LC34: LearningCurve - Ch. 34: The Federal Reserve System and Open Market Operations
Which of the following statements is FALSE?
If banks kept a 100% reserve ratio, the money multiplier would equal 10.
Which of the following statements is TRUE?
When banks are confident that depositors will not want to withdraw their cash or when loans seem profitable, they want a reserve ratio that is relatively low.
All else equal, if the Fed uses monetary policy to increase aggregate demand, in the long run the inflation rate will:
be higher.
Which of the following is something that the Federal Reserve does?
issue money
The Federal Funds rate is the:
overnight lending rate from one major bank to another.
What effect does a decrease in reserves have on the money supply?
A decrease in reserves decreases both M1 and M2.
What effect does an increase in reserves have on the money supply?
An increase in reserves increases both M1 and M2. Explanation: An increase in reserves increases the money supply through a multiplier process.
Which of the following statements is TRUE?
Banks earn profits on loans.
In 2020, which of the following was the smallest?
MB
What event would occur second as a part of the Fed using monetary policy to increase aggregate demand?
The monetary base increases.
Which of the following statements is TRUE?
The money multiplier is the amount by which the money supply expands with each dollar increase in reserves.
Which of the following statements is FALSE?
The money supply will increase by less than the initial change in reserves. Explanation: It will increase by more than the initial change in reserves.
The Federal Reserve has:
a limited set of tools, which must constantly be adapted to changing circumstances.
A solvency crisis occurs when:
banks begin to have liabilities in excess of the value of their assets.
ΔReserves × MM equals the:
change in the money supply.
The size of the money multiplier is:
not fixed but depends on how much of their assets banks want to hold as reserves.
What does RR stand for?
reserve ratio
Of the following assets, which is the MOST liquid?
reserves held by banks at the Fed
The Federal Reserve's customers are:
the government and private banks.
Savings deposits, money market mutual funds, and small-time deposits are like checkable deposits in that _____, but unlike checkable deposits in that _____.
they may be used to pay for goods and services; to do so typically requires a little bit of extra work
Which of the following is NOT something that the Fed will try to predict and monitor to estimate the effect of its actions on aggregate demand?
whether households expect inflation to rise or to fall
Which of the following is NOT something that the Fed will try to predict and monitor to estimate the effect of its actions on aggregate demand?
whether households will borrow to buy durable goods or nondurable goods
_____ are the main asset of fractional reserve banks.
Loans
M1 and M2:
have the most significant effects on aggregate demand.
Moral hazard occurs when banks and other financial institutions take on:
too much risk, hoping that the Fed and regulators will later bail them out.
The amount of U.S. currency held by people and nonbank firms is enough for every man, woman, and child in the United States to have approximately how much currency?
$5,200 $1.7 trillion ÷ 329 million = $5,200.
Which of the following statements is FALSE?
Banks earn profits on deposits. Explanation: Banks earn profits on loans funded through deposits.
In the past, _____ issued notes that were used as money. Today, _____ issue(s) notes that are used as money.
many banks; just one bank
Of the following assets, which is the LEAST liquid?
savings deposits
Which of the following is typically the largest means of payment in the United States?
savings deposits
The Fed has the most influence over:
short-term real interest rates.
The factor of increase in the money supply that occurs with each dollar of increase in reserves is called:
the money multiplier.
When the Federal Reserve changes the money supply by changing reserves, which formula can be used to calculate the change in the money supply?
ΔMS = ΔReserves × MM.
Which of the following is defined as currency + checkable deposits?
M1
Which of the following statements is FALSE?
Quantitative easing occurs when the Fed sells longer-term government bonds or other securities.
Which of the following statements is TRUE?
When the Federal Funds rate is close to zero, it is said to be near the zero-lower bound.
Which of the following statements is TRUE?
One question the Fed must ask to estimate its impact is, "Will banks lend out all or a portion of the new reserves?"
The Federal Reserve is a:
quasi-private, quasi-public institution.
Which of the following statements is TRUE?
The Fed has the most influence over short-term rates, while most investment spending depends on longer-term rates.
The Federal Reserve does all of the following activities EXCEPT:
oversee the Internal Revenue Service.
Which of the following statements is TRUE?
The Fed has direct control only over the monetary base.
