Financial Institutions Exam 1

If the money supply increases too rapidly:

Inflationary expectations will rise

Generally, plant and equipment investment spending will decrease if:

Interest rates rise while inflation remains unchanged, inflation decreases while interest rates remain unchanged, or reserve requirements rise.

Consumption spending should increase if:

Reserve requirements decrease

The monetary base will decrease when:

The Fed sells securities on the open market.

The velocity of money measures:

The relationship between money supply and economic activity.

The "tools" of monetary policy, whether viable or not, include all of the following except:

changes in the Federal funds rate

Which of the following was not a responsibility of the early Federal Reserve system?

replace the national banking system

An increase in the assets of Federal Reserve banks:

Increases the monetary base

Monetary policy impacts the economy:

By affecting real spending directly, by affecting real spending through the financial sector, and by changing interest rates and the cost of housing

Monetarists believe that an increase in the money supply will, all other things equal, cause:

Consumption expenditures to rise

M3 includes:

Currency in circulation and demand deposits

A contraction in the US money supply should:

Increase domestic interest rates, cause the exchange value of the US dollar to rise, and cause US exports to decrease

Monetary policies directed toward increased economic growth may have what impact upon the value of the dollar in relation to other currencies?

Decrease

The Federal Reserve system established:

A source of liquidity for the banking system.

A decrease in the monetary base is related to:

Decrease in credit availability, increasing interest rates, or decreased investment.

An increase in excess reserves will cause:

Depository institutions to lend more freely.

A decrease in reserve requirements will definitely cause:

Excess reserves to increase.

Monetary policy probably affects all of the following except:

Federal government budget outlays

Ordinarily the money supply will decrease if:

The Fed makes fewer loans at its discount window, the Fed sells securities on the open market, or the Fed raises reserve requirements.

Unemployment should fall if:

Wages increase and people expect prices to be stable

Changes in spending caused by changing security values are called the:

Wealth effect

An expansion in the US money supply:

Will cause US exports to increase.

The intended longer run impact of monetary policy is:

to influence change consumption and and investment spending

Which of the following would most likely decrease the Federal Funds rate?

decrease in reserve requirements

Sustained open market buying by the Fed will cause:

depository institutions to lend more freely.

Restrictive monetary policy first impacts the ___ market, ___ security prices and interest rates.

money, decreasing, increasing

The money supply:

Is NOT exclusively controlled by the Fed, is NOT smaller than the monetary base, does NOT exclude interest-bearing deposits

What tool of the monetary policy has the greatest impact?

Open market operations

Which of the following is not a channel of transmission of monetary policy?

Reg Q interest rate ceilings

Deposits tend to expand whenever:

Reserve requirements decrease.