Graded quiz 11, 12, 13

The money multiplier is:

1 divided by reserve requirement

Assume that the Empathy State Bank begins with the balance sheet below and is fully loaned up. What it is the amount of this banks reserve?

10,000

If the reserve requirement is 1%, what is the money multiplier?

100

The Chairman of the Board of Governors is appointed for a _____ renewable term

4-year

The supply of loanable funds includes

All of the answers are correct.

Which agency does NOT regulate financial markets?

Council of Economic Advisers

The main policymaking arm of the Fed is the

Federal Open Market Committee.

The _____ is the central bank of the United States.

Federal Reserve System

_____ are a higher-risk investment than _____. Question

Growth stocks; blue-chip stocks

the quantity theory equation of exchange states:

M*V=P*Q

In the classiscal monetary transmission mechanism any change in ___ will bring about ___

M, a direct proportionate change in P.

Which of the following is a provision of the Federal Reserve Act or subsequent legislation that weakens the independence of the Fed?

The Federal Reserve System is subject to Congressional oversight

Which of the following statements is CORRECT?

The Federal Reserve is considered to be an independent central bank

The 12 Federal Reserve banks and their branches do all of the following except:

accept deposits from U.S. citizens.

Which of the following is a teaser rate?

an interest rate for a credit card that is temporarily low

The demand for loanable funds is downward-sloping because:

as interest rates fall, business find more projects to be profitable and thus want to borrow more.

the fed uses its tools to counteract:

booms and recessions

Quantitative easing refers to the process whereby the Fed:

buys securities to stimulate the economy.

M1 includes:

cash, demand deposits, and other checkable deposits

which economist believes that change in the money supply lead only to price change?

classical economists

Which is NOT a primary role of financial intermediaries in the market for funds?

collecting taxes on financial transactions

Banks

create money by making loans using the deposits of their customers

a higher interest rate ____ consumption, investment, and _____ , which ___ aggregate demand.

decrease, exports, decreases

Tighter lending standards tend to ____ the money multiplier, making it ____ for the Fed to use its tools effectively.

decrease; harder

Fiat money:

does not necessarily have any intrinsic value but has been declared by a government to be money.

Thelma grew some carrots in her garden. She needs a winter coat. John has an extra coat he doesn't need but would like to bake some carrot cake. The two find each other and make an exchange. This situation is called the:

double coincidence of wants.

the twin goals of monetary policy are:

economic growth with low unemployment and stable prices with moderate long term interest rates.

loosening monetary policy causes interest rates to __ and consumption and investment to ___

fall, increase

Institutions that serve as the bridge between savers and borrowers are known as:

financial intermediaries.

Which of the following is a basic goal of the Federal Reserve System?

full employment

The fractional reserve banking system refers to a system in which banks:

hold reserves equal to a fraction of their deposit liabilities

Liquidity refers to:

how quickly, easily, and reliably an asset can be converted into a medium of exchange.

when current real output exceeds potential real output, the feds will __ interest rates in an effort to fight ___.

increase, inflation.

A lower reserve requirement

increases the ability of banks to make loans

Which of the following is NOT a lag inherent in monetary policy?

interest rate lag

Money Illusion:

is the misperception that one is wealthier, it occurs when the money supply grows.

M2 is ____ in dollar value than M1; it also contains ____ assets.

larger; less liquid

generally, economists believe that monetary policy should focus on price stability in the ___ run and output or income in the ___ run.

long, short.

some analysts blame the last economic crisis of the fed policy. They argue that:

low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.

in a liquid trap:

monetary policy is ineffective in changing income and output

Which of the following assets is MOST liquid?

money

Traditional Individual Retirement Accounts (IRAs) are taxed:

only when you make withdrawals

The main tool of monetary policy is

open market operations

monetarists believe that in the short run a change in the money supply can affect ___, while in the long run, a change in the money supply will affect ___

output and price level, the price level only

The supply curve for loanable funds is:

positively sloped.

If the economy is facing inflationary pressures, the Feds will:

raise interest rates

negative demand shocks to the economy can come from:

reductions in the consumer demand.

If the Fed wants to raise the federal funds rate, it will ______ bonds, which ________ bond prices.

sell; lowers

Near money includes:

some of M2 but none of M1.

When a financial institution accepts funds from savers and pools this money into a portfolio of diversified financial instruments, it is:

spreading risk.

if the fed sets the federal funds rate equal to 2 plus the inflation rate plus one half of the inflation gap plus one half of the output gap, it is following:

the Taylor rule

fed chairman ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. why did the fed do it ?

the fed feared that failures of very large institutions threatened the stability of the entire financial system.

As the real interest rate falls:

the quantity demanded of loanable funds rises.

The discount rate is:

the rate regional Federal Reserve banks charge depository institutions to borrow reserves.

when the feds sell bonds, it is

tight money policy

What are the primary functions of money?

unit of account, medium of exchange, store of value

The supply of loanable funds slopes ______ because an increase in the interest rate induces __________.

upward; more saving

one of the key factors leading to the last economic crisis was:

world wide savings glut.

If the reserve requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of:

$4,000.

Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How many dollars' worth of loans can the banking system create?

$4,500