Macro Test Questions Unit 4

A customer deposits $2,000 into a checkabe account. The receiving bank hold no excess reserves and issues loans to the full amount of $1,200. The reserve requirement is

40 percent

The Fed's functions include all of the following EXCEPT

accepting deposits of individual businesses and corporations

A customer's checkable deposits would be entered on a bank's balance sheet as

liabilities

Open market operations consist of

the buying or selling of government securities. The Fed holds government securities, and so do individuals, banks, and other financial institutions such as brokerage companies and pension funds.

The M1 money supply is controlled by

the federal reserve system

The interest rate the Fed charges commercial banks for loans is the

the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility—the discount window.

Assume the reserve requirement is 15 percent and a bank initially has no excess reserves. If a customer deposits $1,000, how much of that deposit can be loaned?

$850

Which of the following is a function of money? A medium of exchange A store of value A unit of account

A medium of exchange A store of value A unit of account

policies would be appropriate to resolve a recession?

Expansionary fiscal policy

commitment of the government to issue all of the money citizens want to purchase goods and services

decreases

A higher reserve requirement will cause

a smaller potential growth of the money supply

In addition to the components of M1, M2 consists of the following additional components

are progressively more inclusive measures of money: M1 is included in M2. M1 consists of the most liquid forms of money, namely currency, demand deposits, and other liquid deposits. Other liquid deposits includes ATS and NOW accounts, share draft accounts, and savings deposits.

The Federal Reserve increases the money supply when it

buys bonds

The components of M1 consist of

checkable deposits travelers' checks currency

The stable value of money depends on all of the following EXCEPT the

commitment of the government to issue all of the money citizens want to purchase goods and services

The primary role of the Federal Reserve is to

control the money supply

When interest rates increase, asset demand for money

decreases because the opportunity cost of holding money as an asset increases.

When interest rates rise, current bond prices

fall because the fixed interest rate on current bonds is lower than the interest rate on newly-issued bonds

The reserve requirement is determined by the

federal reserve

The kind of currency used in the United States today can be best described as

fiat money

The components of the M1 money supply are distinguished from the additional components of the M2 money supply because M1 money is

highly liquid

The federal funds rate is the

interest rate banks charge each other for short-term loans

The value of fiat money as a medium of exchange is backed by

its purchasing power

When individual decide to hold money as currency and not deposit it in banks, the growth of the money supply will be

less than potential

Commercial banks create money by

making loans

The most commonly used tool of monetary policy is

open market operations

Expansionary monetary policy is most appropriate when

real GDP is falling

policies would be inappropriate if the Federal Reserve is trying to reduce the inflation rate?

reducing the federal funds rate

In the money market,

the trade in short-term loans between banks and other financial institutions.

The balance sheet of a commercial bank is a statement of

what is owned by the bank what is owed to the bank all claims on what is owned by or owed to the bank