Macroeconomics Chapter 34
If the Fed wants to increase the money supply, it will ________ Treasury securities
buy
If the Fed wants to increase the money supply it will
buy government bonds
Open market operations involve the Federal Reserve
buying and selling government bonds
Quantitative easing involves the Federal Reserve
buying long-term government bonds
To increase the money supply in the economy, the Fed would
carry out open market operations, and or decrease the interest rate paid on reserves
Demand deposits are
checkable deposits
Which is the MOST liquid asset
currency
What does M1 consist of?
currency + checkable deposits
Which is NOT included in the U.S. money supplies M1 and M2
currency in circulation
M1 refers to
currency plus checkable deposits
The monetary base refers to
currency plus total reserves held at the Fed.
Which is included in M2
currency, checkable deposits, and savings deposits
M2 refers to:
currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.
For a given level of reserves a decrease in the money multiplier will cause the money supply to
decrease
Which asset would you classify as being most liquid?
demand deposits
In a fractional reserve banking system, banks hold only a fraction of their
deposits as reserves
Reserves held at the Fed are
electronic claims that can be converted into currency if the bank wishes
To reduce the money supply in the economy, the Fed would
engage in actions to increase interest rates
When the Fed buys short-term Treasure securities, short-term interests rates
fall
The Federal Reserve is the
federal government's bank, central bank, and banker's bank in the United States.
Moral hazard occurs when
financial institutions take on too much risk because they are insured
Suppose the reserve ratio is 20% for all banks. If the Fed increases the bank reserves by $200, then the money supply will
increase by $1,000
The Federal Reserve acquires its exclusive powers through its ability to
issue money
Which concept describes the case with which an asset can be quickly converted into money without losing its value
liquidity
The amount by which the money supply expands with each additional dollar in the reserves is the
money multiplier
Open market operations refer to
the buying and selling of government bonds by the Fed
The monetary base is equal to currency plus
total reserves held at the Federal Reserve
Checkable deposits are part of
M1 and M2
If the reserve ratio is 10%, than a $100 increase in bank deposits can potentially lead to
an increase of $1,000 in the money supply
Money is best defined as
anything that is a widely accepted means of payment.
Money is
anything that is widely accepted means of payment
The reserve ratio is the ratio of bank reserves to
bank deposits
Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that the reserve ratio (RR) is 10%. By how much is the money supply expected to change?
1.6 million
If the reserve ratio is 4 percent, then the money multiplier is
25
If the reserve ratio is 20% , the money multiplier equals
5
Ben Bernanke was ____________________ during the financial crisis of 2008
Chairman of the President's council of Economic Advisors
When the U.S. Treasury borrows, the borrowing is managed by the:
Federal Reserve
The government's bank and the banker's bank in the United States are called the
Federal Reserve System
Why is NOT a reason so much U.S. currency circulates in other countries
The Federal Reserve Makes loans to other countries
The money multiplier equals
one divided by the reserve ratio.
The Federal Reserve's major tool(s) to control the money supply is (are)
open market operations and paying interest on reserves
The Federal Fund rate is the
overnight lending rate on loans from one major bank to another
Which are the two major tools the Fed uses to control the money supply
paying interest on reserves held by banks at the Fed and open market operations
Which is NOT a function of the Federal Reserve
providing loans to small businesses
The reserve ratio is the
ratio of reserves to deposit
The largest means of payment in the United States is
savings deposit
What will happen when banks decide to increase their reserve ratios?
the money supply will contract