Macro ch 14 part 2
________ sell shares to investors and use the money to buy shortminus−term securities....
Money market mutual funds
Which of the following is an appropriate policy for the Fed to pursue if it wants to increase the money supply?
buy U.S. Treasury bills
To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could...
buy treasury securities
The primary tool the Federal Reserve uses to increase the money supply is ...
buying Treasury securities
For the purchasing power of money to increase, the price level has to fall....
true
Which of the following is not a consequence of the Fed changing the reserve requirement?
changes in the ratio are easily incorporated into banks' routine management
To increase the money supply, the Federal Reserve could...
conduct an open market purchase of Treasury securities
The purchase of Treasury securities by the Federal Reserve will, in general,...
increase the quantity of reserves held by banks
The quantity equation states that the...
money supply times the velocity of money equals the price level times real output
Which of the following is not a consequence of hyperinflation?...
money's function as a medium of exchange is enhanced
Argentine banks were hampered by the government's decision to tie the peso to the U.S. dollar at a rate of one to one. This policy of fixing the peso to the dollar...
prevented the central bank from acting as the lender of last resort during a banking panic
The quantity theory of money assumes that...
the velocity of money is constant
Open market operations refer to the purchase or sale of ________ to control the money supply...
U.S. treasury securities by the Federal Reserve
To decrease the money supply, the Federal Reserve could...
conduct an open market sale of Treasury securities
A fractional reserve banking system is one in which banks hold less than 100 percent of ________ as reserves...
deposits
One way investment banks differ from commercial banks is that investment banks...
do not take in deposits
A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate....
increases; increases
Which of the following is not a function of the Federal Reserve System or the "Fed"?
insuring deposits in the banking system
Prior to the initiation of the BRRD, the European Union had essentially been bailing out troubled banks. In doing this, the EU was, in effect, acting as a...
lenders of last resort
Banks keep _________ of checking deposits as reserves because on a typical day withdrawals _________ deposits.
less than 100%; are about the same as
The three main monetary policy tools used by the Federal Reserve to manage the money supply are...
open market operations, discount policy, and reserve requirements.
The quantity theory of money seeks to explain the connection between money and...
prices
When a financial asset is first sold, the sale takes place in the ________ market, and subsequent sales take place in the ________ market....
primary; secondary
In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by ...
providing funds to banks in exchange for stocks
Which of the following is not one of the ways that the German government ended the hyperinflation of the 1920s?...
raising the required reserve ratio to the reduce bank loans
Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?
required reserves would increase
If the central bank can act as a lender of last resort during a banking panic, banks can...
satisfy customer withdrawal needs and eventually restore the public's faith in the banking system
The process of bundling loans together and buying and selling these bundles in a secondary financial market is called...
securitization
If the Federal Open Market Committee wants to decrease the money supply through open market operations it will...
sell U.S. Treasury Securities
To offset the effect of households and firms deciding to hold more of their money in checking account deposits and less in currency, the Federal Reserve could...
sell treasury securities
During the German hyperinflation of the 1920s, the large increases in the money supply were generated by the German government...
selling large quantities of government bonds to the central bank, the Reichsbank
Which of the following is not a major function of the Federal Reserve System?
setting income tax rates
Which of the following tools of monetary policy is used least often?
setting the required reserve ratio
In 2008, Timothy Geithner referred to investment banks, money market mutual funds, hedge funds, and other financial firms engaged in similar activities as the...
shadow banking system
The Federal Open Market Committee consists of...
the Board of Governors plus five of the federal reserve bank presidents
Which of the following is (are) responsible for managing the money supply in the United States?
the Federal Open Market Committee
The German Hyperinflation of the early 1920s was caused by...
the German government raising funds for expenditures by selling bonds to the central banks
The velocity of money is defined as ...
the avg number of times each dollar is used to purchase goods and services
Which of the following describes the degree of control that the Fed has over the money supply?
the fed has substantial control over the money supply
Hyperinflation can be caused by...
the government selling bonds to the central banks
According to the quantity theory of money the inflation rate equals...
the growth rate of the money supply minus the growth rate of real output
The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals...
the growth rate of the price level
The discount rate is...
the interest rate the fed charges to banks for loans from the feds
According to the quantity theory of money, inflation is caused by...
the money supply growing faster than real GDP
The seven members of the Board of Governors of the Federal Reserve are appointed by...
the president
The quantity theory of money was derived from the quantity equation by asserting that...
the velocity of money was fixed
An increase in the purchasing power of money need not lead to an increase in the purchasing power of income because the falling price level would likely mean falling wages and salaries....
true
Hyperinflations occur because governments want to deficit spend and they pay for the extra purchases by printing money....
true
If the rate of growth in real GDP exceeds the rate of growth in the money supply, the quantity theory of money predicts a price deflation....
true
The Fed can change the money supply more quickly by using open market operations as compared to discount policy...
true
The quantity equation becomes the basis for a theory when we assume that velocity of money is constant....
true
f the Fed wishes to decrease the supply of money and credit, it may sell government securities, raise the discount rate, or lower required reserve ratios....
true
As was demonstrated in 2007, firms in the shadow banking system ...
were very vulnerable to banks runs
Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 5 percent. If the Federal Reserve lowers the required reserve ratio to 3 percent, then the bank will now have excess reserves of...
