econ???

When bankers hold excess reserves,

the money-creating potential of the banking system decreases.

Research for industrially advanced countries indicates that

the more independent the central bank, the lower the average annual rate of inflation.

When the interest rate falls, the

total amount of money demanded increases.

(Last Word) The term "leverage" refers to

using borrowed money in an attempt to increase profits.

TARP and other lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008

were designed to offset the moral hazard created by the TARP and other bailout programs.

Which of the following items are included in money supply M2 but not M1?

savings deposits

If the Fed buys government securities from commercial banks in the open market,

commercial banks give the securities to the Fed, and the Fed increases the banks' reserves.

Traditionally, the Federal Reserve can give emergency loans only to

commercial banks.

Wells Fargo, J.P. Morgan Chase, and Citibank are all primarily

commercial banks.

To keep high inflation from eroding the value of money, monetary authorities in the United States

control the supply of money in the economy.

Money functions as a store of value if it allows you to

delay purchases until you want the goods.

Which one of the following is presently a major deterrent to bank panics in the United States?

deposit insurance

Maximum checkable-deposit expansion in the banking system is equal to

excess reserves times the monetary multiplier.

All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually

fall.

The prime interest rate usually

falls when the federal funds rate rises.

Banks can lend their excess reserves to other banks in the

federal funds market.

Commercial banks and thrift institutions

have become increasingly similar in recent years.

Coins in people's pockets and purses are

included both in M1 and in M2.

The Federal Open Market Committee (FOMC).

sets policy on the sale and purchase of government bonds by the Fed.

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

store of value.

Interest Rate (1) Investment (2) Investment(3) 4% $100 $80 5 90 70 6 80 60 7 70 50 8 60 40 Refer to the table, in which investment is in billions. Which of the following scenarios would be consistent with the occurrence of cyclical asymmetry?

the Fed lowering the interest rate from 7 to 6 percent, while investment demand changes from columns (1) and (2) to columns (1) and (3)

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

the demand for money increases.

The four main tools of monetary policy are

the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.

When a bank's loans are written off, it means that the bank's

reserves shrink, whereas its debt remains the same.

Assets Liabilities and Net Worth Reserves $30 Checkable Deposits $300 Loans 130 Stock Shares 130 Securities 70 Property 200 Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by

$0 billion.

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

$24,000

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

$37,000

Checkable Deposits $2,000 Small TIme Deposits 350 Currency Held By The Public 80 Savings Deposits, Including Money-Market Deposit Accounts 1,300 Money-Market Mutual Funds Held By Individuals 600 Money-Market Mutual Funds Held By Businesses 700 The accompanying table contains hypothetical data for an economy. The size of the M2 money supply is

$4,330.

Interest Rate Transactions Demand for Money Asset Demand for Money Money Supply 2% $220 $300 $460 4 220 280 460 6 220 260 460 8 220 240 460 10 220 220 460 Based on the given table, at equilibrium in the given market for money, the total amount of money demanded is

$460.

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money that the banking system could create is about

$660 million.

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

$9,000

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent. This information is consistent with the bank having

$90,000 in checkable deposit liabilities and $32,000 in reserves.

Assets Liabilities + Net Worth Reserves $60 Checkable Deposits $150 Loans 100 Stock Shares 135 Securities 25 Property 100 Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. If the commercial banking system actually loans out the maximum amount it is able to lend, excess reserves will fall

0

Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. Assets Liabilities & Net Worth Reserves $60 Checkable Deposits $600 Securities 140 Stock Shares 260 Loans 260 Property 400 The monetary multiplier for the commercial banking system is

10

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be

10

Refer to the graph, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The market is in equilibrium at the 6 percent rate of interest. If the money supply then decreases as shown, the transaction demand for money will change by

125 $75. $0. $125. 175

The Federal Reserve System was established by the Federal Reserve Act of

1913

Year Price Level Value of Dollar 1 1.00 $1.00 2 1.25 3 0.80 4 0.50 Refer to the given table. The value of the dollar in year 4 is

2

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

450

Assume that the required reserve ratio for the commercial banks is 25 percent. If the Federal Reserve Banks buy $3 billion in government securities from the nonbank securities dealers, then, as a result of this transaction, the lending ability of the commercial banking system will increase by

9

What percentage of the money that a typical modern bank invests comes from borrowing?

95

Since 2009, how much has been borrowed through the federal funds market?

? $1,148 billion $43 billion $787 million $0

A bank's net worth is equal to its

Assets minus its liabilities

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

Federal Open Market Committee (FOMC).

A $20 bill is a

Federal Reserve Note

The paper currencies of the United States are also called

Federal Reserve notes.

Monetary policy is expected to have its greatest impact on

Ig.

Money market deposit accounts are included in

M2 only

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Prior to the rise in defaults, banks had become lax in their lending practices, resulting in a large number of bad loans.

Lowering the reserve ratio

Turns required reserves into excess reserves

What are two conflicting issues that the European central banks that experimented with negative interest rates found that they eventually had to balance?

a desire to increase lending, but a smaller pool of excess reserve

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

a medium of exchange

When a banker records how many dollars each of his borrowers owes the bank, money is serving as

a unit of account.

The prime interest rate

affects investment spending, while the federal funds rate affects overnight borrowing of bank reserves.

Loans of the Federal Reserve Banks to commercial banks are

an asset of the Federal Reserve Banks and a liability for commercial banks.

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

balance sheet will be unchanged.

Which of the following factors can contribute to a reduction in the money supply?

bank purchases of Treasury bonds from the Fed

In essence, which of the following groups "creates" money?

banks' loan officers when they grant loans

Banks create money when they

buy government bonds from households.

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should

increase the money supply from $80 to $100.

If the Federal funds rate

increases, the prime interest rate will increase.

Collateralized default swaps

insured holders of loan-backed securities in case the underlying loans were not repaid.

If bond prices decrease, then the

interest rate increases.

An increase in the money supply is likely to reduce

interest rates.

The following financial institutions traditionally accept deposits from savers, except

investment banks.

When a commercial bank has excess reserves,

it is in a position to make additional loans.

Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits 2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults Which of the following are considered to be near monies?

items 2, 4, 7, and 8

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

its checkable deposits multiplied by the reserve requirement.

According to the Taylor rule, when real GDP is at its potential and inflation is at its target rate of 2 percent, the Fed should

keep the federal funds rate at 4 percent.

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of

liabilities.

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that

on average, each dollar will be spent five times a year.

Money is "created" when

people receive loans from their banks.

A checking account entry is money because it

performs the functions of money.

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

pulling on one's purse-strings.

The possible asymmetry of monetary policy is the central idea of the

pushing-on-a-string analogy.

If the demand for money and the supply of money both decrease, the equilibrium

quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.

According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and real GDP rises by 1 percent above potential GDP, then the Fed should

raise the real federal funds rate by half of a percentage point.

The reserve ratio refers to the ratio of a bank's

required reserves to its checkable-deposit liabilities.