Econ Exam 4

Which of the following describes the identity embodied in a balance sheet?

Assets equal liabilities plus net worth.

The Fed can induce banks to increase their reserve holdings by:

Increasing the interest on reserves

What is one of the advantages of monetary policy over fiscal policy?

The quickness with which it can be used

When economists say that money serves as a medium of exchange, they mean that it is

a means of payment.

What function is money serving when you use it when you go shopping?

a medium of exchange

When economists say that money serves as a unit of account, they mean that it is

a monetary unit for measuring and comparing the relative values of goods.

The reserves of a commercial bank consist of

deposits at the Federal Reserve Bank and vault cash

Excess reserves refer to the

difference between actual reserves and required reserves.

The amount of reserves that a commercial bank is required to hold is equal to

its checkable deposits multiplied by the reserve requirement.

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?

medium of exchange

When there is inflation in the economy, it implies that the

price index is rising and the purchasing power of money is falling.

Stock market price quotations best exemplify money serving as a

unit of account.

When economists say that money serves as a store of value, they mean that it is

a way to keep wealth in a readily spendable form for future use.

Most modern banking systems are based on

fractional reserves

The primary purpose of the legal reserve requirement is to

provide a means by which the monetary authorities can influence the lending ability of commercial banks.

Money is "created" when

A bank grants a loan to a customer

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be:

$200 billion

U.S. Treasury deposits at the Federal Reserve Banks are:

A liability of the Federal Reserve Banks and an asset for the U.S. Treasury

Compared to fiscal policy, monetary policy has a much shorter:

Administrative lag

What is one significant characteristic of fractional reserve banking?

Banks can create money through lending their reserves.

Disequilibrium in the money market is mainly corrected via a change in:

Bond prices

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective?

Buying government securities and raising the discount rate

The Fed's response to the zero lower bound problem was quantitative easing (or "QE"), where the Fed buys large amounts of bonds in order to:

Increase banks' reserves

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?

Open-market operations

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to:

Stimulate the economy

The interest rate that the Fed charges banks for loans to them through the traditional channel is called:

The discount rate

Members of the Federal Reserve Board of Governors are

appointed by the president to staggered 14-year terms.

A bank that has liabilities of $150 billion and a net worth of $20 billion must have

assets of $170 billion.

In a fractional reserve banking system,

banks can create money through the lending process.

The Federal Reserve System of the United States is the country's

central bank.

Which of the following would be considered to be the most liquid?

checkable deposits

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.

Henry deposits $2,000 in currency in the First Street Bank. Later that same day, Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply of money has

increased by $5,400.

Other things being equal, an expansion of commercial bank lending

increases the money supply.

If you place a part of your summer earnings in a savings account, you are using money primarily as a

store of value.

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.

The amount that a commercial bank can lend is determined by its

excess reserves.

Money is destroyed when

loans are repaid