Chapter 15 ECON 202 smartbook

The M1 definition of the money supply includes which of the following?

- bills - coins - checking account balances

What year was the Federal Reserve created?

1913

Suppose a bank has $1,000,000 in demand deposits. Of this, the bank hold on to $200,000 and loans out the remaining money to qualified borrowers. The reserve ratio equals

20%

How many of the regional Federal Reserve bank presidents serve on the Federal Open Market Committee (FOMC)?

5

The M2 definition of the money supply includes

Checking accounts cash savings accounts certificates of deposit

Who manages the money supply?

Federal Reserve

Who is largely credited with saving the financial system during the 1907 financial crisis?

J.P Morgan

What role does the FOMC play in the economy?

It conducts monetary policy and guides the money supply.

Indicate which of the following are correct regarding the Federal Reserve

It consists of 12 regional banks. There is a 7-member Board of Governors. It is often called "The Fed."

Which policy does the Fed conduct to pursue its dual mandate?

Monetary policy

What happens to money demand when interest rates fall?

Money demand increases.

Which of the following allow(s) banks to create money?

Paper money Fractional-reserve banking

Suppose an economy began using raisins as money in exchange for goods and services. What characteristic do raisins lack that prevent them from being "good" money?

Stability of value

In general, who conducts fiscal policy?

The Treasury department

What backs U.S. dollars?

Trust in government

In the liquidity preference model, the money demand and the interest rate

are inversely related

Suppose you deposit $100 into a bank, it becomes a source of funds. In this instance, the bank now has a $100 ________. Since it must pay you the $100 whenever you ask for it, the bank has a $100 __________.

asset; liability

Funds held in bank accounts that can be withdrawn from banks at any time without advance notice are called _________ deposits.

demand

According to most economists, in the short run, monetary policy

can help combat recessions and inflation.

A _________ coordinates the banking system in order to ensure a sound economy.

central bank

Suppose an economy began using bricks as money in exchange for goods and services. What characteristic do bricks lack that prevent it from being "good" money?

convenience

Characteristics of "good" money include which of the following?

convenience Stability of value

If the Fed increases the discount rate, the money supply

decreases

Money that is created by rule without any commodity to back it is called

fiat money

Money that is created by rule, without any commodity to back it is called

fiat money

The _________-_________ banking system makes it possible for banks to create money.

fractional-reserve

If the Fed were to decrease the reserve requirement, the money supply would

increase

Expansionary monetary policy increases the money supply in order to __________ aggregate demand. This, in turn, tends to ___________ the federal funds rate.

increase; reduce

If the Fed lowers the discount rate, the money supply

increases

When money has value that is unrelated to its role as a medium of exchange, it is said to have

intrinsic value

Which of the following are functions of the Federal Reserve?

lender of last resort managing the money supply

Suppose that as the interest rate on government securities (such as bonds) rises, individuals tend to hold less cash. This is consistent with which model?

liquidity preference

The Federal Reserve conducts what type of policy?

monetary policy

Monetarist argue that

money is neutral

M1 contains assets that are _________ M2.

more liquid than

The M1 definition of the money supply tends to be

narrower than M2.

Which of the following is the most used monetary policy tool?

open-market operations

What happens to money demand when interest rates rise?

quantity of money demanded decreases

When the Fed alters the amount that banks are required to hold as either vault-cash or on deposit at the Fed, it is using which of the following monetary policy tools?

reserve requirements

Deposits that a bank keeps in its vault or on deposit with the Federal Reserve bank are called

reserves.

Which institution is responsible for managing the U.S. money supply?

the central bank

The amount of money that is available in the economy is called

the money supply.

According to the liquidity-preference model, the money supply curve is

vertical