Money hwk (3)
Suppose the reserve requirement is 15 percent. For every $100 on deposit, the bank needs to hold $ ____as reserves. (
15
President Woodrow Wilson signed the Federal Reserve Act in
1913
Suppose the Federal Reserve has set the reserve requirement at 12%. What is the money multiplier?
8.33
Which of the following causes an increase in the interest rate, all else equal?
A decrease in the money supply
Which of the following is likely to cause the interest rate to rise, all else equal? An increase in aggregate demand An increase in aggregate supply An increase in the money supply An increase in the money demand
An increase in the money demand
can affect the money supply by increasing or decreasing the number of loans they make.
Banks
are certificates of debt that usually specify a dollar amount to be repaid plus interest at some future date.
Bonds
pay more interest than money, but are riskier since the borrower might default or fail to honor the debt.
Bonds
How do we construct the total demand for money?
By adding the transaction and asset demands at each interest rate
Which of the following are the determinants of money demand? Changes in real GDP Changes in the price level Uncertainty about the future Changes in the stock of currency
Changes in real GDP Changes in the price level Uncertainty about the future
refers to the idea that real variables are independent from nominal variables.
Classical Dichotomy
Andy deposits $100 of currency in his checking account. What effect does this transaction have on M1?
Currency decreases, checkable deposits increase, and M1 remains constant. Reason: When currency is deposited at the bank the amount of currency in circulation decreases and the amount of checkable deposits increases. Since currency decreases by the amount checkable deposits increases, the overall effect on M1 is 0, M1 remains constant after the transaction.
The mathematical identity that states that money supply times the velocity of money is equal to the price level times the real GDP is known as the
Equation of Exchange
The entity that determines and implements the nation's monetary policy and controls the money supply to promote stable prices and economic growth in the U.S. economy is the:
Federal Open Market Committee.
Which entity controls the money supply?
Federal Reserve Bank
The Board of Governors is also known as the:
Federal Reserve Board
Suppose the Federal Reserve decides to increase the money supply. Describe the effect on the bond market.
Interest rates will decrease and demand for bonds will increase.
Which term is used to describe how easy it is to convert any asset, like a savings account, into currency you could keep in your pocket?
Liquidity
Which of the mathematical identities depicts the equation of exchange?
MV = PY
policy refers to the Fed's actions to influence the supply of money and credit in the U.S. economy.
Monetary
makes specialization more possible, and this makes the economy more productive.
Money
a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances.
Money market
Which of the following is a primary role of the Federal Reserve? Advising the president on economic policies Providing banking services to the federal government Providing banking services to large corporations Conducting fiscal policy
Providing banking services to the federal government
Which of the following is the primary entity charged with supervision and regulation of member banks to prevent banking panics or disruptions?
The Federal Reserve Bank
Which of the following statements is correct? The interest rate paid on loans is the same as the interest rate earned on savings. The interest rate paid on loans is set by the Federal Reserve. The interest rate paid on loans differs from the interest rate earned on savings. The interest rate earned on savings is set by the Federal Reserve.
The interest rate paid on loans differs from the interest rate earned on savings.
Which of the following are likely to occur when someone deposits money into a checking account? The money supply increases. M1 decreases. The money supply decreases. M1 increases.
The money supply increases. M1 increases.
is an interest-bearing deposit held by a bank or financial institution for a fixed term. whereby the depositor can only withdraw the funds after giving notice.
Time deposit
Because ___ checks are immediately convertible, they are highly liquid and go into ___
Traveler's;M1
Which president signed the Federal Reserve Act in 1913?
Woodrow Wilson
A change in demand for money can be shown as:
a shift in the money demand curve.
A change in the demand for money will:
a shift in the money demand curve.
Credit card purchases:
are actually loans that we must repay later.
When people save for future expenses, they typically choose a mix of different _______ that meets their needs and balances their tolerance for risk versus return.
assets
are businesses that provide financial services to the marketplace and try to make a profit along the way.
banks
Interest rates and prices are often determined:
by the amount of money in an economy
The entity responsible for overseeing the monetary system of a nation is the
central
is an instruction to transfer funds from your account to another person's account.
check
When a check __ and money is transferred out of a checking account, it is the transfer of funds that constitutes the actual payment for the good and service.
clears
Debit card purchases:
come out of checkable deposits.
___ in active circulation includes money in everyone's pockets and is part of __
currency;M1
Changes in the price level, changes in real GDP, and uncertainty about the future are all considered:
determinants of money demand
Societies generally abandon older forms of money when they:
develop new and better monies.
