Econ Exam 3

Which of the following statements is true?

Currency in circulation in any economy is likely to be less than the total money supply in the economy

Which of the following is actually SET by Fed policy?

Discount rate and Fed Funds target rate

A bank run occurs when

a bank experiences an extraordinarily large volume of withdrawals.

If the Fed sells government bonds in the open market, it will cause:

a decrease in the supply of bank reserves

Assuming all else equal, if households are pessimistic about future income, it is likely to cause a(n)

a decrease in the supply of credit and an increase in interest rates on these types of loans

Anne works as a babysitter. She uses her wage as a babysitter to buy a pair of roller skates. In this case, money served the function of ________.

a medium of exchange

When used as an accounting device to keep track of value, money is functioning as

a unit of account

In financial markets, a "bond" is

a way that companies borrow directly from the public

The federal funds market refers to the market where:

banks obtain loans of reserves from each other.

Which of the following is a common property of items used as money?

can be easily divided into units of various size or value B) can be easily transported C) has a relatively stable quantity and value

Another label for the market for loaned funds is the

credit market.

M2 adds together:

currency in circulation, checking accounts, savings accounts, travelers' checks, and money market accounts.

An official measure of money in the United States is M1, which includes the sum of

currency plus checkable deposits

Economic agents who borrow funds are known as

debtors

Which of the following is likely cause a decrease in the demand for credit?

decreases in the scale of production

Demand deposits are termed so because

depositors can withdraw money from such deposits at any point of time.

A commercial bank's last resort for borrowing reserves is from the:

discount window.

The biggest wave of bank failures in the U.S. occurred:

during the Great Depression.

The ________ is the interest rate that banks charge each other for overnight loans.

federal funds rate

The paper currency that is currently being used in the U.S. is an example of ________ money.

fiat

Institutions that channel funds from suppliers of financial capital to users of financial capital are referred to as:

financial intermediaries.

An institutional or wholesale market bank run or is most likely to occur when

firms and other banks withdraw money from a weak bank.

The most established theory of stock prices relates a company's asset prices to:

future earning prospects of companies and future values of interest rates.

Investment pools gathered from a small number of very wealthy individuals or institutions are referred to as

hedge funds

In theory, any object ________ could play the role of fiat money.

in limited supply

A financial institution that helps companies sell stocks and bonds to the public as in the initial public offering (IPO) of Facebook is a(n):

investment bank

In stock markets,

investors purchase shares of ownership in companies

An asset is liquid if

it can be easily converted into cash without loss of value

One of the risks of maturity transformation is that:

it can lead to bank runs.

A bank is said to have enough liquidity if

it has enough funds to conduct its day-to-day businesses and meet the regulatory requirements.

If the annual inflation rate in an economy is positive, the purchasing power of a dollar kept in a bank

it will decrease over time

A bank is insolvent when

its total liabilities exceed its total assets.

Normally, the Federal Deposit Insurance Corporation would shut down a bank when:

liabilities of the bank exceed the assets of the bank.

Deposits in a bank are

loans to the bank and liabilities of the bank

Borrowed funds that are to be repaid in a year or more are referred to as

long-term debt.

Which of the following is the primary and direct mechanism with which the Federal Reserve System can influence interest rates and the broader economy?

managing the money supply

Which of the following functions does the Fed perform?

managing the money supply and clearing checks between banks

The transfer of short-term liabilities into long-term investments is called

maturity transformation.

When an asset is traded for goods and services it is serving the function of a ________.

medium of exchange

Institutions that pool funds from savers and lend it out at interest but are not banks are

money market mutual funds.

The U.S. central bank is the government institution that:

monitors financial institutions, controls the money supply, and sets certain key interest rates.

A credit card is

not money

When the Fed buys or sells government bonds to private banks in exchange for reserves, it is referred to as:

open market operations.

The "gold-standard" is a system in which

paper currency is convertible into gold at a fixed value

Which of the following is likely to cause in increase in the demand for credit?

plans to increase production and expand to newer markets

The total interest that a borrower has to pay on a loan is equal to the

principal times the rate of interest.

The annual price of a one dollar loan is referred to as the

rate of interest

Cash equivalents are

riskless, liquid assets that banks can immediately access.

When the term Treasury Bills is used, it refers to

short term loans issued by the U.S. government

A financial institution that pools money from investors to buy stocks is a(n)

stock mutual fund

Ryan saved $50,000 last year in his bank account so that he could buy a car this year. In this case, money served the function of a ________.

store of value

When an asset enables people to transfer purchasing power into the future it serves the function of a ________.

store of value

The unit of account within the European Union is

the Euro

Interest rates are determined by

the interaction of the demand for loans of certain types and the supply of funds for those loans

The occurrence and risk of bank runs grows out of

the liquidity risk embedded in deposits being used as loans

Credit is

the loan that a debtor receives.

