Macroeconomics Chp. 15

It is unlikely that a single president would appoint the majority of the Federal Reserve Board of Governors because:

members serve 14-year terms and cannot be reappointed.

The Fed has the most influence over:

short-term real interest rates.

The Fed acted quickly to stop AIG from going under because of the existence of:

systemic risk.

The Fed has direct control over:

the monetary base only

The ratio of reserves to deposits is called:

the reserve ratio

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.

To avoid runs on banks such as occurred during the Great Depression, the _____ guarantees bank deposits up to $250,000 for each depositor.

FDIC

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

What is the formula for the money multiplier?

1 ÷ RR

If the Fed acts to reduce interest rates today, it may take _____ before aggregate demand and economic growth begin to respond significantly.

6 to 18 months

Which president asked the Federal Reserve chair to stimulate the economy before an election, contributing to his landslide victory?

Richard Nixon

If the Fed wants to decrease interest rates, it should:

buy bonds in open market operations.

When banks and other financial institutions take on too much risk, hoping that the Fed and regulators will later bail them out, this is called a(n):

moral hazard

The size of the money multiplier is:

not fixed but depends on how much of their assets banks wants to hold as reserves

If the Fed buys bonds in an open market operation, the LRAS growth curve will:

not shift.

If the Fed wants to increase interest rates, it should:

sell bonds in open market operations.

The factor of increase in the money supply that occurs with each dollar of increase in reserves is called:

the money multiplier.

When banks hold only a fraction of their deposits in reserve and lend the rest, this practice is called:

fractional reserve banking.

As a result of the financial crisis of 2007-2008, the Fed:

has become much more active and has assumed greater powers.

M1 and M2:

have the most significant effects on aggregate demand.