MacroEconomics Chapter 14

Checkable deposits are the debts or liabilities of which of the following?

Thrift institutions Commercial banks

When people measure the worth of various items in terms of money, money is performing the function of a what?

Unit of account

The 12 Federal Reserve Banks can best be characterized as

central banks, bankers' banks, and quasi-public banks.

People can convert _____ deposits into paper money and coins on demand

checkable

Which of the following were deemed by Congress in the early 20th century to be essential for an efficient banking system?

Public control Centralization

Because people accept them as money, ______ and ______ deposits are money.

currency; checkable

The purpose of open-market operations is to control the nation's money supply and influence _____ (Enter one word) rates.

interest

Money is a ______ of some item or group of items that is used as a medium of exchange.

stock

n practice, during a financial crisis, the Fed and other central banks are under pressure to adopt an "extend and pretend" policy, in order to contain the wave bankruptcies. "Extend and pretend" refers to extending loans

to financial firms, both solvent and insolvent, as long as the firms could pledge enough assets.

Currency that derives its value from the amount printed on it rather than from the value of the paper or metal from which it is made is referred to as ______ money.

token

Which of the following results in the depreciation of a country's currency and may cause more stable currencies, such as the U.S. dollar or the European euro, to come into widespread use?

Hyperinflation

Which of the following comprise the currency of the United States?

Metal coins Paper money

A unit of account is a function of what?

Money

Which of the following is a "stock" of some item or group of items that is used as a medium of exchange?

Money

What type of operations serve to control the nation's money supply and influence interest rates?

Open-market

Which of the following is a function of commercial bank loans?

Provide short-term financial capital to businesses Finance consumer purchases of durable goods

Which of the following are functions of money?

Store of value Unit of account Medium of exchange

Who directs the activities of the 12 Federal Reserve Banks in the U.S. banking system?

The Board of Governors

Who is the central authority of the U.S. money and banking system?

The Board of Governors of the Federal Reserve

Who establishes reserve requirements or the fraction of checking account balances that banks must maintain as currency reserves?

The FED

Who is responsible for issuing currency, setting reserve requirements and holding reserves, lending money to financial institutions, and providing for check collection?

The Federal Reserve Banks

What happens when the consumer price index, or "cost-of-living" index rises?

The purchasing power of the dollar falls

Metal coins are issued by the US

Treasury

The bailout money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler, during the financial crisis and the Great Recession, came from the

Troubled Assets Relief Program.

Commercial state banks are private banks chartered by the individual states to operate within those states.

True

Hyperinflation may cause stable currencies such as the U.S. dollar or the European euro to come into widespread use because a country might adopt a stable currency as its own official currency.

True

Who issues metal coins?

US Treasury

Early in the 20th century, Congress decided that ______ and public control were essential for an efficient banking system.

centralization

The debts or liabilities of commercial banks and thrift institutions are known as __________deposits.

checkable

The M1 money supply is composed of

checkable deposits and currency in circulation.

The safety and convenience of ______ has made checkable deposits a large component of the M1 money supply.

checks

The central banks accept as ______ from the banks and thrifts any portion of their mandated reserves not held as vault cash.

deposits

The Federal Reserve Bank loaned money to banks and thrifts and charged an interest rate called the _____ rate.

discount

When the consumer price index, or "cost-of-living" index rises, the purchasing power of the dollar goes (up/down).

down

Money is a medium of _______ that is used for buying and selling goods and services.

exchange or trade

Money functions primarily as a medium of ______, a unit of _______ , and a store of value.

exchange or trade account

The 12 ________ _______banks blend private ownership and public control, making them quasi-public banks. (Enter only one word per blank.)

federal reserve

Appropriate fiscal policy that is supportive of efforts of the nation's monetary authorities is meant to control ______.

inflation

Studies show that countries that have independent central banks like the Fed have lower rates of _____ , on average, than countries that have little or no central bank

inflation

Studies show that countries that have independent central banks, such as the Federal Reserve Bank, compared to those that have little or no central bank independence, have lower average rates of ______.

inflation

United States currency has value primarily because it

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

An asset's ______ is the ease with which it can be converted quickly into the most widely accepted and easily spent form of money, cash, with little or no loss of purchasing power.

