EC 202 Ch. 13

Any item that is regularly accepted by buyers and sellers and used to settle economic transactions is;

Money

Which of the following appears in M2 and not M1?

Money market mutual funds

The president of the _______ Federal Reserve Bank is always a member of the FOMC.

New York

Credit cards are:

Not part of the money supply

When we say that money serves as a unit of account, we mean that:

Prices are quoted in terms of money

When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed:

Provides funds to troubled banks that cannot find any other source of funds.

Which of these is NOT a function of the Federal Reserve?

Providing identity theft insurance

The fraction of deposits that banks are required by law to hold and not lend out are called its:

Required reserves

The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________.

Required reserves

Which of the following is included in M2?

Savings accounts

Which of the following is not included in M1?

Savings accounts

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.

Seven, 14-year terms, President

In the _______ increases in the supply of money will __________.

Short run, raise total demand and output. Long run, lead to higher prices.

A bank's balance sheet is an accounting statement that shows a bank's;

Sources and uses of funds

As inflation rates increase, money becomes less useful as a:

Store of value

Which of these facts is true about the creation of the Federal Reserve System (the Fed)?

The Fed was created in 1913

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committe

Which of the following is responsible for decisions on monetary policy?

The Federal Open Market Committee

An open market purchase occurs when:

The Federal Reserve purchases Treasury bonds

The Federal Reserve System is __________.

The central bank of the United States

Who is the chairperson of the Federal Open Market Committee (FOMC)?

The chairperson of the Board of Governors

If the Fed sells $7.5 million of U.S. bonds and the reserve requirement is 25%, M1 will eventually:

None of the above

Suppose a bank has $2 million in deposits, a required reserve ratio of 15%, and bank reserves of $320,000. Then the bank can make new loans in the amount of:

None of the above

Which of the following is responsible for buying government securities in order to influence monetary policy?

The Federal Reserve

Suppose that while vacationing in Monaco, you won 25,000 French francs which is the equivalent of $5,000. When you return to the U.S., you deposit the $5,000 into your checking account. The effect is to (assuming the required reserve ratio is 20%):

All of the above

Meg digs out $100 from under her bed and deposits it into a bank. As a result of this single transaction, M1 has:

Not changed

Checking accounts that pay interest are included in the:

"Other checkable deposits" part of M1

Assume that banks are always fully loaned and people hold no cash. Given a required reserve ratio of 10%, an infusion of $100 billion in reserves will result in a maximum of:

$1,000 billion in deposits

Given the following information about Acme Bank: Bank Deposits $30,000 Loans $20,000 Reserves $5,000 Reserve Requirement 10% Acme Bank is holding ______ in excess reserves.

$2,000

Suppose a bank has $200,000 in deposits, a required reserve ratio of 5%, and bank reserves of $12,000. Then, the bank can make new loans in the amount of:

$2,000

Suppose Kirk deposits $5,000 in his bank. If the reserve ratio is 25%, this will lead to an increase of ______ in M1.

$20,000

Given the following information: Assets $2,500 Liabilities $2,100 A bank's net worth is:

$400

Suppose that the reserve ratio is 25% and that banks loan out all their excess reserves. If a person deposits $100 cash in a bank, checking account balances will increase by a maximum of:

$400

Suppose Barry deposits $10,000 in his bank. If the reserve ratio is 20%, this will lead to an increase of ________ in checking acc

$50,000

How many Federal Reserve districts are there?

12

If the banking system has a required reserve ratio of 5 percent, then the money multiplier is:

20

When many depositors decide simultaneously to withdraw their money from a bank, there is __________.

A bank run

In the federal funds market _____ will borrow or lend reserves to ______.

A bank, another bank

The supply of money in the economy is determined primarily by:

A banking system and the actions of the Federal Reserve

Money is:

Anything that is regularly used in economic transactions or exchanges

Members of the Federal Reserve Board of Governors:

Are appointed to 14 years terms, are confirmed by the Senate, serve in Washington D.C., and are members of the Federal Open Market Committee

Checking account balances are included in:

Both M1 and M2

Most nations have a banker's bank which is also known as the nation's;

Central bank

An open market sale by the Fed:

Decreases the total amount of reserves in the banking system

Which of the following is a bank liability?

Demand deposit balances

Changing the reserve requirement is:

Disruptive to the banking system

Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:

Each additional dollar of reserves creates $5 of deposits

A bank may make loans until its:

Excess reserves are exhausted

______________ is money that has no intrinsic value but is backed by the government.

Fiat money

If the Fed buys $60,000 of U.S. bonds and the reserve requirement is 10%, M1 will eventually:

Increase by $600,000

A decrease in the discount rate will:

Increase the money supply

An increase in the discount rate:

Increases the cost of reserves borrowed from the Fed

The Federal Reserve is set up to be _________ the political system.

Independent of

In practice, the Federal Reserve keeps the discount rate close to the ______ rate in order to avoid large swings in borrowed reserves by banks.

Inflation

Economists keep an eye on both M2 and M1 because:

It is not clear how citizens use money market accounts

From the point of view of a commercial bank, a _____ is a(n) ________.

Loan, asset Deposit, liability

On the balance sheet of a bank:

Loans are the most important asset

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of:

M1

Which of these is the broadest definition of the money supply?

M2

Barter transactions will occur only when:

There exists a double coincidence of wants

Suppose after the semester ends, you take a trip to a tropical island. Upon arriving at the island, you make a stop at one of the markets and notice that everyone is carrying around jars full of little turtles. You also notice the person in line in front of you just paid for a bottle of rum with 6 turtles. Someone else just bought a straw hat for two turtles. Thinking back to your economics class (as painful as that may be), you would conclude that:

Those little turtles are serving the function of money

When money is used to express the value of goods and services, it is functioning as a:

Unit of account

A bank panic occurs when:

Many banks experience runs at the same time

Money solves the dilemma of a double coincidence of wants by serving as a:

Medium of exchange

The Federal Open Market Committee is composed of:

The members of the Board of Governors and some of the Presidents of the 12 Federal Reserve banks.

The money multiplier will be smaller when:

Bank customers prefer to hold a bigger amount of their money as cash and prefer to lend out 95% of their excess reserves instead of 100%

The money multiplier tends to be greater when:

Banks hold few excess reserves

The money multiplier for the United States is __________.

Between 2 and 3