ECON 204 Ch. 14

Bond

A certificate acknowledging a debt and the amount of interest to be paid each year until repayment:

D. Pretax income

A change in the reserve requirement causes a change in all of the following except? A. The money multiplier B. The lending capacity of the banking system C. Excess reserves D. Pretax income

A) raise interest rates, reducing investment and GDP

A decrease in the money supply will: A) raise interest rates, reducing investment and GDP B) raise interest rates, increasing investment and lowering GDP C) reduce interest rates, increasing investment and GDP D) reduce interest rates, reducing investment and GDP

A. Steadily increasing supply of money to finance market exchanges.

A growing economy needs a: A. Steadily increasing supply of money to finance market exchanges. B. Continually decreasing supply of money to finance the government's expenditures. C. Constant supply of money to keep inflation under control. D. Decreasing supply of money to keep interest rates low.

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

A reduction in the discount rate: A. Signals the Federal Reserve's desire for additional credit expansion. B. Increases the cost of borrowing reserves from the Federal Reserve. C. Discourages banks from borrowing reserves from the Fed. D. Is consistent with a tight monetary policy.

C. M1

Currency held by the public, plus balances in transactions accounts plus traveler's checks is the definition of: A. M2 B. Bank deficit C. M1 D. Bank surplus

D. Buy securities

If a bank does not have enough reserves to satisfy the reserve requirement, it is likely to do any of the following except? A. Borrow additional reserves in the federal funds market B. Sell securities C. Borrow from the discount window at the Federal Reserve Bank D. Buy securities

D. Sell securities.

If banks do not have enough reserves to satisfy the reserve requirement, they can: A. Buy securities. B. Pay off discount loans at the Federal Reserve bank. C. Lend additional reserves in the federal funds market. D. Sell securities.

A. Buy government securities.

If excess reserves are too large, a bank is likely to A. Buy government securities. B. Borrow in the federal funds market. C. Borrow reserves from the discount window. D. All of the choices are correct.

A. Rise.

If market interest rates fall, the selling price of existing bonds in the market will, ceteris paribus, A. Rise. B. Fall. C. Not change. D. Change unpredictably

B. Fall.

If market interest rates rise, the selling price of existing bonds in the market will, ceteris paribus, A. Rise. B. Fall. C. Not change. D. Change unpredictably

D) the price of bonds will increase and the interest rate received by bond holders will decrease

If the Fed buys bonds from the public: A) both the price of bonds and the interest rate received by bond holders will increase B) both the price of bonds and the interest rate received by bond holders will decrease C) the price of bonds will decrease and the interest rate received by bond holders will increase D) the price of bonds will increase and the interest rate received by bond holders will decrease

decrease the price it asks for the bonds

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

A. Lower the discount rate.

If the Fed wishes to increase the money supply, it could: A. Lower the discount rate. B. Raise the minimum reserve ratio. C. Sell securities on the open market. D. Issue more bonds.

banks will be able to make additional loans

If the Federal Reserve buys government bonds from the public,

D) the interest rate will rise and the quantity of money demanded will decrease

If the current interest rate is below the equilibrium rate: A) the money supply exceeds the quantity of money demanded B) the money supply will increase and the interest rate will rise C) the money supply will decrease and the interest rate will rise D) the interest rate will rise and the quantity of money demanded will decrease

D) buy government securities

If the intent of the Fed is to increase GDP, it should: A) raise the reserve requirement B) raise the discount rate C) ask banks to reduce their amount of loans outstanding D) buy government securities

A. Buying or selling government bonds.

Open market operations involve the Fed: A. Buying or selling government bonds. B. Buying or selling shares of stock. C. Borrowing money from a bank. D. Lending money to individuals.

Portfolio Decisions

Through open market operations, the Fed is able to influence:

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

The Fed is most likely to pursue: A. Frequent adjustment of the reserve requirement. B. Use of open market operations as the primary mechanism to change reserves. C. Numerous increases in the discount rate to tighten the money supply quickly. D. Frequent changes in marginal tax rates.

D) Securities and loans to commercial banks

Two primary assets of the Federal Reserve Banks are: A) Securities and Federal Reserve notes outstanding B) Securities and Treasury deposits C) Federal Reserve notes outstanding and reserves of commercial banks D) Securities and loans to commercial banks

Open-Market Operations

What is the principle mechanism used by the Federal Reserve to directly alter the reserves of the banking system?

B. Increases the flow of reserves to the banking system.

When the Fed buys bonds from the public, it A. Decreases the flow of reserves to the banking system. B. Increases the flow of reserves to the banking system. C. Decreases the money supply. D. Decreases the discount rate.

A. Buys securities.

When the Fed wishes to increase the reserves of the member banks, it: A. Buys securities. B. Raises the reserve requirement. C. Raises the discount rate. D. Sells securities

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

The Federal Open Market Committee includes: A. All 7 governors and 5 of the regional Reserve bank presidents. B. 5 of the governors and all of the regional Reserve bank presidents. C. 12 of the regional Reserve bank presidents plus the chairman of the Fed. D. All 12 of the governors and all 7 of the regional Reserve bank presidents.

