eco final ch12,13,18

Which of the following is not a monetary policy tool of the Fed?

setting the price level and market rate of interest

To a bank, reserves are classified as

an asset

The functions of money do not include

an exchange of purchasing power

decrease the money supply?

an increase in the discount rate (relative to the federal funds rate) an increase in the required reserve ratio

A medium of exchange is

anything that is generally accepted in exchange for goods and services

M1 is comprised of currency held outside banks + traveler's checks + __________.

checkable deposits

If the Fed wants to increase the money supply through an open market operation, it will

purchase government securities.

The first bankers were

goldsmiths.

In a barter economy,

goods and services are traded directly for each other

A bank with a leverage ratio of 6.5 to 1 has

$6.50 in assets for every $1 in capital.

Tenth National Bank holds $235,000,000 in checkable deposits and $25,500,000 in reserves. With a required reserve ratio of 10 percent, how much in excess reserves is Tenth National holding?

$2,000,000

A bank has $100 million in assets and $80 million in liabilities. The banks net worth is _____________ million and its leverage ratio is __________________.

$20; 5 to 1

If checkable deposits in Bank A total $520 million and the required reserve ratio is 10 percent, then required reserves at Bank A equal

$52 million.

There are __________ Federal Reserve Districts.

12

Each of the governors of the Federal Reserve System is appointed for a term of __________ years. The Board of Governors is comprised of _____________ members and the FOMC is comprised of __________ members.

14; 7; 12

The Federal Reserve System began operations in

1914

The Federal National Mortgage Association (FNMA), also known as Fannie Mae, was established in ________to ____________ demand in the housing market.

1938; increase

What does the term run on the bank mean?

Depositers of the bank will rush in to close out their accounts at the bank.

A bank is solvent as long its liabilities are greater than its assets.

False

To an economist, the terms "money" and "wealth" are synonyms.

False

Which of the following actions is most likely to lead to an increase in the money supply?

Fed purchases of government securities

The major policy-making group within the Fed is the __________ Committee.

Federal Open Market

The president of the ________________________ holds a permanent seat on the FOMC.

Federal Reserve District Bank of New York

M2 is comprised of

M1 + small-denomination time deposits + savings deposits + retail money market mutual funds.

Which of the following represents a double coincidence of wants?

Smith has what Jones wants and Jones has what Smith wants.

The _______________________ (TARP) is an example of a government program created to help stabilize the financial sector during the financial crisis of 2007-2009.

Troubled Assets Relief Program

M1 is more liquid (narrower) measure of a nation's money stock than M2

True

A unit of account is

a common measurement in which relative values are expressed

To a bank, a checkable deposit is classified as

a liability.

If a person uses money to buy a pair of shoes, money is functioning as

a medium of exchange

The potential buyer of a house has less information about the house than the seller of the house. This is a case of

asymmetric information.

Fractional reserve banking is a term used to describe a banking system whereby

banks hold reserves equal to only a fraction of their deposit liabilities.

When we say that the financial crisis can be viewed as a balance sheet problem, this is descriptive of

banks possessing assets that are declining in value, resulting in banks approaching insolvency.

Open market operations are the

buying and selling of government securities by the Fed.

Regulatory capital arbitrage is a means of

changing the composition of assets in such a way as to lower the overall amount of capital a financial institution holds for a given level of assets.

Which of the following is an example of a participant in the financial sector?

commercial banks investment banks hedge funds brokerage firms

The most important responsibility of the Fed is to

control the money supply.

Bank B takes 15,000 mortgage loans, bundles them together, and then sells slices of the bundle. This is descriptive of

creating a mortgage-backed security.

In the 1990s and early 2000s, mortgage lending standards ______________ in the United States. In general, there was a move _____________ traditional lending practices during this period.

declined; away from

increase the money supply?

decrease in the required reserve ratio

The sale of a government security by the Fed

decreases the supply of money.

According to John Taylor (for whom the Taylor rule is named), during the period 2002-early 2006 actual Fed policy was "too_________" , which he believes led to both interest rates being "too ________" and rising housing prices in the United States.

expansionary; low

Credit cards are a widely accepted form of money.

false

The __________ rate is the interest rate one bank pays another bank for a loan.

federal funds

A commercial bank can receive a loan from another commercial bank in the

federal funds market

The M2 money supply

includes M1, is the most common broad definition of the money supply, includes savings deposits, is larger than M1.

An open market purchase by the Fed

increases the supply of money.

The Federal Reserve System

is the central bank of the United States, controls the money supply, is the lender of last resort, is the fiscal agent for the Treasury.

The U.S. dollar is a fiduciary money because

it is not backed by any other assets

Insolvency is a condition where a firm's

liabilities are greater than assets

Insolvency is a condition where a firm's

liabilities are greater than assets.

In the early 2000s, the Fed's ____________ interest rate policy had several effects. Among these effects were a _______________ in mortgage interest rates and a(n) ____________ in the size of loans taken out by mortgage borrowers.

low; decline; increase

The Taylor rule is a recommendation of how

lower the actual federal funds rate

Suppose the Fed lowers its federal funds rate target. The Fed probably seeks to

lower the actual federal funds rate.

Which of the following is not included in M1?

money market deposit accounts

Money's basic advantage as compared to barter is that

money reduces transaction costs.

Required reserves are the amount of

reserves a bank must hold against its deposits as mandated by the Federal Reserve

Suppose the banking system has $40 billion in reserves. Also assume that there are no cash leakages or excess reserves. If the central bank lowers the required reserve ratio from 20 percent to 16 percent, checkable deposits (the money supply) will ultimately __________ by _______________.

rise; $50 billion

For a bank, more capital means more _____________, and it also means ___________ returns when asset values are rising.

safety; lower

The Board of Governors of the Federal Reserve is comprised of

seven persons, each appointed to a fourteen-year term.

A ____________________ loan is a nontraditional mortgage loan granted to persons who have some factor, such as low credit ratings, which suggest that they could default on the repayment of their debt.

subprime mortgage

The ability of banks to get insurance from ______________ encourages banks to take on a little bit _________ risk than they would in the absence of deposit insurance

the FDIC; more

The discount rate is the interest rate

the Fed charges when it lends reserves to banks.

The chairman of the Board of Governors of the Fed is designated by ____________________ to serve a _______ year term as chairman.

the President; four

The Federal Open Market Committee (FOMC) is composed of the seven members of the Board of Governors,

the president of the New York Federal Reserve District Bank, and four Federal Reserve District Bank presidents who rotate on an annual basis.

Asymmetric information exists when

the two parties to an exchange differ in what they know about the good being exchanged

Excess reserves are equal to

total reserves minus required reserves

In February 2009, Congress passed (and President Obama signed) a $787 billioin fiscal stimulus bill in an attempt to improve the economy.

true

Saying that it takes twice as many dollars to buy one ticket for a concert than two tickets for a movie refers to the use of money as a

unit of account

Fractional reserve banking originated

when goldsmiths realized they could issue warehouse receipts beyond gold on deposits.