Chapter 13

Bank of Sun city has $800 million in deposits. The required reserve ratio is 20%. Bank of Sun city must keep _______ in reserves

$160 million

Bank A has $100 million in reserves. Bank A is meeting its reserves requirement and has no excess reserves. The requires reserve ratio is 20%. Bank A's demand deposit are

$500 million

The transactions demand for money is most closely related to the function of money as

A medium of exchange

The difference between a bank's total reserves and its required reserve is its

Excess Reserve

Reserve Requirement

Regulations imposed on banks by the central bank that specify a minimum reserve-deposit ratio

Which of the following is not used by the Federal Reserve to change the money supply

The Federal tax code

Central Bank

The institution responsible for the conduct of monetary policy, such as the Federal Reserve in the United States

Federal Funds Rate

The interest rate for interbank reserve loans

Prime Rate

The interest rate that banks charge their most creditworthy customers

Discount Rate

The interest rate that the Fed charges when it makes loans to bank

The interest rates represent

The opportunity cost of holding money

Open Market Operation

The purchase or sale of government bonds by the central bank for the purpose of increasing or decreasing the money supply

If interest rates increase

The quantity of money demanded will decrease

Moral Suasion

A Federal Reserve policy that is used to pursue banks to implement its policies, such as asking them to purchase bonds to reduce the money in circulation

Which of the following activities is not one of the responsibilities of the Federal Reserve

Administering the Federal Tax Code

Monetary policy in the United States is controlled by the Congress

False; Monetary policy is controlled and implemented by the Fed

Money supply is controlled by local banks (lenders) and bank customers (borrowers)

False; Money supply is controlled by the Federal Reserve

According to information presented in the chapter, most economists attribute passive Fed policies in the 1930s as the main cause for the major decrease in the money supply

False; bank failures were attributed as the cause of the major decrease

The chairman of the Federal Reserve reports to the President of the United States and the Congress.

False; the Fed chairman enjoys a great deal of independence and does not have to directly report to the Congress or President

The main tool to control money supply used by the Fed is setting and changing the reserve ratio

False; the main tool used is open-market operations, selling bonds on the open market

The reserve ratio is defined as the amount of money banks can lend to customers and is set by the Federal government

False; the reserve ratio is the amount of money banks must keep in their vaults and is set by the Fed

In the United States, monetary policy is formally set by the

Federal Open Market Committee

The desire to keep assets in cash to take advantage of favorable changes in the value of noncash assets is called the

Speculative Demand for Money

Clearing House

The Federal Reserve Bank clears checks for its member banks by debiting and crediting them to different bank accounts

Supervisory Function

The Federal Reserve Bank examines banks to make sure banks are complying with regulations and maintaining financial stability

Fiscal Agent

The Federal Reserve Bank takes fiscal responsibilities for the federal government

Moral suasion is the attempt to get local banks to adopt Federal Reserve policies

True

The different types of money supply include currency, M1, M2, M3

True

The discount rate is the rate set by the Federal Reserve when lending money to other banks

True

The main functions of the regional Federal Reserve banks are to manage check clearing and to supervise banking and financial activities in the district

True