charge of the Federal Reserve
Financial assets which cannot be used as payment but are highly liquid
Near Monies
Deposits at the Federal reserve System and vault cash
Reserves
When the federal reserve used quantitative easing with massive bond purchases to expand bank reserves during the Great Recession and after, it was conducting; a - an expansionary monetary policy b - a restrictive monetary policy c - a prime interest rate policy d - a discretionary fiscal policy
a - an expansionary monetary policy
Both commercial banks and thrift institutions accept checkable deposits? True or False?
True
Checkable deposits include the deposits of banks and thrifts on which checks can be written True or False?
True
Goldsmiths increased money supply when they accepted deposits of gold and issued paper receipts to the depositors? True or False?
True
If a coin is token money, its face value is less than its intrinsic value? True or False?
True
In the cause-effect chain of causation, an expansionary monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate expenditures. True or false?
True
Required Reserves help the Fed control the lending ability of commercial banks True or false?
True
The money supply is the United States essentially is "backed" by the Fed's ability to keep the value of money relatively stable? True or False?
True
The required reserves that a commercial bank maintains must equal its own checkable deposit liabilities multiplied by the required reserve ratio? True or False?
True
The federal funds rate is the rate that; a - banks charge for overnight use of the excess reserves held at the federal reserves banks b - banks charge for loans to the most credit worthy customers c - the federal reserve charges for short term loans to commercial banks d - is charged for government bonds sold in the open market operations of the federal Reserve
a - banks charge for overnight use of the excess reserves held at the federal reserves banks
The Largest Component of the money supply (MI) is a - checkable deposits b - gold certificates c - paper money in circulation d - coins
a - checkable deposits
Federal Funds rate reduction that is caused by monetary policy will; a - decrease the prime interest rate b - decrease the size of the monetary multiplier c - increase the FED's discount rate d - increase the prime interest rate
a - decrease the prime interest rate
Coins held in commercial banks are a - included in M1 but not in M2 b - included in both M1 and M2
a - included in M1 but not in M2
In 1999 and 2000 the FED increased the federal funds rate several times. The FED's purpose was likely to a - prevent rising inflation b - stimulate economic growth
a - prevent rising inflation
Which of the following actions by the FED would cause the money supply to increase? a - purchases of government bonds from banks b - an increase in the reserve requirement c - an increase in the discount rate d - sales of government bonds to the public
a - purchases of government bonds from banks
Compared with fiscal policy, monetary policy is a - quicker and easier to implement b - slower and more cumbersome to implement
a - quicker and easier to implement
The excess reserves of a commercial bank equal its (actual, required) reserves minus its __________ reserves.
actual and required
Suppose the ABC Bank has excess reserves of 4,000 and outstanding checkable deposits of 80,000. If the reserve requirement is 25%, what is the size of the bank's actual reserves? a - 16,000 b - 24,000 c - 84,000 d - 20,000
b - 24,000
Which of the following is not a function of the FED? very briefly tell why not a - setting reserve requirements for banks b - advising congress on Fiscal Policy c - regulating the banks and thrifts d - serving as a lender of the last resort
b - advising congress on fiscal policy - the FED works with monetary policy , the congress and the president work with fiscal policy
Which of the following would be excluded from M1 and other measures of the money supply; a - coins held by public b - currency held by banks c- federal reserve notes held by the public d - checkable deposits of individuals at commercial banks
b - currency held by banks
A commercial bank has no excess reserves until a depositor places 600 in cash in the bank. The bank then adds 600 to its reserve by sending it to the Federal Reserve Bank. The commercial bank then lends $300 to a borrower. As a consequence of these transactions, the size of the money supply has a - not been affected b - increased by 300 c - increased by 600 d - increased by 900
b - increased by 300
Assume the Fed creates excess reserves that get added to the banking system, but banks decide not to increase their lending because they are worried about loans being paid back because of the poor economic health of the economy. This situation would best describe a; a - moral hazard b - liquidity trap c - recognition lag d - transactions demand
b - liquidity trap
Which is the most important current control used by the Federal Reserve to regulate the money supply a - the reserve ratio b - open market operations c - the discount rate d - interest on excess reserves
b - open market operations
Between January 2001 and June 2003, the Fed reduced the Federal funds rate from 6 percent to 1 percent. The Fed's purpose was to: a - prevent rising inflation b - promote recovery from succession
b - promote recovery from succession
The purpose of a tight money policy is to; a - alleviate recessions b - raise interest rates and restrict the availability of bank credit c - increase aggregate expenditures and GDP d - increase investment spending
b - raise interest rates and restrict the availability of bank credit
statement of assets and liabilities
balance sheet
