ECO 155 EXAM 3
Consider a fractional reserve banking system. Suppose your instructor deposits $5,000 in cash in her account at Commerce Bank. As a result of this transaction alone, we can conclude WHAT?
-M1 supply will not change immediately -Composition of M1 will change immediately
Most important functions of a commercial bank include???
-accepting deposits AND - making loans
The tools of monetary policy include WHAT?
-conducting open market operations - changing discount rate -changing reserve ratio - paying interest on member banks' reserves at the Fed *All of the above
The Fed Funds rate is currently in the range of
0% - 0.25%
Which of the following statements is correct? In the special case of the 100-percent reserve ratio banking the money multiplier is______________
1 and banks do not create money.
Suppose Commerce Bank (with no previous excess reserves) receives a new deposit of $1000 from a customer and expands loans by $900, its maximum capacity. Hence we can conclude that the reserve requirement ratio for this economy is
10%
At any meeting of the Federal Open Market Committee, that committee's voting members consist of
5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
The Federal Open Market Committee consists of......
7 Governors and 5 Federal Reserve Bank Presidents
In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold ______A______ currency or if banks choose to hold ___B___ excess reserves.
A: MORE, B: MORE
Chloe takes of currency from her wallet and deposits it into her checking account. If the bank adds the entire amount to reserves, the money supply ____A_____, but if the bank lends out some of the reserves, the money supply _______B_______.
A: is unchanged, B: increases
The Federal Reserve has --A-- regional banks. The Board of Governors has --B-- members who serve --C--year terms.
A:12, B:7, C:14
On the balance sheet of the Federal Reserve, U.S. government bonds appears on which side
Asset side
The money supply increases when the Fed does What?
Buys bonds. The increase will be larger, the smaller is the reserve ratio.
Which of the following statements is true? a. The Fed refers to the Federal Reserve System. b. The Fed was instituted in 1913. c. The FDIC was instituted in 1933. d. a and b are true e. a, b and c are true
E
In an 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then in the end____________
M1 would NOT change
Small time deposits are included in
M2 definition of money
On the balance sheet of a commercial bank, loans granted to customers appears on WHICH SIDE?
asset side
The Federal Funds market is the market in which:
banks borrow reserves from one another on an overnight basis
When conducting an open-market purchase, the Fed ____________
buys government bonds, and in so doing increases the money supply.
Monetary policy?
can be described either in terms of the money supply or in terms of the interest rate.
The most important function of the Federal Reserve is to:
control the money supply of the economy
The Fed can reduce the federal funds rate by
increasing the money supply. To increase the money supply it could buy bonds.
On the balance sheet of the Federal Reserve, U.S. Treasury deposits at the Fed appears on which side
liability side
US Department of Treasury keeps an account at the Fed to carry out its day to day operations. On the balance sheet of the Fed, U.S. Treasury deposits will appear on WHICH SIDE
liability side
The money supply includes all of the following EXCEPT
lines of credit accessible with credit cards.
Which of the following actions by the Fed is considered tight money policy?
selling bonds in the open market
17. If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
selling bonds. This selling would reduce the money supply.
If the economy were encountering rapid growth and inflation, appropriate monetary policies would call for WHAT?
selling government securities, raising the reserve ratio, raising the discount rate
The discount rate is the interest rate
the Fed charges on loans granted to Commercial banks.
Of the three tools of monetary control, the most frequently used is
the open market operations
Anna says price of her dress was $100. Which function(s) of money is(are) being emphasized here?
unit of account