B. The Federal Reserve Act in 1913.

The Federal Reserve System was created by A. The FDIC in 1929. B. The Federal Reserve Act in 1913. C. The U.S. Treasury in 1914. D. The Federal Banking Authority in 1904.

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

The M2 money supply is defined as A. Currency held by the public plus transactions accounts. B. M1 plus savings accounts. C. M1 plus balances in most savings accounts and money market mutual funds. D. Most balances held in savings accounts and money market mutual funds.

D. A portfolio decision

The choice of how and where to hold idle funds: A. A Fed funds decision B. A discount decision C. An executive Fed decision D. A portfolio decision

D) a decrease in nominal GDP

The demand for money will decrease (shift to the left) as a result of: A) an increase in the price of bonds B) a decrease in the interest rate C) an increase in the price level D) a decrease in nominal GDP

A. One bank lends reserves to another bank.

The federal funds rate is the interest rate charged when: A. One bank lends reserves to another bank. B. The Fed lends to banks. C. The Fed lends to individuals. D. Individual banks lend to the Fed.

Crowdfunding

The financing of a project through individual contributions from a large number of people, typically via an internet platform:

A. Monetary policy

The government uses ______________ to regulate the amount of money banks lend. A. Monetary policy B. Fiscal policy C. Banking policy D. Tax cuts

D. Volume of loans the banking system can make.

The primary method for controlling the money supply in the United States is to limit the: A. Amount of currency that is printed. B. Amount of money that is spent by changing tax policy. C. Amount of money that is spent by changing income transfers. D. Volume of loans the banking system can make.

C. Open market operations.

The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is known as A. Fiscal policy. B. Federal funds operations. C. Open market operations. D. Zero coupon bonding.

C. Discount rate.

The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the: A. Federal funds rate. B. Prime rate. C. Discount rate. D. Commercial paper rate.

Bond Yield

The rate of return on a bond is the:

B. Monetary policy.

The use of money and credit controls to achieve macroeconomic goals is A. Fiscal policy. B. Monetary policy. C. Supply-side policy. D. Eclectic policy.

D. Taxes

All of the following are tools available to the Fed for controlling the money supply except: A. The reserve requirement. B. The discount rate. C. Open market operations. D. Taxes

D. The banking system would be regulated by consumers.

All of the following would be true for the banking system if there was no government regulation except: A. The money supply would be determined by individual banks. B. Depositors would bear all the risks of bank failures. C. The money supply would be subject to abrupt changes. D. The banking system would be regulated by consumers.

A) reduce interest rates, increasing investment and GDP

An increase in the money supply will: A) reduce interest rates, increasing investment and GDP B) reduce interest rates, reducing investment and GDP C) raise interest rates, reducing investment and GDP D) raise interest rates, increasing investment and lowering GDP

C. Incentive for banks to borrow reserves.

By raising and lowering the discount rate, the Fed changes the: A. Level of required reserves held by individuals. B. Incentive for banks to buy common stock. C. Incentive for banks to borrow reserves. D. Money multiplier.

A. Can reduce the lending capacity of the banking system

By raising the required reserve ratio, the Fed: A. Can reduce the lending capacity of the banking system B. Can lower the interest rate charged to borrowers C. Can increase the lending capacity of the banking system D. None of the choices are correct

B) can generally push the prime rate in the same direction

By targeting the Federal funds rate, the Fed: A) can generally push the prime rate in the opposite direction B) can generally push the prime rate in the same direction C) has little control over other interest rates D) can generally push investment in the same direction

C. Lending reserves to private banks.

Discounting refers to the Fed's practice of: A. Selling securities at the federal funds rate. B. Purchasing securities at the lowest available federal funds rate. C. Lending reserves to private banks. D. Lending at the prime rate

B) lower interest rates and increase aggregate demand

Fed purchases of bonds from the public will: A) raise interest rates and increase aggregate demand B) lower interest rates and increase aggregate demand C) lower interest rates and decrease aggregate demand D) raise interest rates and decrease aggregate demand

D) expand GDP and improve a trade deficit

Fed purchases of government securities on the open market: A) restrain inflation and worsen a trade deficit B) restrain inflation and improve a trade deficit C) expand GDP and worsen a trade deficit D) expand GDP and improve a trade deficit

B) aggregate demand to shift to the left

Fed sales of bonds to the public will cause: A) investment to increase B) aggregate demand to shift to the left C) an increase in the money supply D) lower interest rates

D) discount rate

Morton Bank goes to the Fed to borrow funds. The interest rate charged by the Fed is known as the: A) prime rate B) Federal funds rate C) bond rate D) discount rate

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

In order to decrease the money supply, the Fed can: A. Raise the reserve requirement, increase the discount rate, or sell bonds. B. Raise the reserve requirement, increase the discount rate, or buy bonds. C. Lower the reserve requirement, increase the discount rate, or buy bonds. D. Lower the reserve requirement, decrease the discount rate, or buy bonds.

