Macro Chapter 4

Open market operations are:

Federal Reserve purchases and sales of government bonds.

To increase the monetary base, the Fed can:

conduct open-market purchases.

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will:

increase by more than $1 million.

To reduce the money supply, the Federal Reserve:

sells government bonds.

(Table: Bank Balance Sheet) Based on the table, what is the reserve/deposit ratio at the bank?

10 percent

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5.

(Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by percent.

20

An important factor in the evolution of commodity money to fiat money is:

a desire to reduce transaction costs.

To make a trade in a barter economy requires

a double coincidence of wants

(Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank?

5

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion.

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion and bank deposits equal $500 billion, then the money supply equals:

$600 billion.

What is the value of bank capital?

-$1,000

In a system with fractional reserve banking

all banks hold reserves equal to a fraction of their deposits.

In a country on a gold standard, the quantity of money is determined by the:

amount of gold.

To increase the money supply, the Federal Reserve:

buys government bonds.

The minimum amount of owners' equity in a bank mandated by regulators is called a ? requirement.

capital

Demand deposits are funds held in:

checking accounts.

A country that is on a gold standard primarily uses

commodity money.

The monetary base consists of:

currency held by the public, plus reserves held by banks.

The money supply will decrease if the:

currency-deposit ratio increases.

The preferences of households determine the:

currency-deposit ratio.

High powered money is another name for:

the monetary base.

The ratio of the money supply to the monetary base is called:

the money multiplier.

If you hear in the news that the Federal Reserve conducted open market purchases, then you should expect ? to increase.

the money supply

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then:

the money supply increases.

Currency equals:

the sum of coins and paper money.

If the Federal Reserve wishes to increase the money supply, it should:

decrease the discount rate.

When the Fed decreases the interest rate paid on reserves, it:

decreases the reserve-deposit ratio (rr).

In a fractional reserve banking system, banks create money because:

each dollar of reserves generates many dollars of demand deposits.

When the Fed increases the interest rate paid on reserves, it:

increases the reserve-deposit ratio (rr).

In a system with 100 percent reserve banking:

no banks can make loans.

The most frequently used tool of monetary policy is:

open-market operations.

The currency deposit ratio is determined by

preferences of households about the form of money they wish to hold.

When the Federal Reserve conducts an open market purchase, it buys bonds from the:

public.

Money's liquidity

refers to the ease with which money can be converted into goods and services

In a 100 percent reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same.

The size of monetary base is determined by:

the Federal Reserve.

The interest rate charged on loans by the Federal Reserve to banks is called the:

Treasury bill rate.

The reserve deposit ratio is determined by:

business policies of banks and the laws regulating banks.

In a 100 percent reserve banking system, banks:

cannot affect the money supply.

Money that has no value other than as money is called ? money

fiat

When the Fed increases the discount rate, it:

is likely to decrease the monetary base

The use of borrowed funds to supplement existing funds for purposes of investment is called:

leverage.

To increase the money multiplier, the Fed can:

lower the interest rate paid on reserves.

In a fractional reserve banking system, banks create money when they:

make loans.

When the Fed makes an open

market sale, it:- decreases the monetary base

The money supply will increase if the:

monetary base increases.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold ? excess reserves, which will ? the money multiplier.

more; decrease

Compared to typical open market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be ? securities.

riskier and longer-term

The amount of capital that banks are required to hold depends on the:

riskiness of the bank's assets.

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open market ? and ? the interest rate paid on bank reserves.

sales; raise

Excess reserves are reserves that banks keep:

above the legally required amount.

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion.