Econ Final

an appreciation of the dollar relative to the pound.

A change in the dollar value of the British pound from $1.60 to $1.50 represents

A purchase of foreign assets by a central bank has the same impact on the monetary base as:

A purchase of foreign assets by a central bank has the same impact on the monetary base as:

an open market sale of government bonds.

A sale of foreign assets by a central bank has the same effect on the monetary base as

greater control over open market operations than over discount loans

Although open market operations and discount loans both change the monetary base, the Fed has

right; appreciate

An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant.

increases the monetary base.

An open market purchase

higher domestic interest rates.

An unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency will result in

rise and interest rates fall.

As a result of an open market purchase, bank reserves

Merrill Lynch.

As a result of the 2007-2009 financial crisis, which of the following Big Five investment banks was acquired by Bank of America?

dollar; foreign

As the expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant.

has no effect on the exchange rate.

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

securities; loans to financial institutions

Both ________ and ________ are Federal Reserve assets.

Currency in Circulation/Checkable Deposits

Currency Ratio

currency; excess reserves

Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

borrowers differ in their ability to repay in full the principal and interest required by a loan agreement.

Default risk arises from the fact that

are used to offset temporary disturbances to the supply or demand for reserves.

Defensive open market transactions

increased sharply.

During the 2007-2009 financial crisis the excess reserve ratio

purchase; increase

Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic monetary base will ________ and the domestic currency will depreciate.

has no effect on the federal funds rate.

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4%

more; less

Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.

Excess Reserves/Checkable Deposits

Excess Reserve Ratio

open market sales.

Expansionary monetary policy consists of all of the following EXCEPT

decrease; left

Holding the expected return on bonds constant, an increase in the expected return on common stocks would ________ the demand for bonds, shifting the demand curve to the ________.

buy domestic currency and sell foreign assets.

If a central bank wishes to raise the foreign-exchange value of its currency, it will

M1 increases and M2 stays the same.

If an individual moves money from a savings deposit to currency

fall by 2 percent.

If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will

it would conduct an open market purchase, increasing reserve supply.

If the Fed desired to reduce the federal funds rate,

does not change.

If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply

a decrease in securities held of $10 million and an increase in bank reserves of $10 million.

If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will show

the monetary base is left unchanged.

If the Fed sterilizes the purchase of foreign assets,

sell foreign securities and buy dollars in international currency markets.

If the Fed wants to increase the value of the dollar, it will

defensive; purchase

If the demand for reserves is supposed to increase temporarily, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities.

left and the equilibrium bond interest rate falls.

If the federal government decreases its spending and doesn't decrease taxes, the bond supply shifts to the

10 times its excess reserves.

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to

an asset to you and a liability to First National.

If you have a checking account at First National Bank, the account is

conduct open market sales.

In order to increase its target for the federal funds rate, the Fed would normally

decreases the effective floor for the federal funds rate.

In the market for reserves, a lower interest rate paid on excess reserves

sale decreases

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves and below discount rate, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant.

increases; raising

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant.

$100 times the reciprocal of the required reserve ratio.

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

February 2007

In which of the following periods was the yield curve inverted?

Money Supply/Monetary Base

M1 (Money Multiplier)

appointed by the President of the United States, subject to confirmation by the Senate.

Members of the Board of Governors are

Currency in Circulation + (Required Reserve Ratio*Checkable Deposits) + Excess Reserves

Monetary Base

Currency in Circulation + Checkable Deposits

Money Supply

Increase in Reserve/Checkable Deposits

Required Reserve Ratio

required reserves and excess reserves.

Reserves are equal to the sum of

overvalued; depreciate

Suppose Big Mac costs $4.8 in US and 6.5 Swiss francs in Switzerland. If the current exchange rate is 0.8 Swiss francs per dollar, then Swiss franc is _______ against US dollar and should___________ in the long run.

undervalued; appreciate

Suppose Big Mac costs 120 pesos in Mexico City and 8 pounds in London. If the current exchange rate is 12 pesos per pound, then according to law of one price pound is ______ and should _______ in the long run.

dynamic; sale

Suppose FOMC increased its target federal funds rate. Assuming that demand for reserves has not changed, if the New York Fed wishes to keep the effective federal funds rate close to the target level, then the appropriate action to take is a ________ open market ________, everything else held constant.

decrease; depreciate

Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

1934

The FDIC was created in

it is self financing.

The Fed does not have to go through the normal congressional appropriations process because

legally separate investment banking from commercial banking.

The Glass-Steagall Act was designed to

the demand for U.S. goods and financial assets by households and firms outside the United States.

The demand for U.S. dollars represents:

positively; negatively

The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate.

the Fisher effect.

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

a sterilized intervention does not change the monetary base

The main difference between a sterilized intervention and unsterilized intervention in the foreign exchange market is:

currency in circulation.

The monetary base minus reserves equals

minus the interest rate paid on excess reserves.

The opportunity cost of holding excess reserves is the federal funds rate

the account manager at the Federal Reserve Bank of New York.

The policy directive from the FOMC is carried out by

underwriting

The process by which investment banks guarantee a certain price to a firm issuing stocks or bonds is known as:

bank run.

The process by which simultaneous withdrawals by a particular bank's depositors results in the bank closing is known as a

rises when prices fall.

The purchasing power of money

a sterilized intervention

The sale of foreign assets by a central bank accompanied by an open market purchase of securities of the same size results in:

depreciate

The theory of PPP suggests that if one country's price level rises relative to another's, its currency should

some goods are not traded between countries.

The theory of purchasing power parity cannot fully explain exchange rate movements in the short run because

purchase; extend

There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks.

are considered default-risk-free instruments.

U.S. Treasury securities

depreciating; devalue

Under a fixed exchange rate regime, a country that depletes its international reserves in an attempt to keep its currency from ________ will be forced to ________ its currency.

reduces; rise

Under a fixed exchange rate regime, if a central bank must intervene to purchase the domestic currency by selling foreign assets, then, like an open market sale, this action ________ the monetary base and the money supply, causing the interest rate on domestic assets to ________.

overvalued; loss

Under a fixed exchange rate regime, if a country has an ________ exchange rate, then its central bank's attempt to keep its currency from depreciating will result in a ________ of international reserves.

depreciating; loss

Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves.

undervalued; above

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is, ________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

increase; increases

When a primary dealer sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

increase by $100.

When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system

increase by $100.

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

the composition of its assets changes, but its liabilities are unaffected.

When the Fed sells foreign assets and buy domestic assets at the same time,

increase; more

When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar—a process called multiple deposit creation.

increase; increases

When the Federal Reserve purchases a government bonds from banks, reserves in the banking system ________ and the monetary base ________, everything else held constant.

depreciated; American wheat sold in Britain becomes more

When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive.

appreciated; depreciated

When the value of the British pound changes from $1.25 to $1.50, the pound has ________ and the U.S. dollar has ________.

converting loans into securities.

Which of the following assets is the least liquid?

bank deposits

Which of the following is NOT a form of a short-term liability in the shadow banking system?

Federal Deposit Insurance Corporation

Which of the following is NOT considered one of the four groups in the Federal Reserve System?

savings deposits

Which of the following is a bank liability?

short-term interest rates

Which of the following is a potential operating instrument for the central bank?

increase in U.S. interest rates compared to foreign interest rates

Which of the following is most likely to lead to an increase in the value of the dollar?

The demand for dollars will increase.

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

An increase; depreciate

________ in the foreign interest rate causes the supply for domestic assets to shift to the right and the domestic currency to ________, everything else held constant.