Econ final

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of

$1,500

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by

$10,800

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are

$100,000

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been increased, respectively, by

$5,000 and $4,000

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about

$660 million

A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20%. It grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited in another bank. The first bank will find its reserves decrease by

$8,000

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

$9,000

If the monetary multiplier is 6, then the reserve ratio must be

0.167

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

A multiple of $1 million

One feature of the second round of QE ("QE2") was that the Fed engaged in "forward commitment," by pre-announcing exactly the quantity of bonds it was going to buy and for how long the buying would last. This change in policy was intended to

Enhance the banks' willingness to lend out their reserves

The interest rate that banks charge one another for the loan of excess reserves is the

Federal funds rate

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Federal funds rate

The government bail-out of large institutions creates the problem of moral hazard, which means that these large firms will

Have an incentive to make highly risky investments

The Fed can induce banks to increase their reserve holdings by

Increasing the interest on reserves

The transactions demand for money is least likely to be a function of the

Interest rate

If bond prices decrease, then the

Interest rate increases

The transactions demand for money will shift to the

Left when nominal GDP decreases

Raising the interest paid on reserves has the effect of making it

Less costly for banks to hold excess reserves

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?

M1

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

M1 increases and M2 stays the same

Lowering the discount rate has the effect of

Making it less expensive for commercial banks to borrow from central banks

The Federal Reserve alters the amount of the nation's money supply by

Manipulating the size of excess reserves held by commercial banks

The major wave of defaults on home mortgages in 2007 destabilized

Many banks including those that made the loans indirectly

Which of the following statements about quantitative easing (or "QE") and open market purchase is true?

QE is different from open market purchase in that QE involves not just T-bonds but also bonds issued by other government agencies and government-backed corporations

Which of the following items are included in money supply M2 but not M1?

Savings deposits

The level of GDP, ceteris paribus, will tend to increase when

The Federal Reserve buys government securities in the open market

Which of the following "backs" the value of money in the United States?

The acceptability of it as a medium of exchange

Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase

Which of the following best describes what occurs when monetary authorities sell government securities?

There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP

The fundamental objective of monetary policy is to assist the economy in achieving

A full-employment, noninflationary level of total output

Commercial bank reserves, most of which are held by the Federal Reserve Banks, are

A liability of the Federal Reserve Banks and an asset for commercial banks

An asset's liquidity refers to its ability to be

A means of payment

What function is money serving when you use it when you go shopping?

A medium of exchange

What function is money serving when you deposit money in a savings account?

A store of value

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as:

A unit of account

The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except

Housing price increased drastically

United States currency has value primarily because it

Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

Checkable deposits are included in

both M1 and M2

Bond prices and the interest rate are

inversely related

The Federal Reserve System is divided into

12 districts

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be

25 percent

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be

4

If the required reserve ratio were 15 percent, the value of the monetary multiplier would be

6.67

How many members can serve on the Board of Governors of the Federal Reserve System?

7

The paper money or currency in the U.S. essentially represents

A debt of the Federal Reserve System

When a bank's loans are written off, then the bank's

Ability to make new loans is restricted

Loans of the Federal Reserve Banks to commercial banks are

An asset of the Federal Reserve Banks and a liability for commercial banks

When cash is deposited in a checkable-deposit account at a bank, there is

An increase in the bank's liabilities

A checkable deposit at a commercial bank is a(n)

Asset to the depositor and a liability to the bank

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of

Assets

A bank's net worth is equal to its

Assets minus its liabilities

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?

Bank purchases of Treasury bonds from the Fed

What is one significant characteristic of fractional reserve banking?

Banks can create money through lending their reserves

In essence, which of the following groups "creates" money?

Banks' loan officers when they grant loans

When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of

Being the bankers' bank

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks C

A bank can get additional excess reserves by doing any of the following, except

Buying Treasury securities from the Fed

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

Buying government securities and lowering the discount rate

When the Fed wants to lower the Federal funds rate, it

Buys bonds from banks and the public

As of February 2013, more than half of the money supply (M1) was in the form of

Checkable deposits

The M1 money supply is composed of

Checkable deposits and currency in circulation

When a check is cleared against a bank, the bank will lose

Checkable deposits and reserves

If the Fed buys government securities from commercial banks in the open market

Commercial banks give the securities to the Fed, and the Fed increases the banks' reserves

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

Decrease by $5 billion

A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has

Decreased by $10,000

Money functions as a store of value if it allows you to

Delay purchases until you want the goods

The lending ability of commercial banks increases when the

Fed buys securities in the open market

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy?

Federal Open Market Committee

The paper currencies of the U.S. are also called

Federal Reserve notes

Banks can lend their excess reserves to other banks in the

Federal funds market

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately

Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million

Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the excess reserves at Bank A and Bank B?

Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B

Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?

Increase by $50,000 at Bank A, and decrease by $50,000 at Bank B

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has

Increased by $50,000

When the Fed buys government securities in the open market, it

Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate

The relative importance of various asset items on a commercial bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

Liquidity and profits

Which of the following Fed actions increases the excess reserves of commercial banks?

Lower the reserve ratio

The use of a credit card is most similar to

Obtaining a short-term loan

The purchase and sale of government securities by the Fed is called

Open market operations

The Federal funds rate is the rate that banks pay for loans from

Other banks

The use of a debit card is most similar to

Paying with a check

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the

Prime interest rate

The Federal Reserve System performs the following functions, except

Providing banking services to the general public

The Financial Crisis of 2007-2008 started in which sector of the economy?

Real estate and housing sector

In response to the financial crisis and the Great Recession, the Fed took the following actions

Reduced the federal funds rate to practically zero, Initiated a few rounds of quantitative easing, Engaged in a policy of forward commitment

Cash held by a bank in its vault is a part of the bank's

Reserves

When the Federal Reserve raises the target Federal funds rate, it

Sells government securities to decrease the excess reserves available for overnight loan

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for

Setting the Fed's monetary policy and directing the purchase and sale of government securities C

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to

Stimulate the economy

If the Fed sells government securities to the general public in the open market

The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed

The interest rate that the Fed charges banks for loans to them through the traditional channel is called

The discount rate

When bankers hold excess reserves

The money-creating potential of the banking system decreases

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?

The purchase of government securities in the open market and an increase in government spending

What is one of the advantages of monetary policy over fiscal policy?

The quickness with which it can be used

A bank's checkable deposits shrinks from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3%

They fall by about $0.2 million

A consumer holds money to meet spending needs. This would be an example of the

Transactions demand for money

Which of the following institutions does not provide checkable-deposit services to the general public?

U.S. Treasury

If the Fed is trying to make the interest rates go down, it wants

Unemployment to decrease

The functions of money are to serve as a

Unit of account, store of value, and medium of exchange

The prime interest rate is

higher than the Federal funds rate