Chapter 14 Macro

Anil buys a bond in the amount of $2,000 with a promised interest rate of 17 percent. If the market interest rate increases to 27 percent, Anil can sell his bond for up to

$1,259.26.

Janette buys a bond in the amount of $500 with a promised interest rate of 15 percent. If the market interest rate decreases to 5 percent, Janette can sell her bond for up to

$1,500.

Suppose all of the banks in the Federal Reserve System have $500 billion in transactions accounts, the required reserve ratio is 0.30, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.25, the total lending capacity of the system is increased by

$100 billion.

Suppose the banks in the Federal Reserve System have $100 billion in transactions accounts, the required reserve ratio is 0.10, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.15, the deficiency of reserves would be

$5 billion.

Shoffner buys a bond in the amount of $1,000 with a promised interest rate of 18 percent. If the market interest rate decreases to 3 percent, Shoffner can sell his bond for up to

$6,000.

Which of the following represents the lending capacity of an entire banking system?

(Total reserves - required reserves) ×money multiplier. D. 1 ÷ (required reserve ratio).

If the Fed buys $25 billion of U.S. bonds in the open market and the reserve requirement is 20 percent, M1 will eventually

. Increase by $125 billion.

Which of the following is true about an increase in the discount rate?

. It signals the Federal Reserve's desire to restrain money growth.

Which of the following is the tool used most frequently by the Fed?

. Open market operations.

Suppose the banks in the Federal Reserve System have $200 billion in transactions accounts, the required reserve ratio is 0.15, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.10, the amount of excess reserves would be

. Positive $10 billion.

Which of the following represents the money multiplier?

1 ÷ (required reserve ratio).

If the annual interest rate printed on the face of a bond is 12 percent, the face value of the bond is $1,000, and the current market price of the bond is $1,200, what is the current yield on the bond?

10.0 percent.

If the annual interest rate printed on the face of a bond is 7 percent, the face value of the bond is $1,000, and the current market price of the bond is $250, what is the current yield on the bond?

28 percent.

If the annual interest rate printed on the face of a bond is 25 percent, the face value of the bond is $1,000, and the current market price of the bond is $700, what is the current yield on the bond?

35.7 percent.

The Board of Governors consists of

7 members, appointed for 14-year terms.

If the annual interest rate printed on the face of a bond is 16 percent, the face value of the bond is $1,000, and the current market price of the bond is $200, what is the current yield on the bond?

80.0 percent.

Assume the reserve requirement is 25 percent, demand deposits are $500 million, and total reserves are $32 million. If the reserve requirement is decreased to 20 percent, the banking system will experience

A deficiency of required reserves equal to $68 million.

Assume the reserve requirement is 10 percent, demand deposits are $200 million, and total reserves are $18 million. If the reserve requirement is increased to 14 percent, the banking system will have

A deficiency of reserves equal to $10 million.

The choice of how and where to hold idle funds is

A portfolio decision.

Changing the reserve requirement is

A powerful tool that can cause abrupt changes in the money supply.

The Federal Open Market Committee includes

All 7 governors and 5 of the regional Reserve bank presidents.

Which of the following equals the current yield on a bond?

Annual interest payment ÷ current market price of the bond.

Members of the Board of Governors are

Appointed by the president and confirmed by the Senate.

Excess reserves are

Bank reserves in excess of required reserves.

If the Federal Reserve buys government bonds from the public

Banks will be able to make additional loans. If the Fed wishes to increase the money supply, it could; Lower the discount rate.

The Federal Reserve holds deposits from

Banks.

Monetary policy is set by the

Board of Governors.

If excess reserves are too large, a bank is likely to

Buy government securities.

If a bank does not have enough reserves to satisfy the reserve requirement, it is likely to do any of the following except

Buy securities.

If the Fed wishes to reduce the money supply, it can do all of the following except

Buy shares of common stock in a large bank.

The Fed can decrease the federal funds rate by

Buying government bonds, which causes market interest rates to fall.

Open market operations involve the Fed

Buying or selling government bonds.

When the Fed wishes to increase the reserves of the member banks, it

Buys securities.

Regional Fed banks are responsible for all of the following except

Cashing checks for large nonfinancial corporations.

Regional Fed banks

Clear checks between private banks.

Suppose Brian receives a check for $100 from a bank in Atlanta. He deposits the check in his account at a Dallas bank. The Dallas bank will most likely collect the $100 directly from the

Dallas regional Federal Reserve Bank.

Suppose the Federal Reserve System has a required reserve ratio of 0.20. If the Open Market Committee sells $10 billion of securities to the commercial banking system, then before the money multiplier takes effect, initially excess reserves

Decrease by $10 billion.

If the Fed wants to sell more government bonds than people are willing to buy, then the Fed

Decrease the price it asks for the bonds.

The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the

Discount rate.

The Federal Open Market Committee meets

Every four or five weeks.

