Econ 101: Money ALA

President Woodrow Wilson signed the Federal Reserve Act in ___________.

1913

___________ are businesses that provide financial services to the marketplace and try to make a profit along the way.

Banks

___________ are organizations that connect people with money to people who want it.

Banks

The Federal Reserve System consists of ___________ Federal Reserve Banks in ___________ geographic regions or districts.

Blank 1: 12 or twelve Blank 2: twelve or 12

The mathematical identity that states that money supply times the velocity of money is equal to the price level times the real GDP is known as the ___________ of ___________.

Blank 1: equation Blank 2: exchange

A reserve requirement specifies the ___________ of checkable deposits that a bank must keep on hand.

Blank 1: fraction, portion, amount, percentage, proportion, percent, or minimum

People rarely take all their deposits out at once, so on any given day the bank may need to have only a(n) ___________ of deposits on hand to honor checks pay bills or handle normal withdrawals.

Blank 1: fraction, proportion, or portion

A surplus is a situation in which the quantity supplied is ___________ than the quantity demanded at the current market price.

Blank 1: greater, larger, higher, bigger, or more

Banks play a crucial role in determining ___________ rates and the ___________ supply.

Blank 1: interest or Interest rates Blank 2: money or money supply

A shortage is a situation in which the quantity supplied is ___________ than the quantity demanded at the current market price.

Blank 1: less, smaller, lower, or lesser

The reserve requirement is the ___________ percentage of deposits that banks must keep on hand as reserves.

Blank 1: minimum or lowest

A relatively ___________ fraction of the money in an economy is issued by the Federal Reserve; the rest is created by ___________.

Blank 1: small or lesser Blank 2: banks

The demand for money comes from two sources: ___________ demand and ___________ demand.

Blank 1: transaction Blank 2: asset

___________ are certificates of debt that usually specify a dollar amount to be repaid plus interest at some future date.

Bonds

The Federal Reserve is commonly called the ___________.

FED

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

Face

Monetary policy refers to the action of the ___________ to influence the supply of money and credit in the U.S. economy.

Fed

The Federal Reserve Bank is commonly known as the ___________.

Fed

___________ is the payment made to agents that lend or save money.

Interest

Suppose the Federal Reserve decides to increase the money supply. Describe the effect on the bond market.

Interest rates will decrease and demand for bonds will increase.

___________ consists of the most liquid forms of money.

M1

Which of the mathematical identities depicts the equation of exchange?

MV = PY

___________ policy affects interest rates charged on loans and paid on savings.

Monetary

___________ is good for storing wealth, but the interest rate it earns is usually low.

Money

Which of the following is a primary role of the Federal Reserve?

Providing banking services to the federal government.

Which of the following Federal Reserve policies will cause a reduction in the demand for bonds?

The Fed decreases money supply.

When people deposit money, the bank provides valuable services in return:

Their money is available when needed, it's safe, and it might even earn interest.

___________ money demand is the demand for money to be used to purchase goods and services.

Transaction

money demand is the demand for money to be used to purchase goods and services.

Transaction

Knowing how much money an economy has matters because it helps determine interest rates and prices. (True or False)

True

When you borrow money, you'll pay a certain interest rate; when you save, you'll earn a different interest rate. (True or False)

True

Which president signed the Federal Reserve Act in 1913?

Woodrow Wilson

Money and bonds are different types of ___________.

assets

When people save for future expenses, they typically choose a mix of different ___________ that meets their needs and balances their tolerance for risk versus return.

assets

A(n) ___________ is a financial agreement that obligates a borrower (such as an individual firm or government) to repay the amount borrowed (principal) and interest on a specific date in the future.

bond

Interest rates and prices are often determined:

by the amount of money in an economy.

Bonds are certificates of ___________ that usually specify a dollar amount to be repaid plus interest at some future date.

debt

Changes in the price level, changes in real GDP, and uncertainty about the future are all considered determinants of money ___________.

demand

Changes in the price level changes in real GDP and uncertainty about the future are all considered:

determinants of money demand.

