chpt 15 - federal reserve

An increase in money growth will cause inflation to increase in

both the short run and the long run

If the Fed sells $200 million in government bonds, the total money supply will

decrease by more than $200 million

Which of the following assets would you classify as being most liquid?

demand deposits

When banks borrow directly from the Fed, the interest rate on those loans is the

discount rate

Moral hazard occurs when

financial institutions take on too much risk because they are insured

An increase in the banking system's willingness to lend will cause the money multiplier to

increase.

When the Federal Reserve makes an open market purchase, the reserves of the banking system will

increase.

The Federal Reserve acquires its exclusive powers through its ability to

issue money

The amount by which the money supply expands with each additional dollar in reserves is the

money multiplier

An increase in money growth will cause the economy's AD curve to

shift outward

The Fed has the greatest influence over ____ interest rates. Investment spending depends on _____ interest rates

short-term; long-term

The Federal Reserve can influence the economy by shifting

the AD curve

What is the overnight lending rate from one bank to another?

the Federal Funds rate

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on

the Federal Funds rate

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change?

$1.6 million

Table: Statistics for a Small Economy Cash held by public 7 mil Small-time deposits 30 mil Money market mutual funds 18 mil Checkable deposits 36 mil Currency & total reserves at the Fed 12 mil Large-time deposits 20 mil Demand deposits 14 mil Using only the information provided, M2 in this country amounts to

$105 million

Table: Statistics for a Small Economy Cash held by public 7 mil Small-time deposits 30 mil Money market mutual funds 18 mil Checkable deposits 36 mil Currency & total reserves at the Fed 12 mil Large-time deposits 20 mil Demand deposits 14 mil Using only the information provided, the monetary base amounts to

$12 million

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus

they are somewhat insulated from the political process.

What is the purpose of the Fed's structure?

to keep the power of the Fed dispersed

The reserve ratio is the ratio of bank reserves to

bank deposits

How many regional banks comprise the Federal Reserve System?

12

Bank A has $100 million in deposits, $15 million in required reserves, and $85 million in loans. Bank A's reserve ratio is

15 percent

Table: Statistics for a Small Economy Cash held by public 7 mil Small-time deposits 30 mil Money market mutual funds 18 mil Checkable deposits 36 mil Currency & total reserves at the Fed 12 mil Large-time deposits 20 mil Demand deposits 14 mil Using only the information provided, M1 in this country amounts to

43 million

Why are debit cards not listed as money

Debit cards draw on checkable deposits, which are already counted as money

The Federal Reserve is the

Each of these answers is correct. government's bank. regulator of bank safety. central bank for the United States.

What was the rationale for the Fed lending billions of dollars to the insurance company American International Group (AIG)?

The money AIG owed to banks posed a systemic risk

Which of the following is NOT a function of the Federal Reserve?

providing loans to small businesses

Commercial banks make profits primarily through

the interest differential between deposits and loans

The Fed has the most control over

the monetary base

Systemic risk is

the risk of contagion that occurs when a failing financial institution owes significant sums of money to other financial institutions