If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus,

Fall.

Which of the following is the market where reserves can be borrowed by one bank from another bank for very short periods of time?

Federal funds market.

Which of the following services is performed by the regional Federal Reserve banks?

Holding bank reserves.

By raising and lowering the discount rate, the Fed changes the

Incentive for banks to borrow reserves.

If the Fed buys $32 billion of U.S. bonds in the open market and the reserve requirement is 10 percent, M1 will eventually

Increase by $320 billion.

If the Fed buys $20 billion of U.S. bonds in the open market and the reserve requirement is 5 percent, M1 will eventually

Increase by $400 billion.

Suppose the Federal Reserve System has a required reserve ratio of 0.20 and there are no excess reserves in the system. If the Open Market Committee buys $20 million of securities from the commercial banking system, the total lending capacity of the system

Increases by $100 million.

Suppose the Federal Reserve System has a required reserve ratio of 0.10 and there are no excess reserves in the system. If the Open Market Committee buys $50 million of securities from the commercial banking system, the total lending capacity for the system

Increases by $500 million.

When the Fed buys bonds from the public, it

Increases the flow of reserves to the banking system.

When the Fed raises the discount rate, all of the following result except

It expands the lending capacity of the banking system.

The current chairman of the Federal Reserve is

Janet Yellen.

Discounting refers to the Fed's practice of

Lending reserves directly to private banks.

Which of the following does not reduce the Fed's control of the money supply?

Lobbying by consumer watchdog groups.

In order to increase the money supply, the Fed can

Lower the reserve requirement, decrease the discount rate, or buy bonds.

The M2 money supply is defined as

M1 plus balances in most savings accounts and money market mutual funds.

Currency held by the public plus balances in transactions accounts plus travelers checks is the definition of

M1.

Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they

Make their decisions based on economic, rather than political, considerations.

The use of money and credit controls to achieve macroeconomic goals is

Monetary policy.

The federal funds rate is the interest rate charged when

One bank lends reserves to another bank.

The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is known as

Open market operations.

Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?

Open market operations.

Which of the following is not required to satisfy Fed minimum reserve requirements?

Pawn shops.

Through open market operations, the Fed is able to influence

Portfolio decisions.

A change in the reserve requirement causes a change in all of the following except

Pretax income.

A bond is a

Promise to repay borrowed funds.

Which of the following services is performed by the regional Federal Reserve banks?

Providing currency to private banks.

In order to decrease the money supply, the Fed can

Raise the reserve requirement, increase the discount rate, or sell bonds.

The minimum amount of reserves a bank is required to hold is

Required reserves.

When a bank borrows money from the Federal Reserve,

Reserves increase for the bank.

If market interest rates fall, the selling price of existing bonds in the market will, ceteris

Rise.

The money supply (M2) includes M1 plus balances in

Saving accounts and money market mutual funds.

If banks do not have enough reserves to satisfy the reserve requirement, they can

Sell securities.

The Fed can increase the federal funds rate by

Selling government bonds, which causes market interest rates to rise.

Monetary policy involves the use of money and credit controls to

Shift the aggregate demand curve.

A reduction in the discount rate

Signals the Federal Reserve's desire for additional credit expansion.

A growing economy needs a

Steadily increasing supply of money to finance market exchanges.

All of the following are tools available to the Fed for controlling the money supply except

Taxes.

Which of the following serves as the central banker for private banks in the United States?

The 12 Federal Reserve banks.

Which of the following is responsible for the Fed's daily activity in financial markets?

The FOMC.

Which of the following provides evidence that the Federal Reserve System is politically insulated?

The Fed governors are appointed for 14-year terms and cannot be reappointed.

The Federal Open Market Committee is responsible for

The Fed's daily activity in financial markets.

Which of the following is responsible for buying and selling government securities to influence reserves in the banking system?

The Federal Open Market Committee.

The Federal Reserve System was created by

The Federal Reserve Act in 1913.

The creation of a Federal Reserve System was recommended by

The National Monetary Commission.

All of the following would be true for the banking system if there was no government regulation except

The banking system would be regulated by consumers.

_____________ can be altered to change the lending capacity of the banking system.

The reserve requirement

Which of the following is not true for members of the Federal Reserve Board of Governors?

They usually serve two or three terms.

Which of the following represents the lending capacity of an individual (nonmonopoly) bank?

Total reserves - required reserves.

The money supply (M1) includes currency held by the public plus

Transactions accounts plus travelers checks.

The Fed is most likely to pursue

Use of open market operations as the primary mechanism to change reserves.

The primary method for controlling the money supply in the United States is to limit the

Volume of loans the banking system can make.

The rate of return on a bond is the

Yield.

The government uses ______________ to regulate the amount of money banks lend

monetary policy

The Fed can use all of the following except ____________ to change the lending capacity of the banking system.

the excess reserve requirement