Macro Final Exam #3
A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of:
$1,500
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
A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been increased, respectively, by:
$5,000 and $4,000
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 which the banking system could create is about:
$660 million
A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20%. It grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited in another bank. The first bank will find its reserves decrease by:
$8,000
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 commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be:
25 percent
If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be:
4
If the required reserve ratio were 15 percent, the value of the monetary multiplier would be:
6.67
The paper money or currency in the U.S. essentially represents:
A debt of the Federal Reserve System
Commercial bank reserves, most of which are held by the Federal Reserve Banks, are:
A liability of the Federal Reserve Banks and an asset for commercial banks
An asset's liquidity refers to its ability to be:
A means of payment
What function is money serving when you use it when you go shopping?
A medium of exchange
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
What function is money serving when you deposit money in a savings account?
A store of value
If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as:
A unit of account
Loans of the Federal Reserve Banks to commercial banks are:
An asset of the Federal Reserve Banks and a liability for commercial banks
A checkable deposit at a commercial bank is a(n):
Asset to the depositor and a liability to the bank
A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of:
Assets
A bank's net worth is equal to its:
Assets minus its liabilities
Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?
Bank purchases of Treasury bonds from the Fed
What is one significant characteristic of fractional reserve banking?
Banks can create money through lending their reserves
In essence, which of the following groups "creates" money?
Banks' loan officers when they grant loans
When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of:
Being the bankers' bank
The Federal Reserve System consists of which of the following?
Board of Governors and the 12 Federal Reserve Banks
Which of the following statements is true?
Bond prices and the interest rate are inversely related
A bank can get additional excess reserves by doing any of the following, except:
Buying Treasury securities from the Fed
When the Fed wants to lower the Federal funds rate, it:
Buys bonds from banks and the public
As of February 2013, more than half of the money supply (M1) was in the form of:
Checkable deposits
The M1 money supply is composed of:
Checkable deposits and currency in circulation
When a check is cleared against a bank, the bank will lose:
Checkable deposits and reserves
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
If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would:
Decrease by $5 billion
A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has:
Decreased by $10,000
Money functions as a store of value if it allows you to:
Delay purchases until you want the goods
The lending ability of commercial banks increases when the:
Fed buys securities in the open market
Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy?
Federal Open Market Committee
The paper currencies of the U.S. are also called:
Federal Reserve notes
Banks can lend their excess reserves to other banks in the:
Federal funds market
The interest rate that banks charge one another for the loan of excess reserves is the:
Federal funds rate
Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the:
Federal funds rate
The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will:
Have an incentive to make highly risky investments
Fractional reserve banking refers to a system where banks:
Hold only a fraction of their deposits in their reserves
The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except:
Housing price increased drastically
When the Fed buys government securities in the open market, it:
Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate
The Fed can induce banks to increase their reserve holdings by:
Increasing the interest on reserves
Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?
M1
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
M1 increases and M2 stays the same
The use of a credit card is most similar to:
Obtaining a short-term loan
The purchase and sale of government securities by the Fed is called:
Open market operations
The Federal funds rate is the rate that banks pay for loans from:
Other banks
The use of a debit card is most similar to:
Paying with a check
The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the:
Prime interest rate
The Federal Reserve System performs the following functions, except:
Providing banking services to the general public
Which of the following items are included in money supply M2 but not M1?
Savings deposits
When the Federal Reserve raises the target Federal funds rate, it:
Sells government securities to decrease the excess reserves available for overnight loan
The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for:
Setting the Fed's monetary policy and directing the purchase and sale of government securities
A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to:
Stimulate the economy
If the Fed sells government securities to the general public in the open market:
The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed
The level of GDP, ceteris paribus, will tend to increase when:
The Federal Reserve buys government securities in the open market
Which of the following "backs" the value of money in the United States?
The acceptability of it as a medium of exchange
The interest rate that the Fed charges banks for loans to them through the traditional channel is called:
The discount rate
When bankers hold excess reserves:
The money-creating potential of the banking system decreases
Which of the following statements is true?
The prime interest rate is higher than the Federal funds rate
A bank's checkable deposits shrinks from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3%?
They fall by about $0.2 million
The public debt is held as:
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
If the monetary multiplier is 6, then the reserve ratio must be:
0.167
The Federal Reserve System is divided into:
12 districts
How many members can serve on the Board of Governors of the Federal Reserve System?
7
The fundamental objective of monetary policy is to assist the economy in achieving:
A full-employment, noninflationary level of total output
When a bank's loans are written off, then the bank's:
Ability to make new loans is restricted
When cash is deposited in a checkable-deposit account at a bank, there is:
An increase in the bank's liabilities
Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately:
Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million
Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the excess reserves at Bank A and Bank B?
Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B
Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?
Increase by $50,000 at Bank A, and decrease by $50,000 at Bank B
A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has:
Increased by $50,000
If bond prices decrease, then the:
Interest rate increases
The transactions demand for money is least likely to be a function of the:
Interest rates
United States currency has value primarily because it:
Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services
The transactions demand for money will shift to the:
Left when nominal GDP decreases
Raising the interest paid on reserves has the effect of making it:
Less costly for banks to hold excess reserves
A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of:
Liabilities
The relative importance of various asset items on a commercial bank's balance sheet reflects a bank's pursuit of which two conflicting goals?
Liquidity and profits
Which of the following Fed actions increases the excess reserves of commercial banks?
Lower the reserve ratio
Lowering the discount rate has the effect of:
Making it less expensive for commercial banks to borrow from central banks
The Federal Reserve alters the amount of the nation's money supply by:
Manipulating the size of excess reserves held by commercial banks
The major wave of defaults on home mortgages in 2007 destabilized:
Many banks including those that made the loans indirectly
A consumer holds money to meet spending needs. This would be an example of the:
Transactions demand for money
Which of the following institutions does not provide checkable-deposit services to the general public?
U.S. Treasury
The functions of money are to serve as a:
Unit of account, store of value, and medium of exchange
Checkable deposits are included in:
both M1 and M2
The U.S. public debt:
consists of the historical accumulation of all past federal deficits and surpluses.
The crowding-out effect of expansionary fiscal policy suggests that:
government spending increases at the expense of private investment.
Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have:
increased by $20 billion.
Recessions have contributed to the public debt by:
reducing national income and therefore tax revenues.
The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:
the crowding-out effect.
The public debt is the amount of money that:
the federal government owes to holders of U.S. securities.
The Financial Crisis of 2007-2008 started in which sector of the economy?
Real estate and housing sector
Cash held by a bank in its vault is a part of the bank's:
Reserves