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

In order to increase the money supply, the Fed can: A. Raise the reserve requirement, increase the discount rate, or sell bonds. B. Raise the reserve requirement, increase the discount rate, or buy bonds. C. Lower the reserve requirement, increase the discount rate, or buy bonds. D. Lower the reserve requirement, decrease the discount rate, or buy bonds.

B) sell government securities to raise interest rates

In pursuing a restrictive monetary policy, the Fed will: A) reduce bank excess reserves to lower interest rates B) sell government securities to raise interest rates C) buy government securities to raise interest rates D) increase bank excess reserves to lower interest rates

A) Federal Reserve notes outstanding and reserves of commercial banks

In the consolidated balance sheet of the Federal Reserve, the liabilities include: A) Federal Reserve notes outstanding and reserves of commercial banks B) government securities and Treasury deposits C) reserves of commercial banks and loans to commercial banks D) government securities and Federal Reserve notes outstanding

A. Shift the aggregate demand curve.

Monetary policy involves the use of money and credit controls to: A. Shift the aggregate demand curve. B. Shift the aggregate supply curve. C. Move the economy along the aggregate demand curve. D. Move the economy along the aggregate supply curve.

D. Board of Governors.

Monetary policy is set by the A. Federal Open Market Committee. B. Regional Federal Reserve banks. C. Federal Advisory Council. D. Board of Governors.

D. Cashing checks for large nonfinancial corporations.

Regional Fed banks are responsible for all of the following except: A. Holding bank reserves. B. Providing currency for private banks. C. Providing loans to private banks. D. Cashing checks for large nonfinancial corporations.

B. Clear checks between private banks.

Regional Fed banks: A. Hold deposits for individuals. B. Clear checks between private banks. C. Participate in open market operations. D. Insure the deposits in private banks.

B. Dallas regional Federal Reserve Bank.

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: A. FOMC. B. Dallas regional Federal Reserve Bank. C. Federal Reserve Bank in Washington, D.C. D. Board of Governors.

D) sell government securities

Suppose the demand for money falls. In order to maintain interest rates at their previous level, the Fed might: A) buy government securities B) lower the reserve requirement C) lower the discount rate D) sell government securities

A) expand the economy and reduce the trade deficit

Suppose the economy is in a recession and is running a trade deficit. Fed purchases of bonds from the public will likely: A) expand the economy and reduce the trade deficit B) expand the economy but worsen the trade deficit C) contract the economy further but reduce the trade deficit D) contract the economy and worsen the trade deficit

B) lower the discount rate

Suppose the interest rate is currently 6% and the Fed determines that investment of $40 is required to reach full employment GDP. To target this outcome, the Fed might: A) sell bonds to the public B) lower the discount rate C) raise the reserve requirement D) announce a restrictive monetary policy

D. 7 members, appointed for 14-year terms

The Board of Governors consists of: A. 14 members, appointed for 7-year terms B. 50 members, appointed for 7-year terms C. 26 members, appointed for 2-year terms D. 7 members, appointed for 14-year terms

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

The Fed can decrease the federal funds rate by: A. Selling government bonds. B. Buying government bonds, which causes market interest rates to fall. C. Simply announcing a lower rate because the Fed has direct control of this interest rate. D. Changing the money multiplier.

B. selling government bonds, which causes market interest rates to rise

The Fed can increase the federal funds rate by: A. Selling government bonds. B. Selling government bonds, which causes market interest rates to rise C. Simply announcing a lower rate because the Fed has direct control of this interest rate. D. Changing the money multiplier.

C. open market operations

The Fed can use all of the following except ____________ to change the lending capacity of the banking system. A. the reserve requirement B. the excess reserve requirement C. open market operations D. the discount rate

C) banks and thrifts hold only small amounts of excess reserves

The Fed does not pay interest on bank reserves. Consequently: A) the Fed rarely uses changes in open market operations to conduct monetary policy B) an expansionary monetary policy is more effective in achieving its goals than a restrictive monetary policy C) banks and thrifts hold only small amounts of excess reserves D) the Fed rarely uses changes in the discount rate to conduct monetary policy

A) The interest rate rises and investment falls

Which of the following chain of events would signal that the Fed is pursuing a restrictive monetary policy? A) The interest rate rises and investment falls B) The interest rate rises and aggregate demand increases C) Investment falls and net exports increase D) Investment and net exports increase

C. Pay-day loan company

Which of the following is not required to satisfy Fed minimum reserve requirements? A. Most credit unions B. Savings and loans C. Pay-day loan company D. Commercial banks

C. Federal funds market

Which of the following is the market where reserves can be borrowed by one bank from another bank for very short periods of time? A. Money market B. Commercial paper market C. Federal funds market D. Foreign exchange market

D) Fed sales of bonds to the public

Which of the following will cause the aggregate demand curve to shift to the left? A) a reduction in interest rates B) an expansionary monetary policy C) a reduction in the reserve requirement D) Fed sales of bonds to the public

The aggregate demand curve should shift leftward.

Which shift should occur if the Fed raises the discount rate?

C. The reserve requirement

_____________ can be altered to change the lending capacity of the banking system. A. Points charged on a typical first mortgage B. Gold reserves C. The reserve requirement D. The dollar exchange rate