The interest rate we earn on a savings account:

differs from the interest rate we pay on loans.

Total money demand is:

downsloping as a result of asset demand.

The majority of the Federal Reserve banks are in the ___________ half of the country.

eastern

The Federal Reserve Act of 1913:

established the Federal Reserve System.

The money supply is a vertical line because it is:

independent of the interest rate.

Banks allow households who are spending less than their total income to keep their unused income in a safe place while also earning ___________.

interest

Because the Federal Reserve fixes the money supply at a particular amount, changes in the ___________ rate do not cause a change in the quantity of money supplied.

interest

Because the Federal Reserve fixes the money supply at a particular amount, changes in the rate do not cause a change in the ___________ quantity of money supplied.

interest

The ___________ rate is the payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved.

interest

The yield is the effective ___________ rate earned on a bond or other asset.

interest

The yield on a bond is:

interest payment/bond cost

Knowing how much money an economy has matters because it helps determine:

interest rates and prices.

The interest rate:

is the price of money.

M1 consists of the most ___________ forms of money.

liquid

When an individual deposits a check at the local bank, the bank's reserves increase. The bank can use most of those reserves to make ________. This _______ the money supply.

loans; increases

Banks can influence the money supply by

making loans

As ___________ evolves, so does our ability to specialize and trade.

money

M1 consists of ___________ the most liquid forms of which includes all currency in circulation.

money

Since we can't use stocks and bonds for daily transactions, people hold some of their savings as ___________ instead of putting it all in stocks or bonds.

money

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

money

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

money

The overall change in the money supply given an initial change in reserves depends on the ___________ multiplier.

money

Using ___________ as a means of exchange in our economy makes it easier for people to make transactions with each other.

money

___________ is any item that both buyers and sellers will accept in exchange for goods and services.

money

___________ makes specialization and trade easier.

money

A deposit account that accepts deposits and purchases bonds and commercial debt that pay interest is a:

money market mutual funds.

A money market is a market in which:

money supply and demand determine an interest rate.

When people hold money in a ___________ fund, they give up liquidity for a higher interest rate.

mutual

The interest rate stated on a loan or other asset is the ___________ interest rate.

nominal

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

only by the federal government.

Interest is the:

payment made to agents that lend or save money.

In order to conduct daily transactions and have a stable asset for future purchases,:

people hold some of their savings as money.

When the money supply changes,:

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

The ___________ interest rate is adjusted for inflation.

real

The inflation-adjusted interest rate is the ___________ interest rate.

real

The interest rate paid to lenders and savers when the expected rate of inflation equals zero is the ___________ interest rate.

real

The nominal interest rate minus the inflation rate is the ___________ interest rate.

real

A reserve ___________ specifies the fraction of checkable deposits that a bank must keep on hand.

requirement

To make sure banks meet the daily needs of customers, the Federal Reserve enforces a:

reserve requirement.

If the bank keeps all of its deposits as __ ,the bank won't make any money. (Use one word for the blank.)

reserves

A(n) ___________ is a situation in which the quantity supplied is less than the quantity demanded at the current market price.

shortage

The actual money multiplier tends to be ___________ than the one predicted by the money multiplier equation.

smaller

A(n) ___________ is a situation in which the quantity supplied is greater than the quantity demanded at the current market price.

surplus

A(n) ___________ is a situation in which the quantity supplied is greater than the quantity demanded at the current market price. Listen to the complete question

surplus

Directing monetary policy and supervising member banks is done by:

the Federal Reserve.

When an individual deposits a check at the local bank,:

the bank's reserves increase.

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

the central bank.

If people expect inflation,:

the nominal interest rate rises.

A(n) money deposit is an interest-bearing deposit held by a bank or financial institution for a fixed term. whereby the depositor can only withdraw the funds after giving notice.

time

The Federal Reserve commonly called the Fed:

tracks the money supply

Because the money supply is independent of the interest rate, it is a(n) ___________ line.

vertical

The nominal interest rate equals the real interest rate:

when there is no inflation.

The bond ___________ is the effective interest rate earned on a bond or other asset.

yield