Macro Chapter 12 Study guide

The main tool of monetary policy is: A. the discount rate. B. the reserve requirement. C.capital gains taxes. D. open market operations.

D. open market operations.

The percentage of a bank's total deposits that are held in reserves, either as cash in the vault or as deposits at the regional Federal Reserve Bank.

Reserve ratio

All of these are considered monetary policy lags EXCEPT: A. speculation lag. B. decision lag. C. information lag. D. implementation lag.

A. speculation lag.

If the reserve requirement is 20%, the money multiplier is: A. 4. B. 5. C. 0.8. D. 0.2.

B. 5

Monetary policy involves all of these EXCEPT: A. increases in bank reserves. B. increases in interest rates. C. increases in personal taxes. D. increases in buying securities.

C. increases in personal taxes.

A lower reserve requirement: A.lowers the money multiplier. B. restricts the borrowing capability of borrowers. C. increases the ability of banks to make loans. D. further limits deposit creation.

C. increases the ability of banks to make loans.

The financial panic and credit freeze in late 2008 pointed to the Fed's important role as a: A. creator of inflation. B. promoter of price stability. C. lender of last resort. D. promoter of full employment

C. lender of last resort

When the Fed wants to decrease the money supply, it will: A. buy bonds. B. lower the federal funds rate. C. sell bonds. D. lower taxes.

C. sell bonds

Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's required reserves? A. $1,500 B. $6,000 C. $1,125 D. $375

D. $375

The _____ is the central bank of the United States. A. U.S. Treasury B. Federal Deposit Insurance Corporation C. Securities and Exchange Commission D. Federal Reserve System

D. Federal reserve system

Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $100,000 bond. The money supply: A. increases by a maximum of $100,000. B. decreases by $100,000. C. increases by a maximum of $20,000. D. increases by a maximum of $500,000.

D. increases by a maximum of $500,000.

The interest rate the Federal Reserve charges commercial banks and other depository institutions to borrow reserves from a regional Federal Reserve Bank.

Discount rate

The central bank of the United States.

Federal Reserve System

The buying and selling on the open market of U.S. government securities, such as Treasury bills and bonds, to adjust reserves in the banking system.

Open market operations

A reduction in the amount of money that is used for lending that reduces the money multiplier. It is caused by banks choosing to hold excess reserves and from individuals, businesses, and foreigners choosing to hold more cash.

leakages

A formula that measures the potential or maximum amount the money supply can increase (or decrease) when a dollar of new deposits enters (exits) the system and is defined as 1 divided by the reserve requirement.

money multiplier

The required ratio of funds that commercial banks and other depository institutions must hold in reserve against deposits.

reserve requirement