Econ Final

Net worth is equal to (assets + liabilities)/assets. assets + liabilities. assets - liabilities. liabilities - assets.

Assets-liabilities

The equilibrium interest rate in the money market is determined at the intersection of the total demand for money curve and the supply of money curve. at the intersection of the aggregate demand and aggregate supply curves. by how much the interest rate fluctuates over time. by the Fed.

At the intersection of the total demand for money curve and the supply of the money curve

The banking system in the United States is referred to as a fractional reserve banking system because banks keep a fraction of reserves available. a fraction of the money is lent out. a fraction of all monetary assets are held in banks. banks hold a fraction of deposits in reserve.

Banks hold a fraction of deposits in reserve

The Board of Governors of the Federal Reserve System is made up of five members. is replaced every 2 years. is the largest bank in the United States. coordinates policies for the 12 Federal Reserve Banks.

Coordinates policies for the 12 Federal Reserve Banks

Which of the components of M1 is legal tender? Coins Currency Checkable deposits Savings deposits

Currency

What are the components of the M1 money supply Savings deposits and checkable deposits Currency in circulation and checkable deposits ATM deposits and checkable deposits Currency in circulation and savings deposits

Currency in circulation and checkable deposits

In a fractional reserve system, deposit insurance guarantees that depositors will always get their money, thus avoiding most bank runs. provides additional funds that can be lent out. raises the fraction of deposits that banks must keep available. is absolutely necessary or the banking system would collapse.

Guarantees that depositors will always get their money, thus avoiding most bank runs

When economists say that monetary policy can exhibit cyclical asymmetry, it means that recessions are shorter than inflations. expansionary monetary policy and restrictive monetary policy do not have the same potential for economic expansion and contraction. expansionary monetary policy and restrictive monetary policy cannot both be used for economic expansion and contraction. the Fed is able to deal with only inflation.

Have the same potential for economic expansion and contraction

Total money demand is the vertical sum of the private demand for money and the public demand for money. horizontal sum of the transactions demand for money and the asset demand for money. horizontal sum of the consumer demand for money and the producer demand for money. vertical sum of the transactions demand for money and the asset demand for money.

Horizontal sum of the transactions demand for money and the asset demand for money

The three basic functions of money are medium of exchange, unit of account, and store of value. medium of exchange, store of account, and unit of value. account of exchange, medium of account, and store of value. medium of exchange, record of account, and assessment of value.

Medium of exchange, unit of account, and store of value

The Federal Open Market Committee (FOMC) includes members of the Board of Governors and 5 of the 12 presidents of the Federal Reserve Banks, of which the Chairman of the Federal Reserve Board of Governors has a permanent voting seat. members of the Board of Governors, 7 of the 12 presidents of the Federal Reserve Banks, and the president of the United States. members of the Board of Governors and 5 of the 12 presidents of the Federal Reserve Banks, of which the president of the New York Fed has a permanent voting seat. the Chairman of the Federal Reserve Board of Governors and 7 of the 12 presidents of the Federal Reserve Banks, of which the president of the New York Fed has a permanent voting seat.

Members of the Board of Governors and 5 of the 12 presidents of the Federal Reserve Banks, of which the president of the New York Fed has a permanent voting seat

Monetary policy is easier to conduct than fiscal policy because monetary policy has a much shorter administrative lag than fiscal policy. the economy responds better to monetary policy than to fiscal policy. monetary policy is easier to understand. the Fed has more control of the economy.

Monetary policy has a much shorter administrative lag than fiscal policy

Cyclical asymmetry is important to policymakers because monetary policy is more effective in fighting inflation than a recession. recessions are shorter than inflations. monetary policy is more effective in fighting a recession than inflation. fiscal policy is more effective in fighting inflation than a recession.

Monetary policy is more effective in fighting inflation than a recession

What near-monies are included in the M2 money supply? Noncheckable savings deposits, money market deposit accounts, small time deposits, and money market mutual fund balances Checkable savings deposits, money management accounts, small time deposits, and stock market balances Checkable savings deposits, interest deposit accounts, large time deposits, and money market mutual fund balances Noncheckable savings deposits, money market deposit accounts, large time deposits, and money market mutual fund balances

Noncheckable savings deposits, money market deposit accounts, small time deposits, and money market mutual fund balances

An asset on a bank's balance sheet is something owned by the bank, whereas a liability is something owed by the bank. sold by the bank, whereas a liability is something bought by the bank. owed by the bank, whereas a liability is something owned by the bank. created by the bank, whereas a liability is something sold by the bank.

Owned by the bank, whereas a liability is something owed by the bank

Rapid inflation can undermine money's ability to perform its functions. During periods of runaway inflation, people often revert to barter because money fails as a medium of exchange. money cannot hold sufficient value to act as a medium of value. the value of money falls so money cannot serve as a measure of price. the future value of money cannot be predicted so money cannot act as a predictor of value.

People often revert to barter because money fails as a medium of exchange

The major assets on a commercial bank's balance sheet include reserves, securities, loans, and vault cash. reserves, securities, loans, and checkable deposits. checkable deposits, securities, loans, and vault cash. reserves, checkable deposits, loans, and vault cash.

Reserves, securities, loans, and vault cash

Each member of the Board of Governors of the Federal Reserve System is selected by the Supreme Court and confirmed by the Senate. the Chairman of the Banking Committee and confirmed by the Senate. the U.S. president and confirmed by the Supreme Court. the U.S. president and confirmed by the Senate.

The U.S. president and confirmed by the Senate

Complete the following statement: If there is an increase in the total demand for money, the equilibrium interest rate will rise. the equilibrium interest rate will fall. the money supply will rise. the money supply will fall.

