ECO 2013 (Ch.34, Ch.35, Ch.36)
If the price index rises from 100 to 120, the purchasing power value of the dollar
Will fall by one-sixth.
The Federal Reserve System performs the following functions except
Providing banking services to the general public
Consider the following information about a banking system: new currency deposited in the system= $40 billion, legal reserve ratio= 0.20, excess reserves prior to the currency deposit= $0. With $40 billion deposit, the banking system will be able to expand the money supply through loans by
$200 billion
Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be
10 percent
The blurring of the lines separating the subsets of the financial industry started in the
1990s
An asset's liquidity refers to its ability to be
A means of payment
When a bank grants a loan to a customer who then keeps the funds in her checking account at that bank, the bank's
Actual reserves will increase
Which of the following best describes the cause-effect chain of an expansionary monetary policy
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP
Disequilibrium in the money market is mainly corrected via a change in
Bond Prices
Wells Fargo, J.P. Morgan Chase, and Citibank, are all primarily:
Commercial banks
If the Federal Reserve System sells $5 Billion of government securities to commercial banks, the bank's reserves would
Decrease by $5 Billion
Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking system will be
Decreased by $40 billion
A commercial bank can expand its excess reserves by
Demanding and receiving payment on an overdue loan
Which one of the following is presently a major deterrent to bank panics in the United States
Deposit insurance
As it relates to Federal Reserve activities, the acronym FOMC describes the
Federal Open Market Committee
Coins in people's pockets and purses are
Included in both M1 and M2
If the Fed wants to discourage commercial bank lending it will
Increase the interest paid on excess reserves held at the Fed
The purchasing power of the dollar
Is the reciprocal of the price level.
Which of the following is not part of the M2 money supply
Large-denominated time deposits
A bank that has assets of $85 billion and a net worth of $10 billion must have
Liabilities of $75 billion.
Assume no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual finds increase by $40 billion, the
M1 money supply will decline and the M2 money supply will remain unchanged
Money market deposit accounts are included in
M2 only
The most important among the Federal Reserve district banks in conducting monetary policy is the
New York bank
Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as
No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits
The Federal Reserve can increase aggregate demand by
Reducing the discount rate
(Last Word) During the financial crisis of 2007-2008, the Federal Reserve
Served as a lender of last resort to both solvent and insolvent firms
Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction:
The supply of money is increased by $5,000.
Money is "created" when
People receive loans from their banks
A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5000 of cash is deposited in the bank, it can increase its loans by a maximum of
$3,750
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of
$75000
The ABC Commercial has $5,000 in excess reserves, and the reserve ration is 30 percent. This information is consistent with the bank having
$90,000 in checkable deposit liabilities and $32,000 in reserves
If the monetary multiplier is 6, then the reserve ratio must be
0.167
The problem of cyclical asymmetry refers to the idea that
A restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.
If you are estimating your total expenses for school next semester, you are using money primarily as
A unit of account
The seven members of the Board of Governors of the Federal Reserve System are
Appointed by the President with the confirmation of the Senate.
Small-denominated time deposits, by definition
Are less than $100,000
The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?
Buying government securities, doing repos, and lowering the discount rate
Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply
Expands and commercial bank reserves increase
The market for immediately available reserve balances at the Federal Reserve is known as the
Federal funds market
Collateralized default swaps
Insured holders of loan-backed securities in case the underlying loans were not repaid
Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the
M1 money supply will not change
Which of the following functions of money enables society to gain the benefits of geographic and labor specialization
Medium of exchange
The purpose of a restrictive monetary policy is to
Raise interest rates and restrict the availability of bank credit.
Cash held by a bank in its vault is a part of the bank's
Reserves
When a bank has a check drawn and cleared against it
The amount of required reserves the bank must have will fall
Which of the following best describes what occurs when monetary authorities sell government securities
There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP
True or False: Actual reserves minus required reserves equal excess reserves
True