Eco 111 part 2 of 4
One reason that "near-monies" are important is because?
They can be easily converted into money or vice versa, and thereby can influence the stability of the economy
The currency or money of the United States, like those of other countries, is?
Token money
Which of the following bank-related policies of the Fed fosters huge moral hazard problem?
Too big to fail policy
Which of the following institutions does not provide checkable-deposit services to the general public?
U.S. Treasury
Securitization, the process of forming new securities by bundling or slicing up groups of securities like mortgages and bonds, is?
A way of reducing risk though diversification
When a bank's loans are written off, then the bank's?
Ability to make new loans is restricted
Checkable deposits are money because they are?
Acceptable as payment
One major advantage of credit card used for transactions is that they?
Allow consumers to coordinate timing and payment for purchases
When cash is deposited in a checkable-deposit account at a bank, there is?
An increase in the bank's liabilities
Members of the Federal Reserve Board of Governors are?
Appointed by the President to staggered 14-year terms
A checkable deposit at a commercial bank is an?
Asset to the depositor and a liability to the bank
A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of?
Assets
A bank's net worth is equal to its?
Assets minus its liabilitites
The "bail-out" money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler, came from the?
Troubled Assets Relief Program
When a banker records how many dollars each of his borrowers owes the bank, money is serving 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 functions of money are to serve as a?
Unit of account, store of value, and medium of exchange
Paper money or currency in the U.S. is essentially?
a debt of a government agency
An asset's liquidity refers to its ability to be?
a means of payment
What function is money serving when you use it when you go shopping?
a medium of exchange
What function is money serving when you deposit money in a savings account?
a store of value
If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as?
a unit of account
Checkable deposits are included in?
both M1 nor M2
The M1 money supply is composed of?
Checkable deposits and currency in circulation
A bank's net worth is the?
Claims of its owners against the bank's assets
"Thrifts" refer to the following institutions, except?
Commercial banks
Money supply M1 does not include the currency held by?
Commercial banks
Traditionally, the Federal Reserve can give emergency loans only to?
Commercial banks
Holding the money deposits of businesses and households and marking loans to the public are the basic functions of?
Commercial banks and thrift institutions
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 United States?
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
Which of the following is the most important function of the Federal Reserve System?
Controlling the money supply
The federal backing for money in the United States comes from?
Controlling the money supply in order to keep the value of money relatively stable over time
The electronic-based payment that involves a loan is the?
Credit card
As of January 2010, slightly more than half of the money supply (M1) was in the form of?
Currency
The M1 money supply is composed of items?
Currency held by the public and checkable deposits
The so-called stored-value cards include the following except?
Debit cards
Checkable deposits are?
Debts of commercial banks and savings institutions
A 15 percent increase in the price level?
Decrease the value of a dollar by 13 percent (15/115 = 13%)
Money functions as a store of value if it allows you to?
Delay purchases until you want the goods
Which are liabilities to a bank?
Demand and time deposits
One major advantages of money serving as a medium of exchange is that is allows society to?
Escape the complications of barter
Which group assists the Board of Governors of the Federal Reserve System in determining monetary policy?
Federal Open Market Committee
Which group is responsible for the policy of changing the money supply?
Federal Open Market Committee
The paper currencies of the U.S. are also called?
Federal Reserve notes
The basic requirement of money is that it be?
Generally accepted as a medium of exchange
During the Financial Crisis of 2007-2008, Goldman Sachs, Morgan Stanley, and other financial firms with heavy exposure to the mortgage-related problems rushed to become bank holding companies in order to?
Get massive loans from the Fed
The government bail-out of the large institutions creates the problem of moral hazard, which means that these large firms will?
Have an incentive to make highly risky investments
The causes of the skyrocketing mortgage default rates that triggered the financial crisis on 2007-2008 include the following, except?
Housing price increased drastically and that sparked the crisis
Gift-cards that people give one another for special occasions and holidays are examples of?
Stored-value cards
If the value of the dollar is falling, then it follows that?
The price index is rising
How many Federal Reserve Banks are there?
12
The Federal Reserve System is divided into?
12 districts
How long is the term of office for members appointed to serve on the Board of Governors of the Federal Reserve System?
14 years
When was the Federal Reserve System established?
1913
If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about:
23 percent (30/130 =23%)
The purchasing power of the dollar would fall by 20% if the price index rises by?
25 percent (20/80 = 25%)
How many members can serve on the Board of Governors of the Federal Reserve System?
7
An inflation rate of 8% would erode the purchasing power of the dollar by?
7.4 percent (8/108 =7.4%)
What is one significant consequence of fractional reserve banking?
Banks are vulnerable to "panics" or "bank runs"
The major wave of defaults on home mortgages in 2007 destabilized?
Banks including those that made the loans indirectly
When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of?
Being the bankers' bank
The Federal Reserve System consists of which of the following?
Board of Governors and the 12 Federal Reserve Banks
The Federal Reserve System of the U.S. is the country's?
Central banks
Which of the following would be considered to be the most liquid?
Checkable deposits
The Federal Reserve System is an?
Independent agency of government
The following financial institutions traditionally accept deposits from savers, except?
Investment banks
United States currency has value primarily because it?
Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services
The fractional reserve system of banking started when goldsmiths began?
Issuing paper receipts in excess of the amount of gold held
When paper money is designated as legal tender, it means that?
It is a means of payment by law
The claims of creditors of a bank against the bank's assets are called?
Liabilites
A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of?
Liabilities
Money supply M1 includes a component that is part of a bank's?
Liabilities
Which definition of the money supply include only items which are directly and immediately usable as a medium of exchange?
M1
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
M1 increases and M2 stays the same
Money eliminates the 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 one of the following is considered to be a stock rather than a flow?
Money
Which of the following financial institutions pool deposits of customers and use the money to buy a portfolio of stocks or bonds or both?
Mutual funds
The most important of the Federal Reserve district banks is the?
New York bank
Joe Rogers deposits $200 in currency in his checking account at a bank. This deposit is treated as?
No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits
The so-called near-monies have the following characteristics, except?
Part of money supply M1
The so-called electronic money is used when one pays through?
PayPal
The use of a credit card is most similar to?
Paying with a check
When there is inflation in the economy, it implies that the?
Price index is rising and the purchasing power of money is falling
The Federal Reserve System performs the following functions, except?
Providing banking services to the general public
The Financial Crisis of 2007-2008 started in which sector of the economy?
Real Estate and housing sector
Cash held by a bank in its vault is a part of the bank's?
Reserves
When a bank's loans are written off, it means that the bank's?
Reserves shrink, whereas its debt remains the same
Which of the following items are included in money supply M2 but not M1?
Savings deposits
The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread?
Securitization
The Federal Open Market Committee (FOMC)?
Sets policy on the sale and purchase of government bonds by the Fed
The 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 government securities
The so-called moral hazard problem refers to one's tendency to?
Take on greater risk if one is at least partly insured against losses
What "backs" the money supply of the U.S?
The U.S. government's ability to keep the value of money relatively stable
When a bank sells capital stock (equity shares) in return for cash?
The capital stock represents the net worth of the bank and the cash is an asset
Money in the U.S. are essentially debts of?
The government and the banks
Currency and checkable deposits are?
The major components of money supply M1
When cash is withdrawn from a checkable-deposit account at a bank?
The money supply M1 does not change but its composition changes
