Macroeconomics- Test 4 Study Set

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The M2 money supply includes

individual shares in money market mutual funds

The Federal Reserve System

is basically an independent agency

The amount of money reported as M2

is larger than the amount reported as M1

The purchasing power of the dollar

is the reciprocal of the price level

The Federal Reserve System changes the money supply by

issuing a statement about any monetary actions the Fed intends to take

In terms of the mechanics of quantitative easing

it works the same as open-market operations

Which of the following is not part of the M2 money supply?

large-denominated time deposits

Actions or communications by a central bank intended to help it achieve its macroeconomic policy objectives defines

monetary policy

Currency held by banks is part of

neither the M1 nor the M2 definition of the money supply

If the inflation rate was on target at 2 percent and the unemployment rate was 3.4 percent, the Fed would likely adopt a(n)

neutral monetary policy

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as

no change in the money supply because the $200 decrease in currency has been converted to a $200 increase in checkable deposits

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as

no change in the money supply because the $200 decrease in currency has been converted to a $200 increase in checkable deposits.

Time deposits of $100,000 or more are

not a component of M1 or M2

Currency held in the vault of First National Bank is

not counted as part of the money supply

(Consider This) Credit cards are

not money, as officially defined

Which of the following is a tool of monetary policy?

open-market operations

The three main tools of monetary policy are

open-market operations, forward guidance, and changing the administered interest rates

The term "bankers' banks" means that the Federal Reserve

performs essentially the same functions for banks and thrifts as those institutions perform for the public

A checking account balance is money because it

performs the functions of money

An important routine function of the Federal Reserve System is to

provide facilities by which commercial banks and thrift institutions may collect on checks

Open-market operations include

quantitative easing

Which of the following Fed actions will decrease the money supply?

raising the overnight reverse repo rate

The discount rate is the interest

rate at which the Federal Reserve Banks lend to banks

Open-market operations refer to

the purchases and sales of U.S. government securities by the Fed

The Federal Open Market Committee (FOMC) is made up of

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis

In defining money as M1, economists exclude time deposits because

they are not directly or immediately a medium of exchange

To say that the Federal Reserve Banks are quasi-public banks means that

they are privately owned but managed in the public interest

Checkable deposits are

included in M1

Reserve balances are so-called because

they are the funds that the Federal Reserve keeps on deposit for banks and thrifts to take care of ongoing commercial bank and thrift operations

Checkable deposits are classified as money because

they can be readily used in purchasing goods and paying debts

The functions of money are to serve as a

unit of account, store of value, and medium of exchange

To say "money is what money does" means that

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

If the price index rises from 100 to 110, the purchasing power value of the dollar

will fall by one-eleventh

Interest paid on reserve balances held at the Fed

will incentivize banks to hold more reserves and reduce riskier lending

Stabilizing a nation's price level and the purchasing power of its money can be achieved

with both fiscal and monetary policy

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

a store of value

Money functions as

a store of value, a unit of account, and a medium of exchange

A $80 price tag on a sweater in a department store window is an example of money functioning as a

a unit of account

The members of the Federal Reserve Board

are appointed for 14-year terms

Near monies

are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1

Small-denominated time deposits, by definition

are less than $100,000

If the Fed wants to encourage nonbank lending, it will

decrease the ON RRP

Money functions as a store of value if it allows you to

delay purchases until you want the goods

Money market deposit accounts are included in

M2 only

One major advantage of money serving as a medium of exchange is that it allows society to

escape the complications of barter

The Federal Reserve System was created in

1913

PayPal and Venmo are

cash transfer systems

Money Market Mutual Fund Balances Held by Individuals- $220. Money supply M1 for this economy is

220

If the price index rises from 100 to 180, then the purchasing power of the dollar will fall by about

44%

How many members can serve on the Board of Governors of the Federal Reserve System?

7

The Board of Governors of the Federal Reserve has _________ members.

7

Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances?

Banks will choose to lend into the money market instead of lending to the Fed

If the Federal Reserve authorities were attempting to reduce inflation, the proper policies would be to

Decrease the money supply with negative forward guidance, a higher federal funds target range, increases in the IORB and ON RRP, and/or quantitative tightening

As it relates to Federal Reserve activities, the acronym FOMC describes the

Federal Open Market Committee

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

Federal Open Market Committee (FOMC)

The discount rate is the rate of interest at which

Federal Reserve Banks lend to banks

The paper money used in the United States is

Federal Reserve Notes

In the United States, monetary policy is the responsibility of the

Federal Reserve System

The Federal Reserve System's three administered rates are the

IORB rate, ON RRP rate, and discount rate.

"Near-monies" are included in

M2 only

When economists say that money serves as a medium of exchange, they mean that it is

a means of payment

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

a medium of exchange

Purchasing groceries using a debit card best exemplifies money serving as a

a medium of exchange

When economists say that money serves as a unit of account, they mean that it is

a monetary unit for measuring and comparing the relative values of goods

If you are estimating your total expenses for school next semester, you are using money primarily as

a unit of account

When economists say that money serves as a store of value, they mean that it is

a way to keep wealth in a readily spendable form for future use

An interest rate set by a central bank to help it manage market-determined interest rates defines

an administered rate

Members of the Federal Reserve Board of Governors are

appointed by the president to staggered 14-year terms

The seven members of the Board of Governors of the Federal Reserve System are

appointed by the president with the confirmation of the Senate

During periods of rapid inflation, money may cease to work as a medium of exchange

because people and businesses will not want to accept it in transactions

In a reverse repo transaction, the Fed _________ money.

borrows

Currency in circulation is part of

both M1 and M2

The money supply is backed

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

Checkable deposits are

debts of commercial banks and savings institutions

Which of the following is not a tool of monetary policy?

changes in banking laws

In the United States, the money supply (M1) includes

coins, paper money, checkable deposits, and savings deposits

The money market comprises short-term lending markets that include markets for

commercial paper

The federal backing for money in the United States comes from

controlling the money supply in order to keep the value of money relatively stable over time

The interest rate at which the Federal Reserve Banks lend to banks is called the

discount rate

Which of the following is paid to the Fed as a source of low-cost liquidity?

discount rate

The collateral used for overnight reverse repos is (are)

government securities

If the Fed wants to discourage bank lending, it will

increase the interest paid on reserve balances held at the Fed

The administered rates are the rates of interest at which

set by a central bank to help it manage market-determined interest rates

The Federal Open Market Committee (FOMC)

sets policy on the sale and purchase of government bonds by the Fed

Quantitative easing refers to

the Fed buying longer-term bonds to reduce longer-term interest rates

In a reverse repo transaction,

the Fed is the borrower and the nonbank firm is the lender

Money in the U.S. is essentially debt of

the Federal Reserve System and the banks

Which of the following is not a tool of monetary policy?

the Taylor rule

What "backs" the money supply of the United States?

the U.S. government's ability to keep the value of money relatively stable

U.S. monetary policy is conducted by

the central bank

Research suggests that

the less independent the central bank, the higher the average annual rate of inflation

The sale of government securities by the Fed will cause

the money supply to decrease

If the Federal Reserve System buys government securities,

the money supply will increase


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