Econ Ch 29

Suppose the reserve ratio is 10%. There are $100,000 of excess reserves in the banking system. The maximum amount by which the money supply can expand is

$1,000,000.

The First National Bank of Tinyville has $10,000 of reserves. If it is holding no excess reserves, and the reserve ratio is 10%, its deposits are

$100,000.

If the reserve ratio is 15 percent, an additional $2,000 of reserves will increase the money supply by

$13,333

If R is the reserve ratio, which of the following is the correct way to find the money multiplier?

1/R

If the Last Bank of Hope is holding only the amount of reserves required, the reserve requirement is

20 percent.

If the reserve ratio is 25 percent, the money multiplier is

4

The Federal Open-market Committee is made up of

5 of the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors.

Which of the following provides a store of value?

All of the above are correct.

Which of the following might explain why the United States has so much currency per person?

Currency may be a preferable store of wealth for criminals.

Which Federal Reserve Bank president is always a voting member of the FOMC?

New York

Barter

None of the above is correct.

Which of the following will increase the money supply, but leave the money multiplier unchanged?

None of the above is correct.

Which of the following best illustrates the unit of account function of money?

You list prices for candy sold on your Web site, sweet-treats.com, in dollars.

Credit cards are

a method of deferring payment.

Which of the following pairs correctly list a function of the Fed and the part of the Fed directly responsible for the function.

check clearing—regional Federal Reserve Banks

Which of the following types of currency has intrinsic value?

commodity money

M1 includes

currency

To increase the money supply, the Fed could

decrease the discount rate.

In the nineteenth century when there were bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. This should have

decreased both the money multiplier and the money supply.

During World War II people chose to hold relatively more currency and relatively fewer checking deposits. This should have

decreased the money multiplier and decreased the money supply.

In a fractional reserve banking system, an increase in reserve requirements

decreases both the money multiplier and the money supply.

Which of the following items is a liability to a bank?

deposits

The interest rate the Fed charges on loans it makes to banks is called the

discount rate.

U.S. currency is currently

fiat money with no intrinsic value.

If the reserve ratio is 10 percent, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

increase by $10 million and the money supply eventually increases by $100 million.

If the Fed makes open-market purchases it will

increase the money supply which will increase the price level.

In 1991 the Federal Reserve lowered the reserve requirement ratio from 12% to 10%. This should have

increased both the money multiplier and the money supply.

Suppose the Federal Reserve System purchases one-hundred thousand dollars of government bonds. If the reserve requirement is 10%, the Fed's purchase

increases the money supply by one million dollars.

If the reserve requirement is 10 percent, the Last Bank of Hope

is holding excess reserves of $1,000

M2 is

larger but less liquid than M1.

The Fed can directly protect a bank during a bank run by

lending reserves to the bank.

An increase in the discount rate encourages banks to borrow

less from the Fed and reduces the money supply.

The higher the reserve requirement ratio the

less of each deposit banks many lend out, and the smaller the multiplier.

When the Fed increases the discount rate, banks will borrow

less, banks will lend less, and the money supply will decrease.

Giving up a dollar bill to purchase an ice cream cone best illustrates money's function as a

medium of exchange.

Credit cards are a

method of deferring payments.

The Fed's most frequently used tool of monetary control is

open-market operations.

An increase in the discount rate

or an increase in the reserve ratio decreases the money supply.

Since the U.S. government has decreed that U.S. currency is legal tender,

people are more likely to accept the dollar as a medium of exchange.

During the stock market crash of October 1987, the Fed

prevented a financial panic by providing liquidity to the financial system.

If the Federal Reserve wished to increase the money supply it could make open-market

purchases or decrease the discount rate.

Which list contains only actions that decrease the money supply?

raise the discount rate, make open-market sales

FOMC policy decisions have an important influence on the economy's

rate of inflation in the long run and level of employment in the short run.

On a bank's T-account,

reserves are assets, deposits are liabilities.

Which of the following is not contained in M1?

savings deposits

Of the following assets which is the most liquid?

stocks in Intel Corporation

Which part of the Fed meets about every six weeks to discuss the economy and make changes in monetary policy?

the FOMC

If banks choose to hold more excess reserves,

the money supply falls.

The Fed can influence unemployment in

the short run, but not the long run.

If the reserve ratio is 5 percent and a bank receives a new deposit of $500, this bank

will be able to make a new loan of $475.