chapter 32-34
The Federal Reserve System was created in
1913
A restrictive monetary policy is designed to shift the
Aggregate demand curve leftward
Which if the following best describes the cause and effect chain of an expansionary monetary policy
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP
As it relates to Federal Reserve activities, the acronym FOMC describes the
Federal Open Market Committee
the group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, bonds) is the
Federal Open Market Committee (FOMC)
the paper money used in the US is
Federal Reserve Notes
In the US economy system, the money supply is controlled by the
Federal Reserve System
The interest rates that bank charge on one another on overnight loans is called the
Federal funds rate
Monetary policy is expected to have its greatest impact on
Ig
A contraction of the money supply
Increase the interest rate and decrease aggregate demand
If the amount of money demanded exceeds the amount supplied, the
Interest rate will rise
An increase in the money supply will
Lower interest rates and increase the equilibrium GDP
Which if the following actions by the fed would cause the money supply to increase
Purchase of government bond from the banks
The purpose of a restrictive monetary policy is to
Raise interest rates and restrict the availability of bank credit
Upon which of the following industries is a restrictive monetary policy likely to be most effective
Residential construction
If the federal reserve authorities were attempting to reduce demand pull inflation, the proper policies would be to
Sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the fed banks
If severe demand pull inflation was occurring in the economy, proper government policies would involve a government
Surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements
Which of the following statements is true
The federal reserve does no set the federal funds rate, but it influences it through the use of its open market operations
federal reserve notes in circulation are
a liability as viewed by the federal reserve banks
an asset's liquidity refers to its ability to be
a means of payment
if you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
a medium of exchange
what function is money serving when you use it when you go shopping
a medium of exchange
if product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as
a unit of account
if you are estimating your total expenses for school next semester, you are using money primarily as
a unit of account
when a consumer wants to compare the price of one product with another, money is primarily functioning as
a unit of account
the federal reserve system regulates the money supply primarily by
altering the reserves of commercial banks, largely through sales and purchases of government bonds
a decrease in the reserve ratio increases the
amount of excess reserves in the banking system
the federal reserve banks sell government securities to the public. As a result, the checkable deposits
and reserves of commercial banks both decrease
the federal reserve system consists of which of the following
board of governors and the 12 federal reserve banks
a commercial bank can add to its actual reserves by
borrowing from a federal reserve bank
the federal reserve system of the US is the country's
central bank
which of the following is not a tool of monetary policy
changes in banking laws
In the US the money supple (M1) is comprised of
coins, paper currency, and checkable deposits
which of the following will happen when the federal reserve buys bonds from the public in the open market and the amount of crash held by the public does not change
commercial bank reserves will increase
the main function of the federal reserve system is to
control the money supply
to keep high inflation from eroding the value of money, monetary authorities in the US
control the supply of money in the economy
the federal reserve system performs many functions but its most important one is
controlling the money supply
an increase in the legal reserve ratio
decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier
money functions as a store of value if it allows you to
delay purchases until you want the goods
projecting that it might temporarily fall short of legally required reserves in the coming days, the bank of beano decides to borrow money from its regional federal reserve bank. the interest rate on the loan is called the
discount rate
the interest rate at which the federal reserve banks lend to commercial banks is called the
discount rate
which of the following is correct? when the federal reserve buys government securities from the public, the money supply
expands and commercial banks reserves increase
Which group aids the board of governors of the federal reserve system in conducting monetary policy
federal open market committee
which group is responsible for the policy decision of changing the money supply
federal open market committee
the discount rate is the rate of interest t which
federal reserves bank lend to commercial banks
if the fed wants to discourage commercial bank lending, it will
increase the interest paid on reserves held at the fed
when the required reserve ratio is decreased, the excess reserves of member banks are
increased and the multiple by which the commercial banking system can lend is increased
when the fed lends money to a commercial bank, the bank
increases its reserves and enhances its ability to extend credit to bank customers
the federal reserve system is an
independent agency of government
which of the following monetary policy tool was introduced in 2008
interest on reserves held at the fed
if the federal reserve system buys government securities from commercial banks and the public
it will be easier to obtain loans at commercial banks
