Macroeconomics Chapter 34

If the Fed wants to increase the money supply, it will ________ Treasury securities

buy

If the Fed wants to increase the money supply it will

buy government bonds

Open market operations involve the Federal Reserve

buying and selling government bonds

Quantitative easing involves the Federal Reserve

buying long-term government bonds

To increase the money supply in the economy, the Fed would

carry out open market operations, and or decrease the interest rate paid on reserves

Demand deposits are

checkable deposits

Which is the MOST liquid asset

currency

What does M1 consist of?

currency + checkable deposits

Which is NOT included in the U.S. money supplies M1 and M2

currency in circulation

M1 refers to

currency plus checkable deposits

The monetary base refers to

currency plus total reserves held at the Fed.

Which is included in M2

currency, checkable deposits, and savings deposits

M2 refers to:

currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

For a given level of reserves a decrease in the money multiplier will cause the money supply to

decrease

Which asset would you classify as being most liquid?

demand deposits

In a fractional reserve banking system, banks hold only a fraction of their

deposits as reserves

Reserves held at the Fed are

electronic claims that can be converted into currency if the bank wishes

To reduce the money supply in the economy, the Fed would

engage in actions to increase interest rates

When the Fed buys short-term Treasure securities, short-term interests rates

fall

The Federal Reserve is the

federal government's bank, central bank, and banker's bank in the United States.

Moral hazard occurs when

financial institutions take on too much risk because they are insured

Suppose the reserve ratio is 20% for all banks. If the Fed increases the bank reserves by $200, then the money supply will

increase by $1,000

The Federal Reserve acquires its exclusive powers through its ability to

issue money

Which concept describes the case with which an asset can be quickly converted into money without losing its value

liquidity

The amount by which the money supply expands with each additional dollar in the reserves is the

money multiplier

Open market operations refer to

the buying and selling of government bonds by the Fed

The monetary base is equal to currency plus

total reserves held at the Federal Reserve

Checkable deposits are part of

M1 and M2

If the reserve ratio is 10%, than a $100 increase in bank deposits can potentially lead to

an increase of $1,000 in the money supply

Money is best defined as

anything that is a widely accepted means of payment.

Money is

anything that is widely accepted means of payment

The reserve ratio is the ratio of bank reserves to

bank deposits

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that the reserve ratio (RR) is 10%. By how much is the money supply expected to change?

1.6 million

If the reserve ratio is 4 percent, then the money multiplier is

25

If the reserve ratio is 20% , the money multiplier equals

5

Ben Bernanke was ____________________ during the financial crisis of 2008

Chairman of the President's council of Economic Advisors

When the U.S. Treasury borrows, the borrowing is managed by the:

Federal Reserve

The government's bank and the banker's bank in the United States are called the

Federal Reserve System

Why is NOT a reason so much U.S. currency circulates in other countries

The Federal Reserve Makes loans to other countries

The money multiplier equals

one divided by the reserve ratio.

The Federal Reserve's major tool(s) to control the money supply is (are)

open market operations and paying interest on reserves

The Federal Fund rate is the

overnight lending rate on loans from one major bank to another

Which are the two major tools the Fed uses to control the money supply

paying interest on reserves held by banks at the Fed and open market operations

Which is NOT a function of the Federal Reserve

providing loans to small businesses

The reserve ratio is the

ratio of reserves to deposit

The largest means of payment in the United States is

savings deposit

What will happen when banks decide to increase their reserve ratios?

the money supply will contract