$2,000
Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be...
11%
According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be...
15%
According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be...
4%
The real power within the Federal Reserve lies with the...
Board of Governors
The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.
Federal Reserve's Board of Governors; four presidents from the other 11 federal reserve banks
The quantity equation states that ...
M x V=P x Y
Open market operations refer to the buying and selling of ________ by the ________ to control the money supply...
Treasury securities; Federal Reserve
An open market purchase of Treasury securities by the Federal Reserve causes the reserves of banks to rise....
True
A central bank can help stop a bank panic by...
acting as a lender of last resort
The sale of Treasury securities by the Federal Reserve will, in general,...
decrease the quantity of reserves held by banks
An increase in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate...
decrease; decreases
A decrease in the reserve requirement ________ bank reserves and ________ the money supply....
increases; increases
Money market mutual funds sell shares to investors and use the money to buy...
short-term securities
In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by...
the establishment of the Federal Deposit Insurance Corporation
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 8 percent, then the bank can make a maximum loan of...
$2mil
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of...
$5 mil
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 4 percent, then the bank can make a maximum loan of...
$6 mil
Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve raises the required reserve ratio to 12 percent, then the bank will now have excess reserves of...
-$2,000
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve raises the required reserve ratio to 15 percent, then the bank will now have excess reserves of...
-$5 mil
Hyperinflation is caused by...
a hight rate of growth in the money supply
In the United States, each bank panic in the late nineteenth and early twentieth centuries was accompanied by...
a recession
A financial asset is considered ________ if it can be bought or sold in a financial market....
a security
A central bank like the Federal Reserve in the United States can help banks survive a bank run by...
acting as a lender of last resort
If people speculate that a run on one bank will cause a run on all banks in the financial system, and this speculation proves accurate, then the financial system would experience what is known as a ...
bank panic
In 1913, Congress established the Federal Reserve system with the intention of putting an end to...
bank panics
Which of the following is not a tool the Fed uses to manage the money supply?
expending and contracting deposits insurance
An increase in the purchasing power of money would not, on average, result in an increase in the purchasing power of people's income because a ________ price level would likely mean ________ wages and salaries....
falling; falling
A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency....
false
Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur...
false
If the Fed wishes to decrease the supply of money and credit, it may sell government securities, raise the discount rate, or lower required reserve ratios....
false
The Fed has complete control over the money supply....
false
In 1980, one Zimbabwean dollar was worth 1.47 U.S. dollars. By the end of 2008, the exchange rate was one U.S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience ...
hyperinflation
In 2008, Zimbabwe ran out of locally produced Coca Cola and local Coke bottlers were not able to import the concentrated syrup needed to make Coke from the United States because they could not obtain U.S. dollars. A small amount of Coke was imported from South Africa, but a single bottle sold for around 15 billion Zimbabwean dollars. Zimbabwe was experiencing rapid increases in the price level, which is known as...
hyperinflation
There is a strong link between changes in the money supply and inflation...
in the long run, but not in the short run
If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will...
increase by $1 mil
The purchase of $1 million of Treasury securities by the Federal Reserve, if there is no change in the quantity of currency, will cause reserves at banks to...
increase by $1 mil
If a bank receives a $20 million discount loan from the Federal Reserve, then the bank's reserves will...
increase by $20 mil
If the Fed lowers the reserve requirement, then this ...
increase excess reserves, encourage banks to make more loans, and increase the money supply
If the Fed buys U.S. Treasury securities, then this...
increase reserves, encourage banks to make more loans, and increase the money supply
Lowering the discount rate will...
increase reserves, encourage banks to make more loans, and increase the money supply
In 2015, the European Union initiated the BRRD program, where the burden of bailing out troubled banks is being placed on bank creditors, shareholders, and possibly depositors. If this program were to confiscate funds from bank deposits to assist troubled banks, the possibility of a bank run, a situation in which ________, would likely increase....
many depositors simultaneously decide to withdraw money from a bank
The quantity theory of money predicts that, in the long run, inflation results from the...
money supply growing at a faster rate than real GDP
According to the quantity theory of money, deflation will occur if the...
money supply grows at a slower rate than real GDP
Bank panics have largely disappeared in the United States because...
of deposits insurance
The main tool the Federal Reserve uses to conduct monetary policy is ...
open market operations
Which policy tool allows the Federal Reserve the greatest control over monetary policy?
open market operations