Econ Exam 4 (last semesters test)

With a required reserve ratio of 5%, the money multiplier is a. 20 b. 2 c. 5 d. 50

a. 20

Monetary policy-making group within the Fed is the ____ committee. a. Federal Reserve Tax b. Federal Reserve Banking c. Federal Open Market d. Federal Reserve Decision-Making e. Regional Bank

c. Federal Open Market

Contractionary monetary policy will a. lower interest rates and decrease aggregate demand b. raise interest rates and increase aggregate demand c. lower interest rates and increase aggregate demand d. raise interest rates and decrease aggregate demand

d. raise interest rates and decrease aggregate demand

In order for something to be used as money, it must be a. issued by the government b. issued by banks c. declared to be money d. universally acceptable as medium of exchange e. made of something valuable

d. universally acceptable as medium of exchange

Assume the Federal Reserve injects $20 billion of new excess reserves into the banking system. If the money multiplier is 5, what is the maximum money the banking system could create as a result of this action? a. $4 billion b. $5 billion c. $10 billion d. $20 billion e. $100 billion

e. $100 billion

Suppose the required reserve ratio is 5% and Ana deposits $1000 in her account with Bank of America, Required reserves Bank of America has to hold from Ana's deposit = $ Excess reserves from Ana's deposit = $ Money multiplier = Total money supply created by the entire banking system with Ana's deposit =

- 50 - 950 - 20 - 19000

The monetary policy tool the Fed uses most often to control the money supply is a. open market operations b. the required reserve ratio c. the discount rate d. the federal funds rate

a. open market operations

When the Congress decreases government purchases or increases taxes, it characterizes a/an a. contractionary fiscal policy b. expansionary fiscal policy c. contractionary monetary policy d. expansionary monetary policy

a. contractionary fiscal policy

If the economy is experiencing demand-pull inflation, the Federal Reserve will adopt a. contractionary monetary policy b. expansionary monetary policy c. contractionary fiscal policy d. expansionary fiscal policy

a. contractionary monetary policy

The medium of exchange function of money allows an economy to avoid the problem of: a. double coincidence of wants. b. unemployment. c. loss of purchasing power during an inflation. d. rising interest rates.

a. double coincidence of wants

The fractional reserve banking system refers to a system in which banks: a. hold reserves equal to a fraction of their deposits. b. keep 100% of their deposits always on reserve. c. forbid the removal of more than a fraction of demand deposits per day. d. pay interest only on a fraction of their deposits.

a. holds reserves equal to a fraction of their deposits

Money: a. is anything that is accepted in exchange for other goods and services. b. is anything that is backed by precious metals. c. is currency. d. has to have an intrinsic value.

a. is anything that is accepted in exchange for other goods and services.

When the economy is in recession, the FOMC policy decision would be to a. lower the federal funds target rate b. raise the federal funds target rate c. keep the federal funds target rate unchanged d. need more information to decide

a. lower the federal funds target rate

Which two of the following are not an activity of the Fed? a. making loans to the public b. clearing banks' checks c. lending funds to the federal government d. purchasing US government securities e. holding deposits of the US Treasury

a. making loans to the public AND/OR c. lending funds to the federal government

Outstanding US Treasury Bills- $900 Currency in Circulation- $500 Money Market Deposit Accounts- $300 Small Denomination Time Deposits- $600 Checkable Deposits- $1,000 Stock Market Shares- $1,000 Money Market Mutual Funds Balances- $500 Savings Deposits- $400 Traveler's Checks- $200 ___________________________ Based on the information in the table above, the value of M1 is a. $2,100 b. $1,700 c. $3,000 d. $3,100

b. $1,700

If you deposit $100 in your bank when the reserve requirement is 20%, what is the maximum loan your bank can offer a borrower from your deposit? a. $100 b. $80 c. $20 d. $1000

b. $80

Federal Reserve System has __________ districts banks. a. 10 b. 12 c. 7 d. 5

b. 12

Monetary policy means a. a change in the money demand and interest rates b. a change in the money supply and interest rates c. a change in the tax rates and government spending d. both a and b are corect

b. a change in the money supply and interest rates

Federal funds rate is the interest rate at which a. the Federal Reserve lends reserves to banks. b. banks lend reserves to other banks. c. the Federal Reserve lends reserves to the federal government. d. the Federal Reserve borrows reserves from banks.

b. banks lend reserves to other banks

Which of the following actions is NOT a tool of monetary policy? a. changing the discount rate b. changing government spending and taxes c. changing reserve requirements d. open market operations

b. changing government spending and taxes

An individual bank can, at most, lend out all its: a. checkable deposits. b. excess reserves. c. required reserves. d. profits.

b. excess reserves

Supply-side economists believe that decreasing tax rate would a. decrease incentive to work and as a result decrease SRAS b. increase incentive to work and as a result increase SRAS c. decrease incentive to work and as a result increase SRAS d. increase incentive to work and as a result decrease SRAS

b. increase incentive to work and as a result increase SRAS

Seigniorage is a. a retirement home for senior citizens b. profit earned from issuing money c. a fine paid by counterfeiters d. the profits made by illegally "clipping" or "shaving" bits of precious metal from coins e. the oldest known form of commodity money

b. profit earned from issuing money

Which of the following is an example of money serving as store of value? a. John buys a cup of coffee and a roll at the dinning room b. Steve says gas prices are falling. Gas is only $2.69 per gallon c. Roland puts his coins into a piggy bank d. All of the above are correct

c. Roland puts coins into a piggy bank

The banking system creates money in the sense that it a. prints money b. creates excess reserves from loans c. creates loans from excess reserves d. creates required reserves from loans e. creates loans from required reserves

c. creates loans from excess reserves

M1 is equal to: a. currency plus demand deposits. b. currency plus demand deposits plus savings deposits. c. currency plus demand deposits plus traveler's checks plus other checkable deposits. d. currency.

c. currency plus demand deposits plus traveler's checks plus other checkable deposits.

