Chapter 14

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

holding bank reserves

The money multiplier is equal to

1 dived by required reserve ratio

A banks that has excess reserves can earn additional income by lending the money overnight

To other banks in the federal funds market.

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

Volume of loans the banking system can make.

Assume an original balance sheet: On the basis of the information in Table 14.1, the required reserve ratio is

The required reserves are $150 billion out of $1,000 billion in total deposits. So the required reserve ratio must be 15 percent. (150/1000)*100=15%)

Monetary policy is set by the

Board of Governors.

Suppose all of the banks in the Federal Reserve System have $100 billion in transactions accounts, the required reserve ratio is 0.25, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.20, the total lending capacity of the system is increased by

If the reserve requirement is changed to 20 percent, the banking system will need only $20 billion in reserves versus the $25 billion needed with a 0.25 required reserve ratio. Banks will have excess reserves of $5 billion; this will allow for new loans of $25 billion because the money multiplier is 5.

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

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

The current chairman of the Federal Reserve is

Janet Yallen

Assume an original balance sheet: The money supply (M1) in Table 14.3 is

M1 is equal to currency held by the public plus deposits in transactions accounts, which in this case is $120 billion. ($80 billion + $40 billion)

The M2 money supply is defined as

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

A reduction in the discount rate

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

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

pretax income

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

buys securities

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

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

decrease the price of bonds

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

federal open market

The Federal Reserve System was created by

federal reserve act

The Federal Open Market Committee is responsible for

feds daily activity in financial market

If the Fed wishes to increase the money supply, it could

lower the discount rate

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

monetary policy

A bond is a

promise to repay borrowed funds

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

total reserves- required reserves

If banks do not have enough reserves to satisfy the reserve requirement, they can borrow additional reserves in the federal funds market.(true or false)

true

Increasing the reserve requirement reduces the money supply.(true or false)

true

The Fed now targets the federal funds rate rather than the money supply.(true or false)

true