Price Module Macro

M2

- M1 - savings deposits - small-denominations time deposits - retail money funds

The federal reserve operates independently within the government because:

- Once a fed governor is confirmed by the senate, a president cannot decide to remove the governor from his or her position - the federal open market committee meets behind closed doors

the determinants of money demand include:

- changes in real gdp - uncertainty about the future - changes in the price level

generally, the federal reserve uses three tools to carry out policy:

- changes in the discount rate - changes in the reserve requirement - open market operations

the federal reserve is not independent of government because:

- congress can decide to terminate the federal reserve system - congress can decide to increase scrutiny of the feds accounting records - the chairperson of the federal reserve board of governors is required to testify before congress - the us president nominates federal reserve governors - the president appoints the federal reserve chairperson from among the federal reserve board of governors

Components of M1

- demand deposits (checking accounts) - travelers checks (highly liquid) - other checkable deposits - currency

financial transactions can be processed much more quickly than in the past because:

- electronic images of checks are sent - fewer payments involve checks - people increasingly rely on debit cards and credit cards

The federal reserve system is sometimes referred to as quasi-governmental agency because:

- it does not rely on the federal government for financial funding of its operations - members of the board of governors are somewhat removed from the political process

Time deposits demand deposits travelers check money market mutual funds

- only in M2 - in both M1 and M2 - in both M1 and M2 - only in M2

when a company borrows money by selling a bond, it specifies the terms of the bond, which includes:

- the amount of interest the bond will pay in each period - its term to maturity - the dollar amount that will be returned when the bonds term expires

During the great depression:

- the money supply shrank by 24% despite an increase in actual currency - many people wanted to hold their currency instead of depositing it in a bank - the total number of banks decreased from 25,330 in 1929 to 14,624 in 1933 - total deposits decreased from almost 60 billion in 1930 to 41.5 billion in 1933

Determine whether it is or is not a duty of the federal reserve. - providing a system of check collection and clearing for depository institutions - regulating the money supply in the economy - offering checking accounts to the us public - acting as governments fiscal agent

- yes - yes - no - no

The federal reserve system consists of ______ federal reserve banks in ______ geographic regions, or districts

12, 12

In 1960, M1 was _______ of M2; today M1 is ___________ of M2

47%, 25%

_____ contains funds you have in your bank checking account

M1

deposits that automatically transfer money balances from savings accounts to checking accounts are part of ______

M1

_____ represents the total supply of money in the US, from liquid forms, like checkable deposits and currency, to less liquid forms, like small time deposits

M2

a change in any one of the components of ______ will directly affect the money supply

M2

the most important function of the board of governors is participating in the federal open market committee

True

Every dollar bill has:

a circular emblem with a letter inside and the location of the issuing federal reserve bank is on the left hand side and the words federal reserve note are at the top

In many professional sports leagues, one team is not allowed simply to purchase a player from another team, so they have to trade which requires:

a double coincidence of wants

Money market

a market in which the demand for and supply of money determine an interest rate, or opportunity cost of holding money balances

examples of M2 assets would be:

a savings account, certificates of deposit, time deposits

banks provide two basic services:

accepting deposits and providing loans

In economics, the word money means: - how much income a person earns - how much savings a person has - any item that both buyers and sellers will generally accept in exchange for goods and services - how much wealth a person has

any item that both buyers and sellers will generally accept in exchange for goods and services

If someone deposits money into a checking account, the banks:

assets and liabilities both increase

institutions can make small transfers (like social security payments, corporate payments to vendors, and payroll deposits) using...

automated clearinghouse services

during the great depression:

banks failures became commonplace throughout the country and depositors took their funds out of their bank accounts

in economies that rely on a _______ system, specialization is impossible, and where people have to trade one item for another

barter

the _______ the reserve requirement, the smaller the money multiplier

bigger

a change in interest rate will:

cause a movement along the money demand curve

the fed provides banks w/ financial services by:

clearing checks, transferring funds, and receiving/delivering the currency

as the bank for the federal government the fed:

collects federal tax payments, processes US savings bonds, processes postal money orders and maintains accounts for the department of the treasury

_________ in active circulation includes money in everyone's pockets and is part of ____

currency, M1

The interest rate at which banks can borrow money directly from the federal reserve is called the:

discount rate

the asset demand for money is...

downsloping line beginning at 25%

Monetary policy affects interest rates which in turn, affect:

economic growth, inflation, employment, investment

the federal reserve act of 1913:

established the federal reserve system

__________ reserves, the amount the bank can lend out to earn interest, equal ________ reserves minus _________ reserves

excess, total, required

________ value is the nominal, or dollar, value of a security, generally printed on the face(front) of the security

face

the entity that oversees research into domestic and international financial conditions and investigates the health of the economy, the effect of banking laws, and other issues that consumers and businesses face is the:

federal reserve board of governors

the entity that oversees research into domestic and international financial conditions and investigates the health of the economy, the effect of banking laws, and other issues that consumers and businesses face is the: - federal resource board of administrators - federal reserve board of presidents financial reserve board of governors - federal reserve board of governors

federal reserve board of governors

a _______ of the money in an economy is issued by the federal reserve; the rest is created by banks