The Federal Open Market Committee is responsible for: a. regulating banks. b. running the check-clearing process. c. deciding monetary policy actions. d. deciding changes in income tax rates.

c. deciding monetary policy actions

Open market purchases of treasury securities by the Federal Reserve would a. increase the bank's discount rate b. decrease the bank's excess reserves c. increase the bank's loan making ability d. decrease the bank's required reserves

c. increase the bank's loan making ability

The crowding-out effect suggests that a. high taxes reduce both consumption and spending b. increases in consumption are always at the expense of saving c. increases in government spending may raise the interest rate, thereby reducing consumption and investment d. increases in government spending will close a recessionary gap

c. increases in government spending may raise the interest rate, thereby reducing consumption and investment

Expansionary monetary policy include a. lowering reserve requirements, increasing the discount rate, and buying government securities using open market operations. b. raising reserve requirements, increasing the discount rate, and buying government securities using open market operations. c. lowering reserve requirements, lowering the discount rate, and buying government securities using open market operations. d. raising reserve requirements, increasing the discount rate, and selling government securities using open market operations.

c. lowering reserve requirements, lowering the discount rate, and buying government securities using open market operations.

Fiat money is money because a. it is backed by gold b. it bears the signature of a US president c. of public faith that it will be widely accepted as a means of payment d. it is backed by silver

c. of public faith that it will be widely accepted as a means of payment

The federal funds rate is the interest rate paid when a. the Federal Reserve makes loans to member banks b. taxpayers pay overdue taxes c. one bank borrows reserves from another bank d. banks make loans to the federal government e. the federal debt is refinanced

c. one bank borrows reserves from another bank

Which of the following is not a monetary policy tool of the Federal Reserve? a. changing the required-reserve ratio b. changing the discount rate c. setting the tax rates d. conducting open market operations

c. setting the tax rates

Open Market Operations are conducted by a. the main Fed office in Washington, DC b.the US Treasury on behalf of the Fed c. the Federal Reserve Bank of New York d. a consortium of private banks contracted by the Fed

c. the Federal Reserve Bank of New York

The discount rate is the interest rate changed by a. banks to other banks b. banks to their best customers c. the Federal Reserve to banks d. none of the above

c. the Federal Reserve to banks

The powers of the federal Reserve System do not include a. the ability to buy and sell US government securities b. the ability to extend loans to commercial banks c. the ability to provide deposit insurance for customers of commercial banks d. the ability to impose reserve requirements on commercial banks e. the authority to clear checks

c. the ability to provide deposit insurance for customers of commercial banks

To reduce inflation, the Fed will use which of the following policy? a. expansionary monetary policy. b. expansionary fiscal policy. c. contractionary fiscal policy. d. contractionary monetary policy.

d. contractionary monetary policy

An appropriate fiscal policy response to a recession would be to a. increase government expenditures and taxes b. decrease government expenditures and taxes c. decrease government expenditures and increase taxes d. increase government expenditures and decrease taxes

d. increase government expenditures and decrease taxes

Credit cards are included in a. only M1 b. only M2 c. both M1 and M2 d. neither M1 nor M2

d. neither M1 nor M2

Banks do all of the following, except one. Which is the exception? a. link savers and borrowers b. earn profits by loaning money c. create money d. print money e. reduce risk for savers (depositors)

d. print money

Under a fractional reserve banking system, a. only a fraction of the banks in the system are allowed to create money b. only a fraction of the banks in the system have reserves c. the claims outstanding against the bank are only a fraction of the bank's total reserves d. each bank must deposit a fraction of its reserves with the Federal Reserves Bank e. banks hold reserves that equal to only a fraction of bank deposits

e. banks hold reserves that equal to only a fraction of bank deposits

The Federal Reserve controls money supply by a. changing the amount of currency printed b. changing the federal budget deficit c. setting the interest rate banks can change to their customers d. controlling the amount of credit cards used e. changing the amount of excess reserves in the banking system

e. changing the amount of excess reserves in the banking system

Which of the following is an example of automatic stabilizers? a. congress raises taxes b. congress lowers taxes c. congress increases spending d. congress decreases spending e. none of the above

e. none of the above

The members of the Board of Governors of the Fed are a. elected by the member banks b. chosen by the state governors c. elected for seven year terms d. all replaced after each Presidential election e. selected by the President with the approval of the Senate

e. selected by the President with the approval of the Senate

Under the Federal Reserve System, a. there is one Federal Reserve Bank, located in Washington, DC b. there is one Federal Reserve Bank, whose location changes every 14 years c. there is a Federal Reserve bank in each Congressional district d. there is a Federal Reserve bank in each state e. there are 12 Federal Reserve banks

e. there are 12 Federal Reserve banks