Chapters 14-17 macro

Lakukan tugas rumah & ujian kamu dengan baik sekarang menggunakan Quizwiz!

Which one of the following is not the formula for the quantity theory of​ money?

M x Y = P x V

The Federal Reserve uses two definitions of the money​ supply, M1 and​ M2, because

M1 is a narrow definition focusing more on​ liquidity, whereas M2 is a broader definition of the money supply

Distinguish among​ money, income, and wealth.

A​ person's money is the currency held and the checking account​ balance, income is the earning and wealth is equal to value of assets minus all debts.

Suppose you withdraw​ $1,000 from a money market mutual fund and deposit the funds in your bank checking account. How will this action affect M1 and​ M2?

M2 will not be​ affected, but M1 will increase.

The formula for the simple deposit multiplier is

Simple Deposit Multiplier = 1/RR

Why would deposit insurance provide the banking system with protection against​ runs?

Since most depositors are​ insured, it is less likely that panicked buyers will simultaneously withdraw funds

Which tool is the most important?

The Fed conducts monetary policy principally through open market operations.

How do the banks "create" money?

When there is an increase in checking account​ deposits, banks gain reserves and make new​ loans, and the money supply expands.

A baseball fan with a Mike Trout baseball card wants to trade it for a Miguel Cabrera baseball​ card, but everyone the fan knows who has a Cabrera card​ doesn't want a Trout card. Economists characterize this problem as a failure of the

principle of a double coincidence of wants

Which of the following refers to the minimum fraction of deposits banks that are required by law to keep as​ reserves?

the required reserve ratio

When the Federal Reserve purchases Treasury securities in the open​ market,

the sellers of such securities deposit the funds in their banks and bank reserves increase

Using bitcoins might be more attractive to individuals and firms in developing countries than to individuals and firms in the United States because

the total amount of bitcoins is​ limited, so inflation will not undermine their value.

If the required reserve ratio is 0.05, the maximum increase in checking account deposits that will result from an increase in bank reserves of $20,000 is

$20,000 x (1/0.05) = $400,000

The United States is divided into ___ Federal Reserve Districts.

12

One of the board members is appointed to a ___ year, renewable term as the chairman.

4

The Federal Reseve Bank's Board of Governors consists of ___ members.

7

In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?"

A bank run involves one​ bank; a bank panic involves many banks.

What is price​ deflation?

A fall in the price level.

Which of the following conditions make a good suitable for use as a medium of​ exchange?

All of the above conditions must be met.

The M1 measure of the money supply includes which of the following​ components?

All of the above.

The simple deposit multiplier equals

All of the above.

The use of money

All of the above.

The​ (FOMC) Federal Open Market Committee

All of the above.

Which of the following is a monetary policy tool used by the Federal Reserve Bank?

All of the above.

Which of the following is true with respect to Irving Fisher's quantity equation, M x V = P x Y?

All of the above.

Which of the following is true with respect to ​hyperinflation?

All of the above.

What is meant by Professor​ Spencer's statement​ "This printing of money​ 'will keep the​ [deflation] wolf from the​ door'"?

An increase in the money supply that exceeds the rate of growth of GDP will increase the price level.

The economic definition of money​ is:

Any asset that people are generally willing to accept in exchange for goods and services.

Why would deflation cause​ "shoppers to hold​ back," and what does​ Evans-Pritchard mean when he​ says, "Once this psychology gains a​ grip, it can gradually set off a​ self-feeding spiral that is hard to​ stop"?

Consumers delay​ purchases, expecting prices to fall​ more, and the lack of demand causes prices to fall further.

Which of the following is not a Federal Reserve​ district?

Denver

Briefly explain whether you agree or disagree with the following​ statement: ​"Assets are things of value that people own. Liabilities are debts.​ Therefore, a bank will always consider a checking account deposit to be an asset and a car loan to be a​ liability."

Disagree. Checking accounts represent something that the bank owes to the owner of the account. It is a bank liability.

Do you agree or disagree with the following​ statement? ​"I recently read that more than half of the money issued by the government is actually held by people in foreign countries. If​ that's true, then the United States is less than half as wealthy as the government statistics​ indicate."

