ECON TEST 3
The Federal Reserve system of the United States is the Countries
Central Bank
The 12 Federal Reserve Banks can be best Characterized as
Central Banks, Banker's Banks, and Quasi-public banks.
If P equals the price level expressed as an index number $V equals the value of the dollar, then
$V=1/P
The Members of the Federal reserve board are appointed for
14 Year terms
The federal reserve system was created in
1913
How many members can serve on the Board of governenrs of the Federal reserve system?
7
The board of Governers of the Federal Reserve has how many members
7
Which of the following is correct
A bank can grant loans to customers only if it has excess reserves
Which of the following transactions has the immediate effect of increasing the money supply M1?
A commercial bank buys government securities from the general public.
The paper money, or currency, in the United States essentially represents
A debt of the Federal Reserve system
What Function is money serving when you use it when you go shopping?
A medium of Exchange
What Function is money serving when you deposit money in a savings account?
A store of Value
The functions of Money are to serve as
A unit of account, store of value, and medium of exchange.
Which of the following is correct?
Actual reserves minus required reserves equals excess reserves
Holding the money deposots of Businesses and households and making loans to the public are basic functions of
Commercial Banks and Thrift Institutions.
Which of the following would reduce the money supply?
Commercial banks sell government bonds to the public.
To keep high inflation from eroding the value of money, monetary authorities in the United States
Control the supply of money in the economy.
Checkable Deposits are
Debts of commercial banks and savings institutions.
If the portion of the loans extended by commercial banks is taken cash rather than as checkable deposits, the maximum money creating potential of the commercial baking system will
Decrease
Other things equal, an excessive increase in the money supply will
Decrease the purchasing power of each dollar
Which of the following are liabilities of a bank?
Demand and time deposits
The reserves of a commercial bank consist of
Deposits at the Federal Reserve Bank and Vault Cash.
The market for immediately available reserve balance at the federal reserve is known as the
Federal Funds Market
Overnight loans from one bank to another for reserve purposes entail an interest rate called the
Federal Funds rate
The group that sets the Federal Reserve systems policy on Buying and selling securities is the
Federal Open Market Committee
Which Group aids the Board of Governors of the Federal reserve system in conducting Monetary policy?
Federal Open Market Committee
In the US economy, the money supply is controlled by the
Federal reserve System
In prosperous, commercial banks are likely to hold very small amounts of excess reserves because
Federal reserve banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.
Which of the following statements is true as a result of the Federal Reserve Efforts to rescue the financial industry from financial crisis from 2007 and 2008?
From February 2008 to March 2009, Fed assets doubled to nearly 2 trillion.
Sub-Prime Mortgage loans refer to
High interest rate loans to home buyers with above average credit risk
The purchasing power of money and the price level vary
Inversely
Which of the following does not explain what backs the money supply in the United States?
Its backed by gold
The claims of creditors of a bank against the banks assets are called
Liabilities
The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of
The reserve ratio
The Federal Open Market Committee is made up of
The seven members of the board of directors of the federal reserve system along with president of the new York federal reserve bank, and four other bank presidents on a rotating basis.
Other things equal, if the required reserve ratio was lowered,
The size of the monetary multiplier would increase
When banks borrow and lend reserves in the federal funds market
The total reserves of the banking system stay the same
Which of the following is true about the U.S Federal reserve system
There are 12 regional Federal reserve banks.
When a consumer wants to compare the price of one product with another, money is primarily functioning as a
Unit Of account
Which of the following are all assets to the commercial bank?
Vault cash, property, and reserves
The required reserve ration is equal to
a commericial banks required reserves divided by it's checkable deposit liabilities
An Asset's liquidity refers to its ability to be
a means of payment
Checkable deposits are money because they are
acceptable as payment.
The primary reason commericial banks must keep required reserves on deposit at the fed is to
allow the fed to control the amount of bank lending
When cash is deposited in a checkable-deposit account as a bank there is
an increase in the bank's liabilities
A bank is in the position to make loans when required reserves
are less than actual reserves
A checkable deposit at a commercial bank is an
asset to the depositor and a liability to the bank
A commercial banks reserves are
assets to the commercial bank and liabilities to the federal reserve bank holding them.
