Macroeconomics Ch. 14
The responsibility for monetary policy in the United States lies with the chairman of the Board of Governors of the Federal Reserve System. the presidents of the Federal Reserve Banks. the president. the Board of Governors of the Federal Reserve System.
the Board of Governors of the Federal Reserve System.
The rate of growth of our money supply is controlled by Congress. the United States Treasury. the Federal Reserve. the president.
the Federal Reserve.
The most powerful (but seldom used) tool at the Federal Reserve's disposal is the ability to set reserve requirements. the discount rate. open market operations. margin requirements on stock purchases.
the ability to set reserve requirements.
The most powerful (but seldom used) tool at the Federal Reserve's disposal is the discount rate. open market operations. the ability to set reserve requirements. margin requirements on stock purchases.
the ability to set reserve requirements.
Money is destroyed when you cash a check for $1,000 at your bank. a bank gives you a $1,000 loan. you pay back a $1,000 loan to a bank. you deposit $1,000 cash to be deposited in your checking account.
you pay back a $1,000 loan to a bank.
Money is destroyed when you deposit $1,000 cash to be deposited in your checking account. you pay back a $1,000 loan to a bank. you cash a check for $1,000 at your bank. a bank gives you a $1,000 loan.
you pay back a $1,000 loan to a bank.
Assume that a bank has $2,000 in total reserves and $10,000 in checkable deposits and the required reserve ratio on checkable deposits is 20%. This bank's excess reserves equal $250. $500. $750. zero.
zero.
If Fifth Third Bank had actual reserves of $1 billion and required reserves of $1.1 billion, its excess reserves would be $100 million. -$100 million. $1 billion. 0.
-$100 million.
The Federal Reserve CANNOT do one which one of the following? Change the required reserve ratio Change the discount rate Change the tax rate on profits Change margin requirements
Change the tax rate on profits
Open market operations refer to purchase and sales of corporate securities on the open market by the Fed. United States Treasury securities on the open market by the Fed. bonds by the United States Treasury. corporate stocks and bonds by the corporation commission
United States Treasury securities on the open market by the Fed.
If the Fed sells government securities on the open market, this will cause _____ in the quantity of money available and _____ in the interest rate. an increase; an increase a decrease; a decrease a decrease; an increase an increase; a decrease
a decrease; an increase
If the Fed wants to lower interest rates, it should increase the discount rate. increase the reserve ratio. buy government securities in the open market. sell government securities in the open market.
buy government securities in the open market.
During a depression, the best strategy of the Federal Reserve is to sell government bonds, to make low-risk, sound assets available for commercial banks to buy. sell government bonds, in order to reduce the size of the government's deficits. buy government securities. sell government bonds, in order to increase aggregate demand.
buy government securities.
If the Fed lowers the reserve requirements for banks, this would cause an increase in the money supply. raise the size of the deposit expansion multiplier. cause a decrease in the money supply. improve the safety of banks but have no effect on the deposit expansion multiplier or the money supply.
cause an increase in the money supply.
A reduction in the required reserve ratio would cause the interest rates to increase only if the level of unemployment is high. increase. increase only if the level of investment is low relative to historic levels. decrease.
decrease.
Money is destroyed when loans are made. the net worth of the banking system declines. checks written on one bank are deposited in another bank. loans are repaid.
loans are repaid.
Money is destroyed when loans are repaid. checks written on one bank are deposited in another bank. loans are made. the net worth of the banking system declines.
loans are repaid.
An increase in the money supply is likely to lower interest rates. decrease the quantity of money demanded. raise interest rates.
lower interest rates.
If a bank subject to a 10% required reserve ratio has $10,000 in excess reserves, it can extend, at a maximum, which quantity of new loans? $100,000 $10,000 $1,000 $9,000
$10,000
If a bank subject to a 10% required reserve ratio has $10,000 in excess reserves, it can extend, at a maximum, which quantity of new loans? $9,000 $1,000 $100,000 $10,000
$10,000
If First Interstate Bankcorp has demand deposits of $8 billion, actual reserves of $1.4 billion, and the reserve requirement is 15%, the bank's excess reserves are $800 million. $400 million. $200 million. $100 million.
$200 million.
If Fifth Third Bank had actual reserves of $1 billion and required reserves of $1.1 billion, its excess reserves would be -$100 million. $1 billion. 0. $100 million.
-$100 million.
Which of the following policy action by the Fed is likely to cause the money supply to increase? An increase in required reserve ratios An increase in the discount rate An open market sale An open market purchase.
An increase in the discount rate
Which of the following policy action by the Fed is likely to cause the money supply to increase? An increase in required reserve ratios An open market sale An increase in the discount rate An open market purchase.
