quiz for chapter 15

The term auction facility sets _____, and then the Fed _____. an interest rate; waits to see how many banks want to borrow a certain quantity of reserves; reduces the interest rate until banks borrow the money an interest rate; reduces the interest rate until banks borrow the money a certain quantity of reserves; waits to see how many banks want to borrow

a certain quantity of reserves; reduces the interest rate until banks borrow the money

The Federal Reserve does all of these activities EXCEPT: issue money. oversee the Internal Revenue Service. protect consumers with disclosure regulations. keep accounts for private banks.

oversee the Internal Revenue Service.

ΔReserves × MM equals: Answer choicesMS.ΔRR.RR.ΔMS.

ΔMS.

Of the following events that would occur as a part of the Fed using monetary policy to decrease aggregate demand, which would occur first? Short-term interest rates increase. The monetary base decreases. The Fed sells bonds in an open market operation. Investment borrowing decreases.

The Fed sells bonds in an open market operation.

The idea of moral hazard is that when individuals or institutions are insured, they tend to: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices spend too much. borrow too much. take on too much risk. expect lower prices.

take on too much risk.

Which statement is FALSE? Money is a widely accepted means of payment. The Fed has direct control only over the monetary base. A liquid asset can't be used for payments or can quickly and without loss of value be made usable for payments. The M2 money supply includes M1 plus savings deposits, money market mutual funds, and small-time deposits.

A liquid asset can't be used for payments or can quickly and without loss of value be made usable for payments.

What effect does an increase in reserves have on the money supply? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choicesAn increase in reserves increases M1 but decreases M2.An increase in reserves increases both M1 and M2.An increase in reserves decreases both M1 and M2.An increase in reserves increases M1 but not M2.

An increase in reserves increases both M1 and M2.

Which statement is FALSE? If banks kept a 100 percent reserve ratio, the money multiplier would equal 1. The money multiplier tells us how much deposits expand with each dollar increase in reserves. With a 100 percent reserve ratio, the interest rate on bank deposits would likely go down. People would be less likely to invest their savings in bank alternatives if the reserve ratio is 100 percent.

People would be less likely to invest their savings in bank alternatives if the reserve ratio is 100 percent.

ΔReserves × MM equals the: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choicesmoney multiplier.change in the money supply.GDP multiplier.reserve ratio.

change in the money supply.

What is something that the Federal Reserve does? oversee the Internal Revenue Service print money to finance government spending calculate labor market statistics, such as the unemployment ratel end money to banks

lend money to banks

The Federal Reserve does all of these activities EXCEPT: regulate banks. lend money to banks. keep accounts for private banks. measure GDP.

measure GDP.

One problem with discount window lending that does not apply to the term auction facility is banks may: borrow too much and then use it to make risky loans. not borrow because the discount rate is set too high. borrow too much, causing the monetary base to grow out of control. not borrow for fear of admitting to the market that they are in a weak position.

not borrow for fear of admitting to the market that they are in a weak position.

What is the Fed's ultimate goal in undertaking monetary policy? to influence aggregate demand to control the inflation rate to permanently increase the real growth rate to shift the Solow growth curve

to influence aggregate demand

Which is NOT one of the services that the Federal Reserve performs for the U.S. government? depositing money received by the U.S. Treasury through the IRSmanaging the issuing, transferring, and redeeming of U.S. Treasury bills, bonds, and notesmaintaining the U.S. Treasury's bank accountprinting money to finance government spending

printing money to finance government spending

Which statement is TRUE? Under fractional reserve banking, banks hold only a small portion of deposits in reserve, and they lend the rest. The change in money supply equals the change in reserves/money multiplier. The reserve ratio is the ratio of bank-held deposits to cash. The money multiplier is the amount the money supply expands with each dollar decrease in reserves.

Under fractional reserve banking, banks hold only a small portion of deposits in reserve, and they lend the rest.

Which statement is TRUE? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choicesQuantitative easing occurs when the Fed sells longer-term government bonds or other securities.The Federal Funds rate is the interest rate banks pay when they borrow directly from the Fed.When the Federal Funds rate is close to zero, it is said to be near the zero-lower bound.The U.S. Federal Reserve no longer uses interest payments on reserves to control the money supply.

When the Federal Funds rate is close to zero, it is said to be near the zero-lower bound

M2 includes: choices currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits. currency, checkable deposits, savings deposits, and money market mutual funds. currency, checkable deposits, and savings deposits. currency and checkable deposits.

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

The U.S. Treasury is the world's largest bank customer because it: spends more money than any other bank customer.writes the rules and regulations that affect all other bank customers.lends more money than any other bank customer.has more income and borrows more than any other bank customer.

has more income and borrows more than any other bank customer.

If the Fed wants to decrease interest rates, it should: issue bonds in open market operations. recall bonds in open market operations. buy bonds in open market operations. sell bonds in open market operations.

buy bonds in open market operations.

What is one of the reasons that banks keep their accounts at the Federal Reserve? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choicesThey want a safe place to hold their money.It would be too inconvenient for banks to hold their own accounts.The Federal Reserve charges lower account maintenance fees than do the banks themselves.Interest paid by the Federal Reserve exceeds the returns from any other type of investment.

They want a safe place to hold their money

What will the Fed try to predict and monitor in order to estimate the effect of its actions on aggregate demand? whether businesses who borrow will promptly hire capital and laborwhether households expect inflation to rise or to fallthe slope of the short-run aggregate supply curvewhether the next Fed chairperson will be appointed by a Republican or Democrat president

whether businesses who borrow will promptly hire capital and labor

Which statement is TRUE? With a 100 percent reserve ratio, the interest rate on bank deposits would likely go down.The money multiplier tells us how much deposits expand with each dollar decrease in reserves.If banks kept a 100 percent reserve ratio, the money multiplier would equal 10.People would be less likely to invest their savings in bank alternatives if the reserve ratio is 100 percent.

With a 100 percent reserve ratio, the interest rate on bank deposits would likely go down.

Discount window lending sets _____, and then the Fed _____. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choicesa certain quantity of reserves; waits to see how many banks want to borrowan interest rate; reduces the interest rate until banks borrow the moneya certain quantity of reserves; reduces the interest rate until banks borrow the moneyan interest rate; waits to see how many banks want to borrow

an interest rate; waits to see how many banks want to borrow

What is one of the reasons that banks keep their accounts at the Federal Reserve? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choicesIt would be too inconvenient for banks to hold their own accounts.Interest paid by the Federal Reserve exceeds the returns from any other type of investment.All of the money that banks have ultimately belongs to the Federal Reserve anyway.Some banks are required by law to hold accounts with the Federal Reserve.

Some banks are required by law to hold accounts with the Federal Reserve.

When the Federal Reserve lends money to banks and other financial institutions because no one else will, it is: conducting open market operations. acting as a lender of last resort. creating a liquidity crisis. acting as a primary market participant.

acting as a lender of last resort.

The Fed has MOST influence over _____ interest rates. Investment spending depends on _____ interest rates. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choiceslong-term; short-termlong-term; long-termshort-term; short-termshort-term; long-term

short term; long-term