When a check is drawn and cleared, the
bank against which the check is cleared loses reserves and deposits equal the amount of the check.
During periods of rapid inflation, money may cease to work as a medium of exchange
because people and business will not want to accept it in transactions.
Banks create money when they
buy government bonds from households.
Money supply (M1) does not include the currency held by
commercial banks
The Federal Backing for money in the United States comes from
controlling the money supply in order to keep the value of money relatively stable.
Which of the following is the basic economic policy function of the Federal reserve
controlling the supply of money
Money functions as a store of value if it allows you to
delay purchases until you want the goods
A commercial Bank can expand its excess reserves by
demanding and receiving payment on an overdue loan.
Excess Reserves refer to the
difference between actual reserves and required reserves.
A commericial bank's checkable deposit liabilities can be estimated by
dividing its required reserves by the reserve ratio.
The amount that a commerical bank can lend is determined by it's
excess reserves.
The basic requirement for an item to function as one is that it be
generally accepted as a medium of exchange.
Which of the following is correct?
granting a bank loan creates money; repaying a bank loan destroys money.
When a bank accepts a checkable deposit from a customer, it's deposits will increase and it's excess reserves will
increase by less than the deposits
The value of money varies
inversely with the price level
The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves
is larger, the smaller the required reserve ratio
The purchasing power of the dollar
is the reciprocal of the price level
When paper money is degignated as legal tender, it means that
it is a means of payment by law.
United states Currency has value primarily because it
it's relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services.
The amount of reserves that a commerical bank is required to hold is equal to
its checkable deposits multiplied by the reserve requirement.
A bank has 2 million in checkable deposits. In the balance sheet, this would be part of
liabilities
One major component of money supply M1 is part of a banks
liabilities
The two major income earning assets of commerical banks are
loans and securities
If M equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system
m=1/R
Commerical Banks monetize claims when they
make loans to the public.
A banks required reserves can be calculated by
multiplying its checkable deposit liabilities by the reserve ratio
When there is inflation in the Economy, it implies that the
price index is rising and the purchasing power of money is falling.
The reserve ratio refers to the ratio of a banks
required reserves to its checkable deposit liabilities.
Cash held by a bank in its vault is part of the banks
reserves
The Federal Open Market Committee
sets policy on the sale and purchase of government bonds by the Fed.
The Federal Open Market Committee of the Federal reserve system is primarly for
setting the Fed's monetary policy and directing the purchase and sale of government securities.
When a bank sells capital stock in return for cash
the capital stock increases the net worth and the cash increases the assets side
When cash is withdrawn from a checkable-deposit account at a bank
the money supply M1 does not change, but it's composition changes.
If purchasing power of the dollar is falling, then it follows that
the price index is rising.
To say that the Federal Reserve Banks are quasi-public banks means that
they are privately owned but managed in the public interest.
If the price index rises from 200 to 250, the purchasing power value of the dollar
will fall by 20 percent
If the price index rises from 100 to 120, the purchasing power value of the dollar
will fall by one sixth
Stabilizing a nations price level and the purchasing power can be achieved
with both fiscal and monetary policy.
Which of the following items are included in Money supply M2 but not M1?
Savings deposits
What "Backs" the money supply of the United States?
The U.S Government's ability to keep the value of money relatively stable.
Money in the U.S is essentially debt of
The federal reserve system and the banks.
The Central Authority of the U.S banking system is the
Board of Governors of the Federal Reserve
A bank temporarily short of required reserves may be able to remedy this situation by
Borrowing funds in the federal funds market
Checkable deposits are included in
Both M1 and M2
A bank can get additional excess reserves by doing any of the following except
Buying treasury securities from the fed
The federal Funds market is the market in which
Banks borrow reserves from one another on an overnight basis
The Federal Reserve system consists of which of the following
Board of Governers and the 12 Federal reserve banks.
The Federal Reserve banks are owned by the
Member banks
The claim of Owners of A firm against the firms assets are called
Net Worth
When commerical banks use excess reserves to buy goverment securities from the public
New Money is created
An important routine function of the Federal Reserve bank is to
Provide Facilities by which commercial banks and thrift institutions may collect checks.
The primary purpose of the legal reserve requirement is to
Provide a means by which the monetary authorities can influence the lending ability of commercial banks.
