Money, banking and the Fed review

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Which of the following best explains the difference between commodity money and fiat money?

Fiat money has no value except as money, whereas commodity money has value independent of its use as money

Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if banks reserves increase by $40 billion?

$800 billion increase

The most important role of the fed reserve in today's U.S. economy is

Controlling money supply to pursue economic objectives

The U.S. Is divided into _____ FR distrixts

12

One of the board members is appointed to a ___ year, renewable term as chairman

4

The FR bank's board of governors consists of ____ members appointed by the pres of the US to a 14 year non renewable terms

7

If something is to be considered money, it has to fulfill

All four functions

The FOMC

All the above

The economic definition of money is:

Any asset that people are generally willing to accept in exchange for goods and services

Reserve requirements are changed infrequently because

Banks set long term policy , loan and deposit decisions based on the reserve requirement

To increase the money supply, the FOMC directs the trading desk, located at the FR bank of NY, to

Buy U.S. Treasury securities from piblic

The FR banks of NY is always a voting member of the FOMC because

Carries out the policy directives of the fomc

The use of money

Eliminates double coincidence of wants Allows for greater specialization Reduces the transaction costs of exchange

Congress passed legislation to create the Federal Reserve system in 1913 in order to

End instability created by bank panics by acting as a lender of last resort

The quantity theory of money is better able

Explain the inflation rate in the long run

By raising the discount rate, the fed leads banks to make _____ loans to households and firms, which will _____ checking account deposits and the money supply

Fewer; decrease

What are the largest asset and largest liability of a bank?

Loans are the largest asset and deposits are largest liability

Which of the following is not the formula for the quantity theory of money?

M*Y = P*V

The federal reserve uses two definitions of the money supply, M1 and M2, because

M1 is narrow, M2 is broader

When the FR buys bonds through open market operations

Money supply will increase

Which one of the following is not a function of money?

Open market operation

Which of the following policy tools is the FR least likely to use in order to actively change the money supply?

Reserve requirements

When the fed reserve sells treasury securities in the open market

The buyers pay for them With checks and bank reserves fall

How does the quantity theory provide an explanation about the cause of inflation?

The quantity equation shows that if money grows at a faster rate than real GDP, then there will be inflation

When the federal reserve purchases treasury securities in the open market

The sellers deposit the funds in their banks and bank reserves increase

How do the banks "create money"?

When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply extends

Suppose you decide to withdraw $100 in cash from your checking account. Which one of the following choices accurately shows the effect of this transaction on your bank's balance sheet?

Your banks balance sheet shows a decrease in reserves and deposits


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