Macro Ch. 34, 35, 36

"Near monies" are included in

M2 only

A bank that has assets of $85 billion and a net worth of $10 billion must have excess reserves of $75 billion. excess reserves of $10 billion. liabilities of $10 billion. liabilities of $75 billion.

liabilities of $75 billion.

If the Fed were to reduce the legal reserve ratio, we would expect lower interest rates, an expanded GDP, and a lower rate of inflation. lower interest rates, an expanded GDP, and a higher rate of inflation. higher interest rates, a contracted GDP, and a higher rate of inflation. higher interest rates, a contracted GDP, and a lower rate of inflation.

lower interest rates, an expanded GDP, and a higher rate of inflation

Refer to the diagrams. The numbers in parentheses after the AD 1, AD 2, and AD 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS 1 to MS 3? sales of U.S. securities by the Fed in the open market an increase in the reserve ratio an increase in the discount rate purchases of U.S. securities by the Fed in the open market

purchases of U.S. securities by the Fed in the open market

The purpose of a restrictive monetary policy is to alleviate recessions. increase aggregate demand and GDP. raise interest rates and restrict the availability of bank credit. increase investment spending.

raise interest rates and restrict the availability of bank credit.

Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of $6 million. As a result, the bank's excess reserves diminish to $0. $6 million. $0.72 million. $0.84 million.

$0.84 million.

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it? $3,000 $6,000 $16,000 $24,000

$6,000

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent. This information is consistent with the bank having $90,000 in checkable deposit liabilities and $35,000 in reserves. $90,000 in outstanding loans and $35,000 in reserves. $20,000 in checkable deposit liabilities and $10,000 in reserves. $90,000 in checkable deposit liabilities and $32,000 in reserves.

$90,000 in checkable deposit liabilities and $32,000 in reserves.

Currency (paper money plus coins) constitutes about 66 percent of the U.S. M1 money supply. 25 percent of the U.S. M1 money supply. 43 percent of the U.S. M1 money supply. 57 percent of the U.S. M1 money supply. (wrong)

43 percent of the U.S. M1 money supply.

Suppose that the federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? The value of the "wheat dollar" would be unstable depending on crop yields from year to year. Farmers would replace corn and soybean crops with wheat. Wheat would function as money so long as people accept it in exchange for goods and services. All of these are possible outcomes.

All of these are possible outcomes.

The central authority of the U.S. banking system is the Federal Monetary Authority. Board of Governors of the Federal Reserve. Federal Open Market Committee (FOMC). Council of Economic Advisers.

Board of Governors of the Federal Reserve.

The purpose of an expansionary monetary policy is to shift the investment demand curve leftward. aggregate supply curve leftward. aggregate demand curve leftward. aggregate demand curve rightward.

aggregate demand curve rightward.

The largest component of the money supply (M1) is

checkable deposits

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements. budget surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements. budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements. budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements.

budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements.

The money supply is backed dollar-for-dollar by gold and silver. by government bonds. by gold reserves representing a fraction of the total value of dollars in circulation. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

Paper money (currency) in the United States is issued by the U.S. Treasury. national banks. U.S. Mint. Federal Reserve Banks.

Federal Reserve Banks.

The Federal Reserve System regulates the money supply primarily by controlling the production of coins at the U.S. mint. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. altering the reserves of commercial banks, largely through sales and purchases of government bonds.

altering the reserves of commercial banks, largely through sales and purchases of government bonds.

In the United States, the money supply (M1) includes paper currency, coins, gold certificates, and time deposits. coins, paper currency, checkable deposits, and credit balances with brokers. currency, checkable deposits, and Series E bonds. coins, paper currency, and checkable deposits.

coins, paper currency, and checkable deposits.

Which of the following is the basic economic policy function of the Federal Reserve Banks? collecting or clearing checks among commercial banks acting as fiscal agents for the federal government controlling the supply of money holding the deposits or reserves of commercial banks

controlling the supply of money

The sale of government bonds by the Federal Reserve Banks to commercial banks will decrease aggregate demand. increase aggregate supply. increase aggregate demand. decrease aggregate supply.

decrease aggregate demand.

Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 8 percent and the goal of the Fed is full-employment output of Qf, it should:

decrease the interest rate from 8 to 6 percent

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. If the commercial banking system actually loans the maximum amount it is able to lend, excess reserves will be reduced to zero. excess reserves will be $2.6 billion. reserves and deposits equal to that amount will be gained. excess reserves will fall to $1.7 billion.

excess reserves will be reduced to zero

Fractional reserve banking refers to a system where banks hold only a fraction of their deposits in their reserves. accept a portion of their deposits in checkable accounts. grant loans to their borrowing customers. deposit a fraction of their reserves at the central bank.

hold only a fraction of their deposits in their reserves.

A contraction of the money supply increases both the interest rate and aggregate demand. lowers the interest rate and increases aggregate demand. lowers both the interest rate and aggregate demand. increases the interest rate and decreases aggregate demand.

increases the interest rate and decreases aggregate demand.

The Federal Reserve System is an agency of the executive branch of the federal government. has the same status as the Supreme Court. is basically an independent agency. has the status of a congressional committee.

is basically an independent agency.

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is the full-employment output of Qf, it should

maintain the interest rate at 6 percent.

Monetary policy is thought to be only effective in moving the economy out of a depression. equally effective in moving the economy out of a depression as in controlling demand-pull inflation. more effective in controlling demand-pull inflation than in moving the economy out of a recession. more effective in moving the economy out of a depression than in controlling demand-pull inflation.

more effective in controlling demand-pull inflation than in moving the economy out of a recession

Banks lost money during the mortgage default crisis because homebuyers defaulted on mortgages held by the banks. they held mortgage-backed securities they had purchased from investment firms. of all of these reasons. of defaulted loans to investors in mortgage-backed securities.

of all of these reasons.

The Federal Reserve System performs the following functions except providing banking services to the general public. lending money to banks and thrifts. providing financial services to the federal government. (wrong) issuing the paper currency in the economy.

providing banking services to the general public. (maybe)

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that the central banks follow policies that prevent reserves from falling below the level required by law. reserves lost by any particular bank will be gained by some other bank. the banking system must keep reserves equal to 100 percent of its checkable deposit liabilities. the MPC of borrowers is greater than zero but less than 1.

reserves lost by any particular bank will be gained by some other bank.

The accompanying table gives data for a commercial bank or thrift. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will fall by $6,000 and the monetary multiplier will decline from 30 to 10. rise by $6,000 and the monetary multiplier will increase from 4 to 10. fall by $2,000 and the monetary multiplier will decline from 10 to 4. rise by $60,000 and the monetary multiplier will increase from 4 to 10.

rise by $6,000 and the monetary multiplier will increase from 4 to 10.

Money functions as

store of value, unit of account, medium of exchange

Which monetary policy tools can alter both the level of excess reserves and the money multiplier? the discount rate open-market operations the federal funds rate the reserve ratio

the reserve ratio

To say "money is what money does" means that society, acting through Congress, specifies what shall be included in the money supply. the money supply includes all public and private securities purchased by society. money has been defined in a Constitutional amendment. whatever performs the functions of money extremely well is considered to be money.

whatever performs the functions of money extremely well is considered to be money.

Currency and checkable deposits are

The major components of money supply M1

Monetary policy is expected to have its greatest impact on Xn. Ig. G. C.

Ig.