An increase in the discount rate
Which of the following policy actions by the Fed is likely to cause the money supply to decrease? A decrease in required reserve ratios A decrease in the discount rate An open market purchase An open market sale
An open market sale
Which of the following policy actions by the Fed is likely to cause the money supply to decrease? A decrease in the discount rate An open market purchase A decrease in required reserve ratios An open market sale
An open market sale
In the real-world banking system, a bank can eliminate a reserve deficiency by borrowing from the Fed's discount window. selling securities. Any one of the choices or some combination is possible. borrowing in the Federal funds market.
Any one of the choices or some combination is possible.
In the real-world banking system, a bank can eliminate a reserve deficiency by selling securities. borrowing from the Fed's discount window. Any one of the choices or some combination is possible. borrowing in the Federal funds market.
Any one of the choices or some combination is possible.
Sally writes a $10,000 check to Harry who deposits it in the same bank. Reserves at depository institutions decrease, but deposits remain the same. Reserves at depository institutions increase, but deposits remain the same. Both deposits and reserves at depository institutions decrease. Both deposits and reserves of depository institutions increase. Both deposits and reserves of depository institutions remain unchanged.
Both deposits and reserves of depository institutions remain unchanged.
Sally writes a $10,000 check to Harry who deposits it in the same bank. Reserves at depository institutions decrease, but deposits remain the same. Reserves at depository institutions increase, but deposits remain the same. Both deposits and reserves at depository institutions decrease. Both deposits and reserves of depository institutions remain unchanged. Both deposits and reserves of depository institutions increase
Both deposits and reserves of depository institutions remain unchanged.
Which statement is true? The basic way the Fed controls the money supply is by manipulating the discount rate. Open market operations are seldom conducted any more. During periods of severe recession, the Fed tries to push up interest rates. During periods of severe inflation, the Fed tries to push up interest rates
During periods of severe inflation, the Fed tries to push up interest rates
Which statement is true? Open market operations are seldom conducted any more. The basic way the Fed controls the money supply is by manipulating the discount rate. During periods of severe inflation, the Fed tries to push up interest rates. During periods of severe recession, the Fed tries to push up interest rates.
During periods of severe inflation, the Fed tries to push up interest rates.
Which of the following are tools used by the Fed to implement monetary policy? Minting coins Printing Federal Reserve notes Open market operations Regulating banks activities
Open market operations
Which of the following are tools used by the Fed to implement monetary policy? Minting coins Open market operations Printing Federal Reserve notes Regulating banks activities
Open market operations
Which statement is true? The Fed cannot induce people to buy or sell United States government securities. The Fed can induce people to sell United States government securities, but it can't induce them to buy. The Fed can induce people to buy United States government securities, but it can't induce them to sell. The Fed can induce people to buy and sell United States government securities.
The Fed can induce people to buy and sell United States government securities.
If the Fed buys government bonds on the open market, which of the following will occur? The market rate of interest on government bonds will increase. The money supply will contract. The market rate of interest on corporate bonds will increase. The interest rate will fall.
The interest rate will fall.
If the Fed sells government bonds on the open market, which of the following will NOT occur? The market rate of interest on government bonds will increase. The money supply will contract. The interest rate will fall. The market rate of interest on corporate bonds will increase.
The interest rate will fall.
Open market operations refer to purchase and sales of bonds by the United States Treasury. corporate securities on the open market by the Fed. United States Treasury securities on the open market by the Fed. corporate stocks and bonds by the corporation commission.
United States Treasury securities on the open market by the Fed.
Open market operations refer to purchase and sales of corporate securities on the open market by the Fed. United States Treasury securities on the open market by the Fed. corporate stocks and bonds by the corporation commission. bonds by the United States Treasury.
United States Treasury securities on the open market by the Fed.
Money is created when you write a check for $1,000. a bank gives you a $1,000 loan. you deposit $1,000 cash to be deposited in your checking account. you pay back a $1,000 loan to a bank
a bank gives you a $1,000 loan.
Demand deposits multiplied by the required reserve ratio equal the amount of reserves the Federal Reserve is required to hold. a bank is required to hold. business firms are required to hold. foreign investors are required to hold.
a bank is required to hold.
If the Fed sells government securities on the open market, this will cause _____ in the quantity of money available and _____ in the interest rate. a decrease; a decrease an increase; a decrease a decrease; an increase an increase; an increase
a decrease; an increase
Monetary policy consists of actions taken by Congress to control the nation's money supply. actions taken by the executive branch of government to control the nation's money supply. actions taken by the Federal Reserve System to control the nation's money supply. actions taken by both the legislative and executive branches of government to control the nation's money supply.
actions taken by the Federal Reserve System to control the nation's money supply.
