Chapter 14 Macro
The United States is divided into ________ Federal Reserve Districts.
12
The Federal Reserve Bank's Board of Governors consists of __________ members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a _____ year, renewable term as the chairman.
7, 4
An initial decrease in a bank's reserves will decrease checkable deposits A. by an amount greater than the decrease in reserves. B. by an amount equal to the decrease in reserves. C. by an amount less than the decrease in reserves. D. An initial decrease in reserves will increase checkable deposits.
A
How do the banks "create money"? A. When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands. B. When there is a decrease in checking account deposits, banks lose reserves and reduce their loans, and the money supply expands. C. Banks sell bonds in the open market and lose reserves; the excess cash holding by households increases the money supply. D. Banks buy bonds in the open market and gain reserves; this excess reserve holding increases the money supply.
A
Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if bank reserves increase by $60 billion? A. $1,200 billion increase B. $300 billion increase C. $12 billion increase D. $60 billion increase
A
The Federal Reserve uses two definitions of the money supply, M1 and M2, because A. M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply. B. M2 is also known as cash and cash equivalent, whereas M1 represents the standard of deferred payment function. C. M2 is a narrow definition focusing more on liquidity, whereas M1 is a broader definition of the money supply. D. M2 satisfies the medium of exchange function of money, whereas M1 satisfies the store of value function.
A
The central bank of a country controls the money supply, which equals the currency held by A. the public plus their checking account balances. B. the public plus their checking and saving account balances. C. the public. D. banks.
A
The most important role of the Federal Reserve in today's U.S. economy is A. controlling the money supply to pursue economic objectives. B. balancing the government's budget by increasing taxes and cutting spending. C. negotiating with foreign nations to reduce the enormous trade deficit. D. managing the Wall Street investment banking and hedge fund operations.
A
Which tool is the most important? A. The Fed conducts monetary policy principally through open market operations. B. The Fed conducts monetary policy principally by tax cuts and government spending increases. C. The Fed conducts monetary policy principally through discount policy. D. The Fed conducts monetary policy principally by changing the reserve requirement.
A
According to the quantity theory of money, inflation results from which of the following? A. The money supply grows slower than real GDP. B. The money supply grows faster than real GDP. C. The money supply grows at the same rate as GDP.
B
An initial increase in a bank's reserves will increase checkable deposits A. by an amount less than the increase in reserves. B. by an amount greater than the increase in reserves. C. by an amount equal to the increase in reserves. D. An initial increase in reserves will decrease checkable deposits.
B
Credit cards are A. included in the M2 definition of the money supply, but not in the M1 definition. B. included in neither the M1 definition of the money supply nor in the M2 definition. C. included in the M1 definition of the money supply, but not in the M2 definition. D. included in both the M1 and the M2 definitions of the money supply.
B
Evaluate the following statement: Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit. A. False. In reality, banks are rarely able to find borrowers for all of their deposits. B. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve. C. True. Deposits that sit in a bank as vault cash earn no interest. D. True. Any money that is left over after a bank loans money to businesses and households will be loaned to other banks.
B
How does the quantity theory provide an explanation about the cause of inflation? A. The quantity equation shows that if the money supply grows at a slower rate than real GDP, then there will be inflation. B. The quantity equation shows that if the money supply grows at a faster rate than real GDP, then there will be inflation. C. The quantity equation shows that if the money supply grows at the same rate as real GDP, then there will be inflation. D. The quantity equation shows that if the money supply grows at a faster rate than nominal GDP, then there will be inflation.
B
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. A. Your bank's balance sheet shows an increase in reserves by $100 and an increase in deposits by $100. B. Your bank's balance sheet shows a decrease in reserves by $100 and a decrease in deposits by $100. C. Your bank's balance sheet shows an increase in reserves by $100 and a decrease in deposits by $100. D. Your bank's balance sheet shows a decrease in reserves by $100 and an increase in deposits by $100.
B
What are the largest asset and the largest liability of a typical bank? A. Cash in its vault is the largest asset and bonds are the largest liability of a typical bank. B. Loans are the largest asset and deposits are the largest liability of a typical bank. C. Loans are the largest liability and deposits are the largest asset of a typical bank. D. Reserves are the largest asset and deposits are the largest liability of a typical bank.
B
Which of the following best explains the difference between commodity money and fiat money? A. All money is commodity money, as it has to be exchanged for gold by the central bank. B. Fiat money has no value except as money, whereas commodity money has value independent of its use as money. C. Commodity money is usually authorized by the central bank, whereas fiat money has to be exchanged for gold by the central bank. D. Commodity money has no value except as money, whereas fiat money has value independent of its use as money.
