Macro Econ Exam 4

If the monetary multiplier is 6, then the reserve ratio must be

0.167

A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent. It makes a loan of $6,000 to a borrower. The borrower writes a check for $6,000 that is deposited in another commercial bank. After the check clears, the first bank will be short of reserves in the amount of

1000

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal

2 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

Money is "created" when

A bank grants a loan to a customer

A checkable deposit at a commercial bank is a(n)

Asset to the depositor and a liability to the bank

A bank's net worth is equal to its

Assets minus its liabilities

A decrease in the interest rate will cause a(n)

Increase in the amount of money held as an asset

An increase in nominal GDP will

Increase the transactions demand and the total demand for money

A bank's required reserves can be calculated by

Multiplying its checkable-deposit liabilities by the reserve ratio

When the interest rate falls, the

Total amount of money demanded increases

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward

A decrease in the reserve ratio increases the

amount of excess reserves in the banking system.

What is one significant consequence of fractional reserve banking?

banks are vulnerable to panics or bank runs

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?

buy bonds in the open market

One of the strengths of monetary policy relative to fiscal policy is that monetary policy

can be implemented more quickly

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

decrease by 5 million

A federal funds rate reduction that is caused by monetary policy will

decrease the prime interest rate

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

excess reserves times the monetary multiplier

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

increase

When the Fed lends money to a commercial bank, the bank

increase its reserves and enhances its ability to entend credit to bank customers

If the Fed wants to discourage commercial bank lending, it will

increase the inerest paid on excess resvers held at the fed

A contraction of the money supply

increases the interest rate and decreases aggregate demand.

Which of the following monetary policy tools was introduced in 2008?

interest on reserves held at the fed

An increase in the money supply is likely to reduce

interest rates

The fractional reserve system of banking started when goldsmiths began

issing paper money in ecess of the amount of gold stored with them

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%

The transactions demand for money will shift to the

left when nominal gdp decreases

When loans are repaid at commercial banks,

money is destroyed

Why wouldn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?

negative nominal inetrest rates would cause people to withdrawn thier money from banks, reducing what banks could lend out to the cosumers and business

Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?

open-market operations

In the federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for

overnight

The discount rate is the interest

rate at which the Federal Reserve Banks lend to commercial banks

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers

repay loans

Cash held by a bank in its vault is a part of the bank's

reserves

There is an asset demand for money primarily because of which function of money?

store of value

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government

surplus and the sale of securities in the open c

The liquidity trap refers to the situation where

the Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand.

The prime interest rate

the benchmark interest rate that banks use as a reference point for a wide range of loans to businesses and individuals

When the reserve requirement is increased,

the excess reserves of member banks are reduced

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

the reserve ratio

Which of the following tools of monetary policy has not been used since 1992?

the resver ratio

When the Fed sells bonds to the bank and the public, the expected result is that

the supply of federal funds will fall. federal funds rate will rise, and a contraction of the money supply will occur

A consumer holds money to meet spending needs. This would be an example of the

transactions demand for money

One major component of money supply M1 is part of a bank's

liabilities

The federal funds rate is the rate that banks pay for loans from

other banks

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves?

10,000

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by

10,800

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are

100,000

Which of the following are liabilities to a bank?

Demand and time deposits

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

a multiple of 1 million

The problem of cyclical asymmetry refers to the idea that

a tight money policy can force a contration of the money supply, but an easy money policy may not

An increase in the money supply will

all of the above

A bank can get additional excess reserves by doing any of the following except

buying treasure securities from the fed

According to the Taylor rule, if inflation has risen by 6 percentage points above its target of 2 percent, the Fed should

raise the real federal funds rate by 3% points

The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2016) is

securities

The Fed's inability to stimulate the economy by reducing interest rates is known as the

zero lower bound problem