Monetary policy consists of actions taken by the Federal Reserve System to control the nation's money supply. actions taken by Congress to control the nation's money supply. actions taken by both the legislative and executive branches of government to control the nation's money supply. actions taken by the executive branch of government to control the nation's money supply.
actions taken by the Federal Reserve System to control the nation's money supply.
If the Fed sells United States government securities on the open market, this will cause an increase in the interest rate which reflects as increase in money supply. an increase in the interest rate which discourages borrowing for investment. an increase in the money supply. interest rates to fall in the loanable funds market.
an increase in the interest rate which discourages borrowing for investment.
A commercial bank can add to its actual reserves by lending money to bank customers. buying bonds from a Federal Reserve Bank. borrowing from a Federal Reserve Bank. buying bonds from the public.
borrowing from a Federal Reserve Bank.
During a depression, the best strategy of the Federal Reserve is to sell government bonds, in order to reduce the size of the government's deficits. buy government securities. sell government bonds, to make low-risk, sound assets available for commercial banks to buy. sell government bonds, in order to increase aggregate demand
buy government securities.
During a depression, the best strategy of the Federal Reserve is to sell government bonds, to make low-risk, sound assets available for commercial banks to buy. sell government bonds, in order to increase aggregate demand. sell government bonds, in order to reduce the size of the government's deficits. buy government securities.
buy government securities.
A bank can eliminate its negative excess reserves by doing each of the following except buying United States government securities. borrowing at the discount window. borrowing in the Federal Funds market. not renewing loans.
buying United States government securities.
Monetary policy includes all of the following, except buying and selling government securities on the open market. changes in the discount rate. changes in government spending on goods and services. changes in reserve requirements.
changes in government spending on goods and services.
Monetary policy includes all of the following, except changes in reserve requirements. changes in government spending on goods and services. changes in the discount rate. buying and selling government securities on the open market.
changes in government spending on goods and services.
Bank panics were the result of depositors attempting to withdraw more deposits than the banks held in reserve. the United States going off the gold standard in 1933. banks holding 100% of their deposits on reserve. banks hoarding greenbacks during the Civil War.
depositors attempting to withdraw more deposits than the banks held in reserve.
The interest percent charged by the Fed on loans to depository institutions is knows as the discount rate. federal funds rate. prime rate. commercial paper rate.
discount rate.
The rate of interest charged by the Fed and paid by banks when they borrow reserves from the Fed is called the prime rate. discount rate. reserve rate. real interest rate.
discount rate.
The rate of interest charged by the Fed and paid by banks when they borrow reserves from the Fed is called the reserve rate. prime rate. discount rate. real interest rate.
discount rate.
When the reserve requirement is increased, excess reserves of depository institutions are reduced. required reserves are reduced. the discount rate will increase. required reserves are converted to excess reserves.
excess reserves of depository institutions are reduced.
Actual reserves minus required reserves equals excess reserves. actual reserves. the required reserve ratio. vault cash plus deposits at Fed District Banks.
excess reserves.
Actual reserves minus required reserves equals vault cash plus deposits at Fed District Banks. excess reserves. actual reserves. the required reserve ratio.
excess reserves.
Fed open market purchases of government securities will lower banks' excess reserves. cause the unemployment rate to rise. increase banks' excess reserves. cause an immediate recession.
increase banks' excess reserves.
If the Fed buys government bonds in the open market, banks' excess reserves will be reduced and loans will be called in, leading to an increase in bankruptcies. interest rates and investment spending will remain unchanged but inflation will increase. interest rates will fall and investment spending will increase. interest rates will rise and investment spending will decrease.
interest rates will fall and investment spending will increase.
If the Fed buys government bonds in the open market, interest rates and investment spending will remain unchanged but inflation will increase. banks' excess reserves will be reduced and loans will be called in, leading to an increase in bankruptcies. interest rates will fall and investment spending will increase. interest rates will rise and investment spending will decrease.
interest rates will fall and investment spending will increase.
If the Fed buys government bonds in the open market, interest rates will fall and investment spending will increase. banks' excess reserves will be reduced and loans will be called in, leading to an increase in bankruptcies. interest rates will rise and investment spending will decrease. interest rates and investment spending will remain unchanged but inflation will increase.
interest rates will fall and investment spending will increase.
Money is destroyed when the net worth of the banking system declines. loans are repaid. loans are made. checks written on one bank are deposited in another bank.
loans are made.
Money is destroyed when loans are made. loans are repaid. the net worth of the banking system declines. checks written on one bank are deposited in another bank.
loans are repaid.
An increase in the money supply is likely to decrease the quantity of money demanded. raise interest rates. lower interest rates.
lower interest rates.
