Quiz 3: Chapters 14,15, 16, & 18

The value of money varies: A. inversely with the price level B. directly with the volume of employment C. directly with the price level D. directly with the interest rate

A

When economists say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use B. means of payment C. a monetary unit for measuring and comparing the relative values of goods D. declared as legal tender by the government

C

Which of the following is the basic economic policy function of the Federal Reserve Banks? A. Holding the deposits or reserves of commercial banks B. Acting as fiscal agents for the federal government C. Controlling the supply of money D. The collection or clearing of checks among commercial banks

C

If the Fed were to reduce the legal reserve ratio, we would expect: A. lower interest rates, an expanded GDP, and a higher rate of inflation B. lower interest rates, an expanded GDP, and a lower rate of inflation C. higher interest rates, an contracted GDP, and a higher rate of inflation D. higher interest rates, an contracted GDP, and a lower rate of inflation

A

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. medium of exchange B. store of value C. unit of account D. economic investment

A

The equation of exchange indicates that: A. MV = PQ B. other things equal, an increase in the demand for money will increase P and/or Q C. the velocity and the supply of money vary directly with one another D. MP = VQ

A

Wells Fargo, J.P. Morgan Chase, and Citibank are all primarily: A. commercial banks B. mutual fund companies C. insurance companies D. securities firms

A

Which one of the following is true about the US Federal Reserve System? A. There are 12 regional Federal Reserve Banks B. The head of the US Treasury also chairs the Federal Reserve Board C. There are 14 members of the Federal Reserve Board D. The Open Market Committee is smaller in size than the Federal Reserve Board

A

According to monetarists, an expansionary fiscal policy is a weak stabilization tool because: A. the asset demand for money varies inversely with the rate of interest B. government borrowing to finance a deficit will raise the interest rate and reduce private investment C. government borrowing will reduce the supply of money in circulation and depress the GDP D. government borrowing to finance a deficit will lower interest rates, increase money balances, and lower velocity

B

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be: A. 0 B. 10% C. 20% D. 25%

B

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the: A. M1 money supply will decline B. M1 money supply will not change C. M2 money supply will decline D. M2 money supply will inceease

B

Interest paid on reserves held at the Fed: A. is available to the general public, but not to commercial banks B. incentivizes financial institutions to hold more reserves and reduce risky lending C. is determined by the federal funds rate D. totaled over $1 trillion in 2012

B

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the transactions demand for money can be represented by: A. a line parallel to the horizontal axis B. a vertical line C. a downsloping line or curve from left to right D. an upsloping line or curve from left to right

B

The amount of money reported as M2: A. smaller than the amount reported as M1 B. larger than the amount reported as M1 C. excludes coins and currency D. includes large ($100,000 or more) certificates of deposit

B

The amount that a commercial bank can lend is determined by its: A. required reserves B. excess reserves C. outstanding loans D. outstanding checkable deposits

B

The purchase of government securities from the public by the Fed will cause: A. commercial bank reserves to decrease B. the money supply to increase C. demand deposits to decrease D. the interest rate to increase

B

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20%, the banking system can expand the supply of money by the maximum amount of: A. $122,000 B. $175,000 C. $300,000 D. $75,000

D

When a bank has a check drawn and cleared against it: A. excess reserves in the banking system decline B. the nation's total money supply falls C. the bank's balance sheet does not change D. the amount of required reserves the bank must have will fall

D

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves: A. is larger the smaller the required reserve ratio B. is the reciprocal of the bank's actual reserves C. is directly or positively related to the size of the required reserve ratio D. will be zero when the required reserve ratio is 100%

A

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks? A. Loans to commercial banks B. Federal Reserve Notes in circulation C. Treasury deposits D. Reserves of commercial banks

A

An efficiency wage is: A. a wage payment necessary to compensate workers for risk of injury on the job B. a "wage" that contains a profit-sharing component as well as traditional hourly pay C. an above-market wage that minimizes a firm's labor cost per unit of output D. a wage that automatically rises with the national index of labor productivity

C

Bank create money when they: A. allow loans to mature B. accept deposits of cash C. buy government bonds from households D. sell government bonds to households

C

In a fractional reserve banking system: A. bank panics cannot occur B. the monetary system must be backed by gold C. banks can create money through the lending process D. the Federal Reserve has no control over the amount of money in circulation

C

In the financial industry, "securitization" refers to: A. increasing insurance protection on bank deposits B. requiring greater down payments on home purchases to reduce mortgage default risk C. bundling groups of loans, bonds, mortgages, and other financial debts into new securities D. increasing collateral requirements on loans

C

The Fed directly sets: A. the prime interest rate but not the federal funds rate B. both the federal funds rate and the prime interest rate C. neither the federal funds rate nor the prime interest rate D. the discount rate and the prime interest rate

C

The Federal Reserve System regulates the money supply primarily by: A. controlling the production of coins at the U.S. 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 government bonds D. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply

C

The amount of reserves that a commercial bank is required to hold is equal to: A. the amount of its checkable deposits B. the sum of its checkable deposits and time deposits C. its checkable deposits multiplied by the reserve requirement D. its checkable deposits divided by its total assets

C

The asset demand for money is most closely related to money functioning as a: A. unit of account B. medium of exchange C. store of value D. measure of value

C

The federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks B. US securities are bought and sold C. banks borrow reserves from one another on an overnight basis D. Federal Reserve Banks borrow from one another

C

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the: A. prime rate B. short-term rate C. discount rate D. federal funds rtate

C

When a commercial bank borrows from a Federal Reserve Bank: A. the supply of money automatically increases B. it indicates that the commercial bank is unsound financially C. the commercial bank's lending ability is increased D. the commercial bank's reserves are reduced

C

When the required reserve ratio is decreased, the excess reserves of member banks: A. reduced, but the multiple by which the commercial banking system can lend is unaffected B. reduced and the multiple by which the commercial banking system can lend is increased C. increased and the multiple by which the commercial banking system can led is increased D. increased and the multiple . by which the commercial banking system can lend is reduced

C

The primary purpose of the legal reserve requirement is to: A. prevent banks from hoarding too much vault cash B. provide a means by which the monetary authorities can influence the lending ability of commercial banks C. prevent commercial banks from earning excess profits D. provide a dependable source of interest income for commercial banks

B

When a bank loan is repaid, the supply of money: A. is constant, but its composition will have changed B. is decreased C. is increased D. may either increase or decrease

B

A commercial's bank's reserves are: A. liabilities to both the commercial bank and the Federal Reserve Bank holding them B. liabilities to the commercial bank and assets to the Federal Reserve Bank holding them C. assets to both the commercial bank and the Federal Reserve Bank holding them D. assets to the commercial bank and liabilities to the Federal Reserve Bank holding them

D

Excess reserves refer to the: A. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank B. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits C. difference between actual reserves and loans D. difference between actual reserves and required reserves

D

The greater the leverage in the financial system, all else equal: A. the smaller the monetary multiplier B. the smaller the profit and loss margins of financial firms C. the greater the stability of the financial system D. the greater the instability of the financial system

D

The opportunity cost of holding money: A. is zero because money is not an economic resource B. varies inversely with the interest rate C. varies directly with the interest rate D. varies inversely with the level of economic activity

D

The velocity of money measures the: A. proportion the money supply held as an asset B. ratio of the transactions demand to the asset demand for money C. average annual rate of increase in the money supply D. number of times per year the average dollar is spent on final goods and services

D

Which of the following is not part of the M2 money supply? A. Money market mutual fund balances B. Money market deposit accounts C. Currency D. Large-denominated time deposits

D