Disagree. Money is currency plus checking deposits. Wealth is the value of assets minus debts.

Which of the following best explains the difference between commodity money and fiat​ money?

Fiat money has no value except as​ money, whereas commodity money has value independent of its use as money.

What is the​ "shadow banking​ system"?

Financial firms that raise money from investors and provide it to borrowers.

In addition to the Federal Reserve​ Bank, what other economic actors influence the money​ supply?

Households, firms, and banks

What are the largest asset and the largest liability of a typical​ bank?

Loans are the largest asset and deposits are the largest liability of a typical bank.

If Irving Fisher was correct in his prediction about the value of​ velocity, then the quantity equation can be written to solve for the inflation rate as​ follows

Inflation rate​ = Growth rate of the money supply - Growth rate of real output

What is a​ "classic type of​ run"?

Many depositors simultaneously decide to withdraw their money from a bank.

Which of the following is included in M2 but not​ M1?

Money market deposit accounts in banks

What did Geithner mean by the​ "non-bank financial​ system"?

Money market mutual​ funds, hedge​ funds, and other financial firms that raise money from investors and provide it to firms and households.

Which one of the following is not a function of​ money?

Open market operation.

Based on the quantity theory of​ money, if velocity is​ constant, inflation is likely to occur​ when:

The money supply grows at a faster rate than real GDP.

When the Federal Reserve buys bonds through open market operations,

The money supply will increase.

Which of the following is the largest liability of a typical​ bank?

deposits

How does the quantity theory provide an explanation about the cause of ​ inflation?

The quantity equation shows that if the money supply grows at a faster rate than real​ GDP, then there will be inflation.

Why​ don't more people use their savings to make loans rather than keeping the funds in bank accounts that earn very low rates of​ interest?

There is a risk that the borrower won't pay the money back.

What is commercial lending?

This is when banks make loans to businesses.

During the German hyperinflation of the​ 1920s, many households and firms in Germany were hurt​ economically; however, people with debt actually benefited some from the hyperinflation.

True

If some of the Roman coins had been taken to​ Germania, then the coins could have been a medium of exchange in Germania if people began to consider it safe and would have accepted it for payments. If coins could have been easily used to purchase goods and services in other​ areas, the coins would also have some intrinsic value

True

We can say that loans are funded by deposits because deposits give banks financial​ capital, which can be loaned out so banks can make a profit

True

Does the government create money by printing​ currency?

Yes, but banks create the majority of the money supply by making loans.

If Greeks were able to swap goods and services for other goods and​ services, did it matter that currency was not available because the banks had been​ closed?

Yes, it mattered. Without​ money, swapping goods and services for other goods and services requires that each person must want what the other one​ has, and takes considerable time and energy.

Suppose you decide to withdraw​ $100 in cash from your checking account. Which one of the following choices accurately shows the effect of this transaction on your​ bank's balance sheet.

Your​ bank's balance sheet shows a decrease in reserves by​ $100 and a decrease in deposits by​ $100.

Congress passed legislation to create the Federal Reserve System in 1913 in order to

end the instability created by bank panics by acting as a lender of last resort.

If something is to be considered money, it has to fulfill

all four functions

In the securitization process,

banks grant loans to households and bundle the loans into securities that are then sold to investors.

To increase the money​ supply, the FOMC directs the trading​ desk, located at the Federal Reserve Bank of New​ York, to

buy U.S. Treasury securities from the public.

An initial increase (decrease) in a bank's reserves will increase (decrease) checkable deposits

by an amount greater than the increase (decrease) in reserves

A central bank can​ "create money" by buying bonds because

by increasing the​ banks' reserves, banks can make loans which increase checking account​ balances, and these are part of the money supply.