B
Which one of the following is not one of the policy tools the Fed uses to control the money supply? A. Discount policy. B. Moral suasion. C. Open market operations. D. Reserve requirements.
B
In 2008, the required reserve ratio for a bank's first $9.3 million in checking account deposits was zero. It was 3 percent on deposits between $9.3 million and $43.9 million, and 10 percent on deposits above $43.9 million. In most cases, and for simplicity, we assume that the required reserve ratio is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10. Is the real-world deposit multiplier greater than, less than, or equal to the simple deposit multiplier? A. Greater. Inflation plays a large role in the increase in checkable deposits. B. Equal. There is no difference between the two. C. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier. D. None of the above. They are very different concepts.
C
In addition to the Federal Reserve Bank, what other economic actors influence the money supply? A. The U.S. Senate and the U.S. House of Representatives. B. The U.S. Mint and the U.S. Treasury. C. The U.S. President and Vice President. D. Households, firms, and banks.
D
The M2 definition of the money supply includes A. M1, savings accounts, small time deposits, money markets, and credit cards. B. M1, savings accounts, mutual funds, and credit cards. C. savings accounts, mutual funds, small time deposits, and credit cards. D. M1, savings accounts, small time deposits, and money markets.
D
The quantity theory of money is better able A. to explain the inflation rate in the short run. B. to explain the natural rate of unemployment in the long run. C. to explain the full employment in the long run. D. to explain the inflation rate in the long run.
D
The use of money A. reduces the transaction costs of exchange. B. eliminates the double coincidence of wants. C. allows for greater specialization. D. all of the above.
D
Which of the following is a monetary policy tool used by the Federal Reserve Bank? A. Buying $500 million worth of government securities, such as Treasury bills. B. Increasing the reserve requirement from 10 percent to 12.5 percent. C. Decreasing the rate at which banks can borrow money from the Federal Reserve. D. All of the above.
D
Which of the following is true with respect to hyperinflation? A. It can be hundreds—even thousands—of percentage points per year. B. In the presence of hyperinflation, firms and households avoid holding money. C. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP. D. All of the above.
D
Which one of the following is not the formula for the quantity theory of money? A. M=1V×P×Y. B. M×V=P×Y. C. V=P×YM. D. M×Y=P×V.
D
Which of the following is true with respect to Irving Fisher's quantity equation, M×V=P×Y? A. V=P×YM B. P = the GDP deflator C. V = Average number of times a dollar is spent on goods and services D. M = M1 definition of the money supply E. All of the above
E
Which of the following is included in M2 but not M1? A. Money market deposit accounts in banks B. Traveler's checks C. Currency D. Checking account deposits at banks
a
Which of the following is NOT a function of money? A. Medium of exchange B. Acceptability C. Store of value D. Unit of account
b
A baseball fan with a Mike Trout baseball card wants to trade it for a Giancarlo Stanton baseball card, but everyone the fan knows who has a Stanton card doesn't want a Trout card. Economists characterize this problem as a failure of the A. market clearing mechanism. B. theory of comparative advantage. C. principle of a double coincidence of wants. D. irrational exuberance doctrine.
c
Congress passed legislation to create the Federal Reserve System in 1913 in order to A. take the monetary control over the economy away from the Treasury Department. B. end the instability created by a huge crude oil price hike during that time. C. end the instability created by bank panics by acting as a lender of last resort. D. end the instability created by a savings and loan fiasco that occurred during that time.
c
Distinguish among money, income, and wealth. A. A person's money is the currency plus all bank accounts owned, income is equal to the earning from work and wealth is equal to the profit from investment. B. A person's money is the currency in the pocket, income is the earning and wealth is equal to asset value. C. A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts. D. A person's money is the currency held and the earning from work, income is equal to the bank balance and wealth is equal to the profit from investment.
c
In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?" A. A bank run is a U.S. issue; a bank panic is an international issue. B. A bank run involves many banks; a bank panic involves one bank. C. A bank run involves one bank; a bank panic involves many banks. D. A bank run is a local issue; a bank panic is a national issue.
c
In addition to the Federal Reserve Bank, what other economic actors influence the money supply? A. The U.S. President and Vice President. B. The U.S. Mint and the U.S. Treasury. C. Households, firms, and banks. D. The U.S. Senate and the U.S. House of Representatives.
c
The U.S. dollar can best be described as A. reserve money. B. commodity-backed money. C. fiat money. D. commodity money.
c