fraction

a banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal is known as:

fractional reserve banking

during the 1990s, after the fall of the soviet union, russian factories sometimes resorted to paying their workers in:

glassware or pantyhose

transaction demand depends on:

how expensive output is and how much output people buy

transaction money demand is determined by:

how much money people are going to spend in a given time period

the first time money represented value instead of being intrinsically valuable, like a gold coin was:

in the chinese song dynasty during the 11th century

when an individual deposits a check at the local bank, the banks reserves ___________. The bank can use most of those reserves to make _________, __________ the supply of money in the economy

increase, loans, increasing

as the interest rate ________, people demand a lower quantity of money, and choose to hold _______ bonds and other interest-earning assets

increases, more

the money supply is a vertical line because it is:

independent of the interest rate

transaction money demand is a vertical line because it is:

independent of the interest rate

the fed operates:

independently within the government, but not independent of it

At each round of the money-creation process, banks must hold on to some portion of the increase in reserves (required reserves) and can lend out the rest. Every time this lending cycle occurs, the increase in loans become smaller and smaller. Both of these processes are mathematically expressed as an:

infinite geometric series

________ is the payment made to agents that lend or save money

interest

the money market is similar to all other markets in this respect, but slightly different in that the price of money is the ________ rate

interest

the yield on a bond is:

interest payment/bond cost

monetary policy affects:

interest rates charged paid on savings, interest rates charged on loans, and the price of goods, services, and resources

because you forgo __________ earnings when you hold money, the _______ is the ________ cost, or ______, of money

interest, interest, opportunity, price

banks play a crucial role in determining _______ rates and the _______ supply

interest, money

the interest rate: - usually called real interest rate - price of money - changes once per year - constant across banks

is the price of money

______ facilitates trade between buyers and sellers, and makes specialization more possible, which helps make the economy more productive

money

by facilitating trade, _________ facilitates specialization

money

People hold some of their savings as money instead of putting it all in stocks or bonds because:

money is a stable asset that you can hold on to and use for future expenses and so they can purchase goods and services

Are model cars... a medium of exchange? a unit of account? a store of value? money?

no to all of the above

Is the Mona Lisa... a medium of exchange? a unit of account? a store of value? money?

no, no, yes, no

the federal deposit insurance corporation is:

not a part of the federal reserve system and a government corporation that operates as an independent agency

You can write a check to pay for goods and services. The check itself is: - money - not money

not money

the majority of the money in the US economy is:

nothing tangible you can hold, but is instead merely a computer entry

The coins and paper money you use to buy goods and services can be printed:

only by the federal government

when the Fed buys or sells government securities in the open market to change the money supply it is called: - open market operations - financial market operations - monetary adjustment - fiscal policy

open market operations

In the real world, the actual money multiplier tends to be smaller than 1/rr because:

people hold some loaned money as cash and banks do not loan out all of their excess reserves

when the money supply changes:

people will rebalance their savings to maintain the level of risk versus return they prefer

the yield is equal to the net _______ earned divided by the amount invested

profit

one of the feds most important jobs is supervision and regulation of member banks to prevent banking panics or disruptions. This is accomplished through:

regular inspections and the creation of regulations and guidelines

the federal reserve: - coordinates the operations of congress and the president - regulates member banks to promote stable prices and economic growth - makes banking rules for developed nations - controls the operations of the stock market

regulates member banks to promote stable prices and economic growth

_______ reserves held as currency earn no interest

required

___________ reserves are equal to deposits x the reserve requirement

required

To make sure banks meet the daily needs of customers, the federal reserve enforces a:

reserve requirement

asset money demand is a downsloping line because it is:

sensitive to interest rates

Suppose the equilibrium interest rate is 13%, but the usury law prohibits chargin more than 10%. In this case, the law:

serves as a binding price ceiling

If the prevailing interest rate is not 12% but is actually 8%, there will be a ________ in the money market. The interest rate in the money market will ________

shortage, rise

the money ______ in an economy is largely determined by a central monetary authority

supply

when you pay with a credit card:

the bank that issued the credit card pays the merchant for the goods you bought and you pay for the item when you pay your credit card bill with funds from your checking account

The entity responsible for overseeing the monetary system for a nation is:

the central bank

One way to solve for the money multiplier is to divide:

the overall change in the money supply by the initial change in reserves

To find money multiplier, divide 1/rr

to find change in money supply, take the change in reserves and multiply by money multiplier

we construct the ________ demand for money by adding the transaction and asset demands at each ______ rate

total, interest

the federal reserve, commonly called the fed:

tracks the money supply

_______ demand depends on how much output people buy, which is based on their incomes; and how expensive output is, which is based on the ________ level

transaction, price

_____________ checks can be immediately exchanged for currency

travelers

the demand for money comes from two sources. The demand for money to be:

used in daily transactions and saved for future use

if the federal reserve adopts a policy of lowering interest rates, some people:

will continue to buy new homes despite the weak economy, can choose to refinance their loans, and stay in homes that they might otherwise have had to sell

Is a U.S. $20 bill a... Medium of exchange? Unit of account? store of value? money?

yes, yes, yes, yes

bond costs and bond _________ always move in opposite directions

yields