Look carefully at the following list. a. The coins in your pocket. b. The funds in your checking account. c. The funds in your savings account. d. The​ traveler's check that you have left over from a trip. e. Your Citibank Platinum MasterCard. Which of the things above are NOT included in the M1 definition of the money​ supply?

c & e

If Schneider is​ correct, businesses and consumers might prefer to carry out transactions by using

cash

Which of the following is not a policy tool the Federal Reserve uses to manage the money​ supply?

changing income tax rates

The most important role of the Federal Reserve in​ today's U.S. economy is

controlling the money supply to pursue economic objectives

A higher required reserve ratio​ _________ the value of the simple deposit multiplier

decreases

An increase in the amount of excess reserves that banks keep​ _________ the value of the​ real-world deposit multiplier

decreases

Whenever banks gain reserves and make new​ loans, the money supply​ ___________; and whenever banks lose​ reserves, and reduce their​ loans, the money supply​ __________.

expands; contracts

By raising the discount​ rate, the Fed leads banks to make​ _________ loans to households and​ firms, which will​ _________ checking account deposits and the money supply

fewer; decrease

The U.S. dollar can best be described as

fiat money

Evidence shows that the quantity equation is correct over the long​ run, which implies that the

growth rate of the money supply determines the rate of inflation.

When sellers are willing to accept money in exchange for goods and​ services, money is acting as a

medium of exchange

Very high rates of inflation are called

hyperinflation

​________ is caused by central banks increasing the money supply at a rate far in excess of the growth rate of real GDP.

hyperinflation

There is a strong link between changes in the money supply and inflation

in the long run

Credit cards are

included in neither the M1 definition of the money supply nor in the M2 definition.

Money is an imperfect standard of deferred payment because ______ causes the value of money to decrease over time.

inflation

The Federal Reserve Bank of New York is always a voting member of the FOMC because

it carries out the policy directives of the FOMC

Farms and​ small-businesses might be more likely than large corporations to rely on banks for funding because

large corporations have more ways to obtain funding than do farms and small businesses.

Which of the following would be the least desirable candidate to be a good medium of​ exchange?

milk

What is fiat​ money?

money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money

Which one of the following is not one of the policy tools the Fed uses to control the money​ supply?

moral suasion

The financial firms of the shadow banking system were

more vulnerable than commercial banks to bank runs because they were more highly leveraged than commercial banks.

Which one of the following is not a reason why businesses accept paper currency knowing​ that, unlike a gold​ coin, the paper the currency is printed on is worth very​ little? Paper currency is a good medium of exchange because it is

not valuable

The Federal Reserve is divided into two​ bodies:

the Board of Governors and 12 regional districts

An asset would be usable as a medium of exchange for all of the following reasons ​except:

the asset should be a commodity that has intrinsic value.

When the Federal Reserve sells Treasury securities in the open​ market,

the buyers of these securities pay for them with checks and bank reserves fall.

The central bank of a country controls the money​ supply, which equals the currency held by

the public plus their checking account balances.

The average number of times each dollar in the money supply is used to purchase goods and services is called

the velocity of money.

The Chinese government has refused to print currency in denominations higher than the​ 100-renminbi note, which is the equivalent of about​ $16. The United States prints​ $100 bills and all other countries print currency in denominations that are at least that high. The Chinese government might be reluctant to print currency in high denominations

to discourage corruption

The quantity theory of money is better able

to explain the inflation rate in the long run.

When money is acting as a store of​ value, it allows an individual to

transfer​ dollars, and therefore purchasing​ power, into the future

Governments sometimes allow hyperinflation to occur because

when governments want to spend more than they collect in​ taxes, central banks increase the money supply at a rate higher than GDP​ growth, often resulting in hyperinflation.

The M2 definition of the money supply includes

​M1, savings​ accounts, small time​ deposits, and money markets.


Set pelajaran terkait

Essay 2: U Curve and W curve adjustment

View Set

Ch. 6 Exam - Health Insurance Policies: Health Insurance Policy Provisions

View Set

Financial Management Final Spring 18

View Set

Chapter 11: Functional Organization of nervous tissue

View Set

Databases 2 | CS 3306 | All questions: Self-Quizzes, Graded Quizzes, and Review Quizzes

View Set

Chapter 1 SmartBook - Introduction to HR

View Set

Psych Sex and Relationships mid-term

View Set