money eliminates he need for a coincidence of wants in trading primarily through its role as a
medium of exchange
which of the following functions of money enables society to gain the benefits of geographic and labor specialization
medium of exchange
the federal reserve banks are owned by the
member banks
which of the following is a tool of monetary policy
open-market operations
the federal reserve system performs the following functions, except
providing banking services to the general public
the discount rate is the interest
rate at which the federal reserve banks lend to commercial banks
when the required reserve ratio is increased, the excess reserves of member banks are
reduced and the multiple by which the commercial banking system can lend is reduced
which of the following actions by the Fed most likely increases commercial bank lending
reducing the interest paid on reserves held at the fed
the reserve ratio refers to the ratio of a bank's
required reserves to its checkable-deposit liabilities
the federal open market committee (FOMC)
sets policy on the sale and purchases of government bonds by the fed
he federal open market committee (FOMC) of the federal reserve system is primarily for
setting the fed's monetary policy and directing the purchase and sale of the government securities
if you place a part of your summer earnings in a saving account, you are using money primarily as a
store of value
when a commercial bank borrows from a federal reserve bank
the commercial bank's lending ability is increased
the four main tools of monetary policy are
the discount rate, the reserve ratio, interest on reserves , and open-market operations
the purchase of government securities from the public by the fed will cause
the money supply to increase
research for industrially advanced countries indicates that
the more independent the central bank, the lower the average annual rate of inflation
which of the following will increase commercial bank reserves
the purchase of government bonds in the open market by the federal reserve banks
open-market operations refer to
the purchase or sale of government securities by the fed
which of the following tools of monetary policy has not been used since 1992
the reserve ratio
which of the monetary policy tools can alter both the level of excess reserves and the money multiplier
the reserve ratio
The Federal Open Market Committee (FOMC) is made up of
the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis
Which one of the following is true about the US federal reserve system
there are 12 regional Federal reserve banks
to say that the federal reserve banks are quasi-public banks means that
they are privately owned but managed in the public interest
which of the following is not true about the federal reserve bank
they compete with commercial banks in their basic functions
the securities as assets by the federal reserve banks consists mainly of
treasury bills, treasury notes, and treasury bonds
a $70 price tag on a sweater in a department store window is an example of money functioning as a
unit of account
when a banker records how many dollars each of his borrowers owes the bank, money is serving as a
unit of account
Assuming government wishes to either increase or decrease the level of aggregate demand, high if the following pairs are not consistent policy measures
A tax increase and an increase in the money supply
interest paid on reserves held at the fed
incentivizes financial institutions to hold more reserves and reduce risky lending
which of the following tools of monetary policy is considered the most important on a day-to-day basis
open market operations
which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts
open market operations
The reason for the Fed being set up as an independent agency of government is to
protect it from political pressure
one major advantage of money serving as a medium of exchange Is that it allows society to
escape the complications of barter
the federal reserve system
is basically an independent agency
The federal fund rate is the interest rate that ___changes _____
Banks, other banks
the central authority of the US banking system is the
Board of Governors of the Federal Reserve
in the US, monetary policy is the responsibility of the
Board of the Governors of the federal Reserve System
If the economy were encountering a severe recession, proper monetary and fiscal policies would call for
Buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at fed banks, and a budgetary deficit
members of the federal reserve board of governors are
appointed by the president to staggered 14-year terms
Which of the following best describes the cause and effect chain of a restrictive monetary policy
Decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ___, which will _____ investment spending
Decrease, increase
All else equal, when the federal reserve banks engage in a restrictive monetary policy, the prices of government bonds usually
Fall
All else equal, when the federal reserve banks engage in an expansionary monetary policy, the interest rates received on government bonds usually
Fall
what function is money serving when u deposit money in a savings account
a store of value
money functions are
a store of value, a unit of account, a medium of exchange
which of the following is the basic economic policy function of the federal reserve banks
controlling the supply of money
if the fed were to reduce the legal reserve ratio, we would expect
lower interest rates, an expanded GDP, and a higher rate of inflation
the commercial banking system borrows from the federal reserves banks. As a result, the checkable deposits
of commercial banks are unchanged, but their reserves increase
the federal reserve banks buy government securities from commercial banks. As a result, the checkable deposits
of commercial banks are uncharged, but their reserves increase