liquidity

Commercial bank provide short-term financial capital to businesses and the financing of consumer purchases such as durable goods.

loans

The supply of _________ in the United States essentially is "backed" (guaranteed) by the government's ability to keep its value relatively stable.

money

M1 is a component of the U.S. ______.

money supply

The 12 Federal Reserve Banks are quasi-public banks, which blend ownership and public control.

private

The amount of goods and services a unit of money will buy is called ______.

purchasing power

The _________ power of money is the amount of goods and services a unit of money will buy.

purchasing, buying or spending

The Federal Reserve Bank sets ______ which are the fractions of checking account balances that banks must maintain as currency reserves.

reserve requirements

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread

securitization

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.

Federally chartered banks are required to purchase ______.

shares of stock in the Federal Reserve Bank in their district

Private banks chartered by the individual states to operate within those states are called ______.

state banks

The United States' 12 Federal Reserve banks act as a central bank because their policies are coordinated by ______.

the Fed's Board of Governors

Federally chartered banks are required to purchase shares of stock in the Federal Reserve Bank in their district.

True

People can convert checkable deposits into paper money and coins on demand.

True

The currency of the United States consists primarily of metal coins and paper money.

True

Why are currency and checkable deposits money?

Because they are widely accepted by people

The 12 Federal Reserve Banks implement the basic policy decisions of the ______.

Board of Governors

Money supply M1 includes all components of M2.

False

The central authority of the U.S. money and banking system is the _____.

Board of Governors of the Federal Reserve System

Who implements the policy decisions related to the monetary control of the U.S. money and banking systems?

12 Federal Reserve Banks

If the price level doubles, the value of the dollar declines by

50%

Money is used for buying and selling goods and is therefore considered what?

A medium of exchange

How does money enable society to avoid the complications of barter?

By acting as a medium of exchange

Which two of the following are necessary for price level stability?

Careful management of interest rates Intelligent management of the money supply

Which of the following are components of M1?

Checkable deposits Currency

Which of the following are primary depository institutions that accept deposits of households and businesses, keep money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans?

Commercial banks

Which of the following characteristics of checks has made checkable deposits a large component of the M1 money supply?

Convenience Safety

What is the interest rate charged on loans from the Fed to banks and thrifts in their district?

Discount rate

The money supply in the United States essentially is "backed" by whose ability to keep the value of money relatively stable?

Government

Society can attain a higher degree of specialization without the use of money than it can with money.

False

In the United States, the monetary authorities are members of the Board of Governors of the ______ ______ System. (Enter one word in each blank.)

Federal Reserve System

In the United States, the monetary authorities are members of the Board of Governors of what institution?

Federal Reserve System

Money enables society to gain which of the following advantages?

Geographic specialization Human specialization

Which of the following are functions that the Federal Reserve Banks perform?

Issuing Currency Setting reserve requirements and holding reserves Lending to financial institutions and serving as an emergency lender of last resort providing for check collection Acts as fiscal agent Supervising banks Controlling money supply

If the price level doubles, what happens to the value of the dollar?

It declines by 50%.

The ease with which an asset can be converted quickly into cash, with little or no loss of purchasing power, is called what?

Liquidity

Currency in the hands of the public and checkable deposits are components of ______.

M1

What is the money in the form of currency and checkable deposits in commercial banks called?

M1

A second and broader definition of money includes which of the following?

M1 plus several near-monies

Who accepts as deposits from the banks and thrifts any portion of their mandated reserves not held as vault cash?

The central banks

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

a store of value

Which of the following are direct roles of commercial banks?

accept deposits of households and businesses, keep money safe until withdrawn via checks, uses it to make a wide variety of loans

The 12 Federal Reserve Banks also serve as ______ banks.

bankers'

Because money is a medium of exchange, society avoids:

barter

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

being a banker's bank

Token money consists of _____

bills or coins with face values that exceed their commodity value :Bills or coins for which the amount printed on the currency bears no relationship to the value of the paper or metal embodied within it; for currency still circulating, money for which the face value exceeds the commodity value.

Checkable deposits are included in

both M1 and M2.

Just as banks and thrifts accept the deposits of and make loans to the public, the ______ accepts the deposits of and makes loans to banks and thrifts.

central bank