ECON TEST 3 PT 2

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The sum of all currency in the hands of the public, checkable deposits and traveler's checks is the official definition of------.

M1

the two main official measures of money in the United States today are

M1 and M2

In the long run, an increase in the quantity of money ---- the interest rate

does not change

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

each additional dollar of reserves creates $5 of deposits

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

lends to banks that are short of reserves and cannot find any other source of funds

The quantity theory of money is that in the ----, an increase in the quantity o f money brings an equal percentage increases in the -----

long run; increases in the price level

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is-----, so the quantity of money demanded will be------.

low, high

The functions of depository institutions include

lowering the cost of monitoring browsers

The actions the deferral reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called

monetary policy

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

required reserves

the price of a bond ---- and the interest rate in the short run

rises, falls

The long-run historical evidence and international evidence show ys that the relationship between money growth and inflation rate-----

supports the quantity theory, but the correlation is not perfect

The Federal reserve system is

the central bank of the United States

The quantity of money that the banking system can create is limited by ------.

the monetary base, desired reserves, and desired currency holdings

IF real GDP increases:

the money demand curve shifts to the right

How many Federal Reserves districts are there?

12

If monetary base increases by 1 million and the quantity of money increases by 2.5 million, then the money multiplier is

2.5

Which of these will shift the money demand curve to the right?

An increase in real GDP

Choose the correct statement A. A benefit of a money market mutual fund is that shareholders can write checks on their accounts with no restrictions. B. A bank's reserves are notes and coins in the bank's vault or in a deposit account at the Federal Reserve. Your answer is correct. C. Money market mutual funds represent 13 percent of M1. D. In 2017 about 700 commercial banks operated in the United States

B

Choose the correct statement: A. A check is money because while it is in circulation the quantity of money increases by the amount of the check. B. Deposits are​ money, checks are not​ money, and credit cards are not money. Your answer is correct. C. Currency is money and credit cards are money because they are means of​ payment, but deposits are not money. D. A credit card is money because it allows you to take a loan at the instant you buy something.

B

Which body of the Federal Reserve System sets the majority of US monetary policy?

The Federal Open Market Committee

When is the opportunity cost of holding money higher?

When interest rates are high

The Fed is the lender of last resort, which means that if ----- is short of reserves, it can borrow from the -----.

a bank; Fed

The two main official measures of money in the United States ------ really money

are

Credit cards

are not part of the money supply

To increase the money supply, the Fed------.

buys securities from the public

Depository institutions provide four benefits, which are

creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk

We call the leakage of bank reserves into currency the currency drain, and we call the ratio of----- to ----- the currency drain ratio

currency; deposits

A depository institution is a ----

financial firm that takes deposits from households and firms

An open market purchase ---- the monetary base. An open market sale ---- the monetary base

increases; decreases

A central bank----. A commercial bank-----

is a banks bank; is a firm that takes deposits from households and firms

The Fed conducts monetary policy primarily through

open market operations

Starting from a short-run equilibrium, when the Fed increases the quantity of money,

people enter the loanable funds market and buy bonds

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

prices are quoted in terms of money


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