During a period of hyperinflation the Fed would probably be doing each of the following except selling securities on the open market. lowering reserve requirements. raising interest rates. raising the discount rate.
lowering reserve requirements.
Attempts to influence interest rates, credit conditions, and the money supply are called monetary policy. moral suasion. mixed economic policy. discounting.
monetary policy.
Which of the following is the Federal Reserve's most important tool of monetary control? discounting operations reserve requirement changes margin requirements open market operations
open market operations
Which of the following is the Federal Reserve's most important tool of monetary control? margin requirements discounting operations reserve requirement changes open market operations
open market operations
Which of the following is the Federal Reserve's most important tool of monetary control? open market operations margin requirements discounting operations reserve requirement changes
open market operations
The Fed's mostly used tool for changing the size of the money supply is open market operations. its power to change legal minimum reserve requirements. its power to change the discount rate. changing the size of the government budget deficit.
open market operations.
The Federal Reserve System controls the money supply primarily through accounting operations. reserve requirement changes. jawboning. open market operations.
open market operations.
The tool the Fed uses most often to implement monetary policy is control of required reserves. control of member banks' credit standings. moral suasion. open market operations.
open market operations.
The tool the Fed uses most often to implement monetary policy is control of required reserves. moral suasion. open market operations. control of member banks' credit standings.
open market operations.
The tool the Fed uses most often to implement monetary policy is moral suasion. control of required reserves. open market operations. control of member banks' credit standings.
open market operations.
The purpose of a tight money policy is to raise interest rates and restrict the availability of bank credit. increase investment spending. run budget surpluses. alleviate recessions.
raise interest rates and restrict the availability of bank credit.
If the monetary authorities want to lower the size of the monetary multiplier, they should lower the legal reserve ratio. take none of these actions. raise the legal reserve ratio. take actions to increase bank reserves.
raise the legal reserve ratio.
If the monetary authorities want to lower the size of the monetary multiplier, they should take actions to increase bank reserves. raise the legal reserve ratio. lower the legal reserve ratio. take none of these actions.
raise the legal reserve ratio.
The Fed increases the money supply by buying securities for $300 million. The impact of this increase, in the long-run, would be to raise the average price level, but real GDP (output) would stay the same. raise the real supply of loanable funds, lower the interest rate, and increase the demand for output. raise the average price level and increase the level of real GDP. raise the real supply and demand for loanable funds with an increase in the interest rate.
raise the real supply of loanable funds, lower the interest rate, and increase the demand for output.
If the Fed sells securities on the open market, this will leave banks' excess reserves unchanged. reduce banks' excess reserves. lower the reserve requirement. increase banks' excess reserves.
reduce banks' excess reserves.
If the Fed sells securities on the open market, this will lower the reserve requirement. increase banks' excess reserves. leave banks' excess reserves unchanged. reduce banks' excess reserves.
reduce banks' excess reserves.
The Federal Reserve System could increase the money supply by increasing marginal tax rates. selling United States bonds. reducing reserve requirements and lowering discount rates. raising discount rates.
reducing reserve requirements and lowering discount rates.
One of the main purposes of the Fed's reserve requirements is to provide cash flow for business firms. regulate the lending ability of member banks. provide sources for foreign investments. provide sources for foreign exchange
regulate the lending ability of member banks.
When there is a great deal of inflation the Fed will not sell nor buy securities on the open market. both sell and buy securities on the open market. sell securities on the open market. buy securities on the open market.
sell securities on the open market.
If the Fed buys Treasury bills, then the price of Treasury bills will rise. the price of Treasury bills will rise AND the market rate of interest on Treasury bills will fall. neither the price nor the market rate of interest on treasury bills will be affected. the market rate of interest on Treasury bills will fall.
the price of Treasury bills will rise AND the market rate of interest on Treasury bills will fall.
The reserve ratio refers to the proportion of deposit liabilities that must be held in the form of cash or deposits in the Federal Reserve. the proportion of reserves that must be held in the form of vault cash. the proportion of reserves that can be loaned out. the proportion of assets held in the form of cash or deposits in the Federal Reserve.
the proportion of deposit liabilities that must be held in the form of cash or deposits in the Federal Reserve.
If the required reserve ratio was lowered None of the choices are correct. the size of the monetary multiplier would increase. the actual reserves of banks would increase. banks would be prompted to reduce their lending.
the size of the monetary multiplier would increase.
Money is destroyed when a bank gives you a $1,000 loan. you cash a check for $1,000 at your bank. you deposit $1,000 cash to be deposited in your checking account. you pay back a $1,000 loan to a bank.
you pay back a $1,000 loan to a bank.