Macro Ch. 14

Vault cash is equal to $2 million, deposits at the central bank are $1 million, monetary base is $15 million, and bank deposits are $35 million. currency held by the nonbank public is

$12 million

The money supply is $6 million, currency held by nonbank public is $2 million, reserve ratio is .1. The monetary base equals

$2.4 million

Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank deposits are $30 millon. Bank reserves are equal to

$3 million

Assume that the currency-deposit ratio is .2 and the reserve deposit ratio is .1. The Fed carries out open market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by

$4 million

The money supply is $10 million, currency held by the nonbank public is $2 million, and the reserve deposit ratio is .2. Bank reserves are equal to

1.6 million

In a fractional reserve banking system with no currency where res is the ratio of reserves to deposits, the money multiplier is

1/res

If the money multiplier is 10, the purchase of 1 billion of securities by the Fed on the open market causes a

10 billion increase in the money supply

Assume that the currency deposit ratio is .3 and the reserve deposit ratio is .2. What is the money multiplier?

2.6

Which of the following are depository institutions?

Banks and thrifts

When U.S. banks borrow from one another, they must pay the

Fed funds rate

In the Keynesian model, suppose the Fed sets a target for the money supply. If the IS curve shifts to the left, and the Fed wants to keep output unchanged, what should the Fed do?

Increase the money supply

What are the major characteristics of an inflation targeting regime?

Inflation targeting is a system in which a central bank decides on a specific numerical target for inflation and a plan for achieving it

If banks choose to hold more reserves, what happens to the money multiplier, all else equal?

It decreases

Which of the following might the Fed rely on as an intermediate target?

M2

does the fact that the public and banks can affect the money multiplier imply that the central bank cannot control the money supply?

No

Which of the Fed's instruments is most frequently used?

Open-market operations

Who determines monetary policy in the US?

The Federal Reserve System

What is the effect on the monetary base when the Federal Reserve purchases U.S. Treasury securities in the open market? What is the effect on money supply?

The monetary base increases. The money supply increases.

Which of the following statements would Milton Friedman agree with concerning the conduct of monetary policy?

There are long and variable lags between monetary policy actions and their economic results

The largest asset of the Fed from those on this list is

U.S. Treasury securities

a bank run is

a large scale, panicky withdrawal of deposits from a bank

The basic Keynesian argument for discretionary monetary policy is that

aggregate demand is unstable and monetary policy can help stabilize it

How is the board of Governors of the Federal Reserve system appointed?

all members of the board of governers, including the chairman, are appointed by the president

Fractional reserve banking is the system that

allows banks to keep smaller reserves than their deposits

Which of the following is not a policy instrument of the Fed?

changing the federal government budget deficit

Which of the following is not an example of an intermediate target of the Fed?

core inflation

The largest liability of the Fed from those on this list is

currency outstanding

If the Fed decreases the monetary base by 100 million and the money multiplier is 4, M1 will

falls by $400 million

true or false: these intermediate targets are macroeconomic variables the fed can directly control

false

suppose there was a banking crisis, the money supply would shrink by the greatest amount if the public _________ their currency deposit ratio and the banks _____________ their reserve deposit ratio

increased; increased

Why does Bernanke seem to be moving away from proposing inflation targeting for the US?

inflation targeting appears to focus exclusively on inflation, but the Fed has a dual mandate

if the public elects to increase their currency holdings, what happens to the money multiplier?

it decreases

In response to an unanticipated tightening of monetary policy, output _________ at first then __________ after about four months

remains unchanged; falls significantly

what is the main disadvantage of inflation targeting?

the central bank may not know how to change policy and the public might not know if the policy is the best policy

The FOMC consists of all the following people except

the chairman of the President's Council of Economic Advisors

If a bank borrows from a Federal Reserve Bank, the interest rate is called

the discount rate

Changes in reserve requirements directly and immediately affect

the money multiplier

How does the monetary base differ from the money supply?

the money supply equals the monetary base times the money multiplier

define money multiplier

the number of dollars that can be created from each dollar of monetary base

The currency-deposit ratio is determined by

the public

How does the use of inflation targeting improve central bank credibility?

the public can easily observe whether the central bank has achieved its goals

In the Keynesian model, suppose the Fed wants to keep output unchanged. If the IS curve shifts to the left, and the Fed acts to keep output unchanged, then

the real interest rate will decrease

Which of the following is not a source of uncertainty affecting monetary policy?

the size of the central bank's balance sheet

define monetary base

the total amount of currency held by the non-bank public and money held by banks as reserves