In ordinary times, the Federal Reserve System regulates the money supply primarily by; a - controlling the production of coins at the United State mint b - altering the reserve requirements of commercial banks and thereby the ability of banks to make loans c - altering the reserves of commercial banks, largely through sales and purchases of bonds d - restricting the issuance of Federal Reserve Notes because paper money is the is the largest portion of the money supply
c - altering the reserves of commercial banks, largely through sales and purchases of bonds
If the dollar amount of loans made in some period is less than the dollar amount of loans paid off, checkable deposits will; a - expand and the money supply will increase b - expand and the money supply will decrease c - contract and the money supply will decrease d - contract and the money supply will increase
c - contract and the money supply will decrease
To keep the purchasing power of money fairly stable, the Federal Reserve a - buys corporate stock b - employs fiscal policy c - controls the money supply d - uses price and wage controls
c - controls the money supply
The amount that a commercial bank can lend is determined by its? a - outstanding loans b - required reserves c - excess reserves d - outstanding checkable deposits
c - excess reserves
Monetary Policy is thought to be; a - equally effective in moving the economy out of a depression as in controlling demand-pull inflation b - more effective in moving the economy the economy out of a depression than in controlling demand-pull inflation c - more effective in controlling demand-pull inflation than in moving the economy out of a recession d - only effective in moving the economy out of a depression
c - more effective in controlling demand-pull inflation than in moving the economy out of a recession
The federal open market committee of the federal reserve system is primarily responsible for; a - supervising the operation of banks to make sure they follow regulations and monitoring banks so they do not engage in fraud b - handling the FED's collection of checks and adjusting legal reserves among banks c - setting the Fed's monetary policy and directing the buying and selling of government securities d - acting as the fiscal agent for the federal government and issuing currency
c - setting the Fed's monetary policy and directing the buying and selling of government securities
Which of the following are all assets to a commercial bank? a - demand deposits, capital stock, and reserves b - vault cash, property, and reserves c - vault cash, property, and capital stock d - vault cash, capital stock, and demand deposits
c - vault cash, property, and capital stock
What type of financial institution accepts deposits from and lends to "members," who are usually a group of people who work for the same company?
credit unions
The Fed is better at slowing economic activity than at speeding it up
cyclical asymmetry
Only one commercial bank in the banking system has an excess reserve, and its excess reserve is $100,000. This bank makes a new loan of 80,000 and keeps an excess reserve of 20,000. if the required reserve ratio for all the banks is 20%, the potential expansion of the money supply from this 80,000 loan is a - 80,000 b - 100,000 c - 400,000 d - 500,000
d - 500,000
Which one of the following is included in the currency component of M1? a - gold certificates b - silver certificates c - checkable deposits d - federal reserve notes
d - federal reserve notes
Commercial bank borrow from the Federal Reserve a - is not permitted because of the Federal Reserve Act b - is permitted but only for banks that are bankrupt c - decreases the excess reserves of commercial banks and their ability to offer credit d - increases the excess reserves of commercial banks and their ability to offer credit
d - increases the excess reserves of commercial banks and their ability to offer credit
The fractional Reserve system of banking started when goldsmiths began; a - accepting deposits of gold for safe storage b - issuing receipts for the gold stored with them c - using deposited gold to produce products for sale to others d - issuing paper money in excess of the amount of gold stored with them
d - issuing paper money in excess of the amount of gold stored with them
Individual commercial banks are limited in their ability to create money by lending because ; a - banking is a highly competitive industry b - only the Treasury and the Federal Reserve Banks are authorized to create new money c - the board of Governors prohibits bank lending when the result is an expansion of the money supply d - lending is likely to result in the loss of reserves to other banks
d - lending is likely to result in the loss of reserves to other banks
Purchasing common stock by writing a check best exemplifies money serving as a a - store of value b - unit of account c - index of satisfaction d - medium of exchange
d - medium of exchange
FRS actions to increase money supply to lower interest rates and raise GDP
easy money policy
The banking system used today is a ________ reserve system , which means that __________ of the money deposited in a bank is kept on reserve as cash (total, fractional) and (100%, less than 100%)
fractional and less than 100%
Checkable Deposits are classified as money because why?
its a medium of exchange and generally accepted as money/cash
aims at lowering interest rates
loose money policy
1/Required Reserve Ratio
monetary multiplier
Assuming no other changes , if checkable deposits increase by 40 billion and currency and coins in circulation decrease by 40 billion, what will happen in the money supply? Money Supply will change a- change b - no change
no change
interest rate rising and falling with federal funds rate and larger than federal funds rate
prime rate
(required reserve ratio) x (amount of demand deposits)
required reserves