The equilibrium interest rate will rise

A balance sheet must always balance because the sum of net worth must equal the sum of liabilities plus assets. the sum of assets must equal the sum of liabilities plus net worth. the sum of assets must equal the difference of liabilities minus net worth. the sum of liabilities must equal the sum of assets plus net worth.

The sum of assets must equal the sum of liabilities plus net worth

The basic objective of monetary policy is to maintain steady exchange rates and lower inflation. to assist the economy in achieving a full-employment, noninflationary level of total output. to increase employment and stabilize exchange rates. to eliminate inflation and lower interest rates.

To assist the economy in achieving a full-employment, noninflationary level of total output

TARP is the Troubled Asset Remedy Plan funded with general tax revenue and a charge to solvent banks. Treasury Asset Rescue Program funded with a special tax and the issuance of government debt. Treasury Asset Relief Plan funded with general tax revenue and a charge to solvent banks. Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt.

Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt

True or False. A liquidity trap occurs when expansionary monetary policy fails to work because an increase in bank reserves by the Fed does not lead to an increase in bank lending.

True

True or False. In the United States, monetary policy has two key advantages over fiscal policy: (1) isolation from political pressure and (2) speed and flexibility.

True

The Federal Open Market Committee (FOMC) develops fiscal policy and directs the purchase or sale of government securities. votes on the Fed's monetary policy and directs the purchase or sale of government securities. votes on the Fed's monetary policy and purchases government securities. develops monetary policy and sells government securities.

Votes on the Fed's monetary policy and directs the purchase or sale of government securities

Merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government. This is because goldsmiths issued a gold receipt to the depositor. the government's currency could not be trusted. they knew that the gold receipts could be exchanged for gold. gold receipts were the only type of payment offered.

They knew that the gold receipts could be exchanged for gold

The basic determinant of the transactions demand for money is the reserve ratio. interest rate. price level. level of nominal GDP

Level of nominal GDP

The Taylor Rule puts _________ as much weight on closing the unemployment gap as it does on closing the inflation gap. just ten times twice half

Twice

Suppose that initially Goldstar Bank is completely "loaned up." A customer then deposits $40,000 into the bank. The reserve requirement is 25 percent. a. What amount of excess reserves will Goldstar Bank now have as a result of this deposit? b. What is the maximum amount in new deposits and loans that the banking system can generate as a result of the $40,000 deposit at Goldstar Bank?

a. $30,000 b. $120,000

Suppose the Federal Reserve sets the reserve requirement at 10 percent, banks hold no excess reserves, and no additional currency is held. a. What is the money multiplier? b. By how much will the total potential money supply change if the Federal Reserve changes the amount of reserves by −$50 million? c. Suppose the Federal Reserve wants to decrease the total money supply by $600 million. By how much should the Federal Reserve change reserves to achieve this goal?

a. 10 b. -500 million c. -60 million

Suppose that Lady Gaga goes to Las Vegas to play poker and at the last minute her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. a. Will Lady Gaga probably wager more or less as a result of the reimbursement offer? b. What economic concept does your answer illustrate?

a. More b. Moral hazard

If the required reserve ratio is 10 percent, what is the monetary multiplier?

10

If the monetary multiplier is 4, what is the required reserve ratio?

25 percent

The major claim on a commercial bank's balance sheet is vault cash. reserves. checkable deposits. loans.

Checkable deposits

What is the largest component of M1? Checkable deposits Savings deposits Currency Coins

Checkable deposits

When bond prices go up, interest rates go __________. nowhere up down

Down

A major strength of monetary policy is its speed and flexibility. its long-term consequences. the relatively short appointments of members of the Fed's Board of Governors. the rule that it uses to manage the economy.

Its speed and flexibility

If there is an increase in the nation's money supply, the interest rate will fall, investment spending will rise, aggregate demand will shift right, real GDP will rise, and the price level will fall. fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise. rise, investment spending will fall, aggregate demand will shift right, real GDP will rise, and the price level will fall. rise, investment spending will fall, aggregate demand will shift right, real GDP will fall, and the price level will rise.

Fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise

A decrease in the reserve requirement causes the size of the monetary multiplier to increase, the amount of excess reserves in the banking system to increase, and the money supply to increase. decrease, the amount of excess reserves in the banking system to increase, and the money supply to increase. decrease, the amount of excess reserves in the banking system to increase, and the money supply to decrease. increase, the amount of excess reserves in the banking system to increase, and the money supply to decrease.

Increase, the amount of excess reserves in the banking system to increase, and the money supply to increase

A commercial bank sells a Treasury bond to the Federal Reserve for $100,000. The potential money supply: decreases. increases. is unaffected by the transaction.

Increases

The basic determinant of the asset demand for money is the interest rate. price level. level of nominal GDP. reserve ratio.

Interest rate

The two conflicting goals facing commercial banks are: profit and liquidity. deposits and withdrawals. assets and liabilities. profit and loss.

Profit and liquidity

During the financial crisis of 2007-2008, the Federal Reserve performed its role as "lender of last resort" by using creative facilities to lend to financial institutions during this time. borrowing from the Treasury so it wouldn't have to deplete its funds. lending interest-free funds to troubled banks. providing funds to individuals since troubled banks were unable to do so during this time.

Using creative facilites to lend to financial institutions during this time

By issuing loans in the form of gold receipts, there was additional risk because the government could demand all the gold. receipts could be copied. gold could be stolen. goldsmiths could issue more receipts than they had in gold and this could create a panic.

Goldsmiths could issue more receipts than they had in gold and this could create a panic

Why is the face value of a coin greater than its intrinsic value? There are too few resources to make coins that have intrinsic value The law requires this People would sell it for its intrinsic value People would not be able to use the coins

People would sell it for its intrinsic value