When economists refer to the "real" interest rate, they mean

the nominal interest rate adjusted for inflation.

The clip from the movie "It's a Wonderful Life" illustrates which of the following

the problem of liquidity risk for banks and financial firms when depositors withdraw funds rapidly

A bank is solvent when

the value of its total assets exceeds the value of its liabilities.

Savers are willing to lend out money because

they prefer to spend money in the future rather than today

When an asset is used as a universal yardstick that is used for expressing the worth of different goods and services, it is serving the function of a ________.

unit of account

it has enough funds to conduct its day-to-day businesses and meet the regulatory requirements.

weighted averages of stock prices

The general term applied to the Federal Reserve, the Bank of England, and the Bank of Japan is

wholesale bank

If the annual inflation rate in an economy is negative, the purchasing power of a dollar

will increase over time

If an individual borrows $100 at an annual rate of interest of 5%, how much interest will he have to pay at the end of a year?

$5

Demand deposits have a ________ maturity.

0-year

If the nominal interest rate in an economy is 6%, and the rate of inflation in the economy is 4%, the real interest rate in the economy is

2%

Which of the following statements is true?

Non-bank institutions are also a part of the credit market.

Select the accurate statement below regarding gold standards and fiat paper standards:

A) paper standards require commitments to the value of money while gold standards require commitments to the conversion rate B) gold standards can create problems of deflation during periods where there is a high demand for gold C) gold standards tend to restrict the ability of governments to devalue their currency by creating more

Which of the following statements is true?

An excess demand for credit exerts an upward pressure on the real rate of interest.

Which of the following is the interest rate targeted by the Fed

Fed Funds rate

In the United States, the central bank is called the:

Federal Reserve Bank

Which of the following sit on the part of the Fed that sets monetary policy targets?

Federal Reserve District Bank presidents

________ money refers to something that is used as money but that is otherwise worthless and typically has the backing of the government or a central bank.

Fiat

Which of the following is true of fiat money?

Fiat money is not backed by a physical commodity.

Which of the following statements is true of the federal funds market?

In the federal funds market, banks with a shortage of reserves borrow funds, while banks with an excess of reserves lends them out.

Which of the following tools does the Fed use to pursue its objectives?

It influences short-run interest rates.

The Federal Reserve System is part of

It is an independent federal agency

Which of the following is a role of the Federal Deposit Insurance Corporation in the United States?

It regulates banks that are insolvent.

Which of the following statements is NOT a function of the Fed?

It regulates the various stock markets in the economy.

________ refers to funds available for immediate payment.

Liquidity

If Rob deposits $300 in currency into his savings account at Bank of America,

M2 Increases

________ refers to the time until debt must be repaid.

Maturity

Which of the following equations is correct?

Real interest rate = Nominal interest rate - Inflation rate

The funds being lent in the federal funds market are:

Reserve at the Fed

The policy making body within the Fed is comprised of

The Board of Governors and the District Bank Presidents

Which of the following financial organizations have the ability to influence the supply of bank reserves in the United States?

The FED

Which of the following holds the reserves of private banks in the United States?

The Fed

Who regulates the quantity of money circulating in the economy?

The Federal Reserve

Suppose you use your debit card to buy soda from a soda machine. Which of the following is true regarding the transaction?

The debit card is not money; its use is only a tool to cause money to move from your account.

Which of the following statements is true of the U.S. economy?

The number of bank runs decreased after the FDIC was established.

Consider two economies: A and B. The nominal interest rate is the same in both economies, but the rate of inflation is higher in economy B. Which of the following statements will then be true?

The real interest rate will be higher in economy A.

Which of these financial intermediaries is most likely to invest in new companies that are just starting up and have no track record?

Venture capital funds

Another name for an institutional bank run is

Wholesale market bank run

Assuming all else equal, if the airline industry decides to purchase a large number of new planes, it is likely to cause

an increase in the demand for loans and an increase in the rate of interest on these types of loans

If the Fed buys government bonds in the open market, it will cause:

an increase in the supply of bank reserves

The term "lender of last resort" for the financial system as a whole during widespread crisis

applies to the Fed as in its ability to lend to the banking system

For households and business, their deposits in the bank are money, but for the bank they

are loans to the bank that the bank uses to make loans

Companies that enable investors to use their savings to buy financial securities are referred to as

asset management companies.

Loans that a bank makes are

assets of the bank