The interest rate we earn on a savings account:
differs from the interest rate we pay on loans.
is the interest rate at which banks can borrow money directly from the Federal Reserve.
discount
Total money demand is:
downsloping as a result of asset demand
Because the asset demand for money is sensitive to the prevailing interest rate, it is a ____-sloping line.
downward
The majority of the Federal Reserve banks are in the __ half of the country.
eastern or east
Monetary policy refers to the action of the ______ to influence the supply of money and credit in the U.S. economy.
fed
The Federal Reserve Bank is commonly known as the
fed
The Federal Reserve is commonly called the
fed
The primary entity charged with supervision and regulation of member banks to prevent banking panics or disruptions is called the
federal reserve bank
When an individual deposits a check at the local bank, the bank's reserves ___ . The bank can use most of those reserves to make ___
increase;loans
Banks allow households who are spending less than their total income to keep their unused income in a safe place while also earning
interest
Because the Federal Reserve fixes the money supply at a particular amount, changes in the __ rate do not cause a change in the quantity of money supplied.
interest
Because the Federal Reserve fixes the money supply at a particular amount, changes in the __rate do not cause a change in the quantity of money supplied.
interest
The asset demand for money is sensitive to the prevailing ___ rate.
interest
is the payment made to agents that lend or save money.
interest
The yield on a bond is:
interest payment/bond cost
The demand and supply for money interact to determine the
interest rate
Banks play a crucial role in determining __ rates and the __ supply.
interest;money
The interest rate:
is the price of money.
___ the reserve requirement, the smaller the money multiplier.
larger
M1 consists of the most __ forms of money.
liquid
When an individual deposits a check at the local bank, the bank's reserves increase. The bank can use most of those reserves to make ________. This _______ the money supply.
loans;increase
Because a bank may need to have only a fraction of deposits on hand, the rest is used to make ______ that earn interest, which is used to cover the costs of running the bank and hopefully earn a _______.
loans;profit
Banks can influence the money supply by
making loans
Nominal variables are variables that are measured in:
monetary units while real variables are measured in numerical units.
Since we can't use stocks and bonds for daily transactions, people hold some of their savings as ___ instead of putting it all in stocks or bonds.
money
The overall change in the money supply given an initial change in reserves depends on the
money
is any item that both buyers and sellers will accept in exchange for goods and services.
money
A deposit account that accepts deposits and purchases bonds and commercial debt that pay interest is a:
money market mutual funds.
A money market is a market in which:
money supply and demand determine an interest rate.
If the price level increases, but the level of output remains the same from one year to the next,:
nominal GDP will increase, but real GDP will remain the same.
You can write a check to pay for goods and services. The check itself is:
not money
The majority of the money in the U.S. economy is:
nothing tangible you can hold, but is instead merely a computer entry
When the Fed buys or sells government securities in the open market to change the money supply, it is called:
open market operations
In order to conduct daily transactions and have a stable asset for future purchases,:
people hold some of their savings as money.
The Federal Open Market Committee includes the Board of Governors, the _____ of the New York Fed, and ___ Federal Reserve bank presidents from other district banks who serve on a rotating basis.
president; 4
In the market for money, the equilibrium ___ of money is the interest rate.
price
Transaction money demand is:
related to the level of nominal GDP, Independent of the interest rate.
reserves are the fraction or portion of checkable deposits that a bank must keep in hand.
required
specifies the fraction of checkable deposits that a bank must keep on hand.
reserve
To make sure banks meet the daily needs of customers, the Federal Reserve enforces a:
reserve requirement
If the bank keeps all of its deposits as __ ,the bank won't make any money.
reserves
Which term is used for a situation in which the quantity supplied is less than the quantity demanded at the current market price?
shortage
A relatively __ fraction of the money in an economy is issued by the Federal Reserve; the rest is created by the ___
small/banks
The actual money multiplier tends to be ___ than the one predicted by the money multiplier equation.
smaller
The national banking system is overseen by:
the Board of Governors located in Washington D.C.
Directing monetary policy and supervising member banks is done by:
the Federal Reserve
The institutions that largely influence money supply are:
the banks and the Fed.
One way to solve for the money multiplier is to divide:
the overall change in the money supply by the initial change in reserves.
reserves are the total amount of reserves that a bank has some of which it is required to keep on hand.
total
money demand is related to the level of nominal GDP.
transaction
money demand is the demand for money to be used to purchase goods and services.
transaction
The demand for money comes from two sources: __ demand and __ demand.
transactions;assets
Knowing how much money an economy has matters because it helps determine interest rates and prices.
true
The first types of money were most likely seeds, grains, or shells.
true
The Federal Reserve System consists of ___ Federal Reserve Banks in___ geographic regions or districts.
twelve;twelve
In order to engage in transactions, almost anything can be used as ________.
used as money
Because the money supply is independent of the interest rate, it is a(n)
vertical
