Exercise 7 - The Federal Reserve, Money Supply, and Fiscal Policy

If a bank that is subject to a 20 percent required reserve ratio has $10,000 in excess reserves it can extend new loans up to a maximum of:

$10,000.

The Federal Reserve System was founded in:

1913.

Which of the following policy actions by the FED would cause the money supply in the economy to increase?

All of the above actions would cause an increase in the money supply in the economy.

Which of the following IS counted as part of the M2 money supply measure?

All of the above are part of the M2 money supply measure.

An example of a regressive tax is:

Answers A and C above are both examples of a regressive tax. (A state sales tax on goods and the social security payroll tax on your income)

Which of the following assets is the most liquid?

Currency or "paper money"

Fiscal policy refers to ___________, while the monetary policy addresses __________________.

Government taxing ans spending policy; the supply of money in the economy and its effects on economic activity.

The correct formula for the deposit expansion or money multiplier is:

MM = 1 / required reserve ratio.

Which of the following is NOT counted as part of the M1 money supply?

Passbook savings deposits.

Which of the following is NOT an interest bearing asset of commercial banks?

Vault cash for day-to-day transactions with customers.

If you were to bury $10,000 that you have in your backyard rather than deposit it in a bank or financial institution, it would have the effect of:

decreasing the potential growth in the money supply in the economy.

The use of a dollar bill to buy a ticket to a concert represents the use of money as a:

means of payment.

A progressive tax is where:

that increases as a percent of your income as your income increases.

Decisions regarding the purchase and sale of U.S. government securities by the FED are made by:

the Federal Reserve Open Market Committee.

An example of a progressive tax is:

the federal income tax.