MCF Final
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion.
$1,200 (currency + deposits)
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is
$480.8 billion
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1,000 billion, and excess reserves total $1 billion, then the excess reserves-checkable deposit ratio is
.001 (excess reserves/deposits)
If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per dollar, then the franc depreciates from ________ U.S. dollars per franc to ________ U.S. dollars per franc
.80, .67
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent.
10
If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
2.3
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
2.5
The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.
3,3,3
There are ________ members of the Board of Governors of the Federal Reserve System.
7
What would the Open Market Operations process look like?
FOMC Meeting, Fed purchases Treasury Securities, Fed credits Bank Reserve accounts, Banks use excess reserves to make more loans, Borrowers received deposits which increase the money supply
How are Open Market Operations and Quantitative Easing similar?
Fed Reserve buys bonds (Treasury or other) -> increases the price of the bonds -> lowers the yield -> increases the supply of money
The equation of exchange is
M*V=P*Q
The Federal Reserve Bank of ________ houses the open market desk.
New York
he discount rate is kept ________ the federal funds rate because the Fed prefers that ________.
above, banks borrow reserves from each other
Having interest rate stability
allows for less uncertainty about future planning
Members of the Board of Governors are
appointed by the president of the United States and confirmed by the Senate.
A possible sequence for the three stages of a financial crisis might be ________ leads to ________ leads to ________.
asset price declines; banking crises; unanticipated decline in price level
The three players in the money supply process include
banks, depositors, and the central bank
The monetary liabilities of the Federal Reserve include
currency in circulation and reserves
Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.
depositors/banks
the interest rate the Fed charges banks borrowing from the Fed is the
discount rate
Total reserves are the sum of ________ and ________
excess reserves/ required reserves
The interest rate charged on overnight loans of reserves between banks is the
federal funds rate
The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the
federal open market committee
A major disruption in financial markets characterized by sharp declines in asset prices and firm failures is called a
financial crisis
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to 150% causes the M1 money multiplier to ________, everything else held constant
increase from .73 to .78
When the Federal Reserve purchases a government bond from a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.
increase/ increase
The most common definition that monetary policymakers use for price stability is
low and stable inflations
Open market sales ________ reserves and the monetary base thereby ________ the money supply
lowering, lowering
The Fed's open market operations normally involve only the purchase of government securities, particularly those that are short-term. However, during the crisis and continuing during the pandemic, the Fed started new programs to purchase
mortgage-backed securities and corporate bonds.
From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because
most of it just flowed into holdings of excess reserve
________ are the most important monetary policy tool because they are the primary determinant of changes in the ________, the main source of fluctuations in the money supply.
open market operations and monetary base.
When asset prices rise above their fundamental economic values, a(n) ________ occurs.- asset
price bubble
The percentage of deposits that banks must hold in reserve is the
required reserve ratio
A decrease in ________ increases the money supply since it causes the ________ to rise
reserve requirements, money multiplier
High unemployment is undesirable because it
results in a loss of output
According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation ________ the Fed's inflation target or when real GDP ________ the Fed's output target.
rises above, rises above
The velocity of money is
the average number of times a dollar is spent in buying financial assets.
Which of the following is NOT an entity of the Federal Reserve System?
the comptroller of the currency
The primary indicator of the Fed's stance on monetary policy is
the federal funds rate
Exchange rates are determined in
the foreign exchange market
Everything else held constant, an increase in currency holdings will cause
the money supply to fall
The exchange rate is
the price of one currency relative to another