macro ch 16
A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to
$50
If the reserve ratio is 5 percent, then the money multiplier is
20
At any meeting of the Federal Open Market Committee, that committee's voting members consist of
5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors.
To decrease the money supply, the Fed could
All of the above are correct
A double coincidence of wants
All of the above are correct.
During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.
Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 20 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?
It falls by $45 billion.
Most financial assets other than money function as
a store of value, but not a unit of account nor a medium of exchange
money
all of the above
During the Great Depression in the early 1930s
bank runs closed many banks
During the Great Depression in the early 1930s,
bank runs closed many banks
When the Federal Reserve conducts open-market operations to increase the money supply, it
buys government bonds from the public.
Which of the following is a store of value?
cash and stocks
Demand deposits are a type of
checking account
When prisoners use cigarettes or some other good as money, cigarettes become
commodity money and function as a store of value.
If an economy used gold as money, its money would be
commodity money, but not fiat money.
The ease with which an asset can be
converted into the economy's medium of exchange determines the liquidity of that asset.
If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve
creates dollars and uses them to purchase government bonds from the public.
To increase the money supply, the Fed could
decrease the discount rate
As the reserve ratio increases, the money multiplier
decreases
credit cards
defer payments
Which of the following is included in both M1 and M2?
demand deposits
The existence of money leads to
greater specialization and to a higher standard of living
Fiat money
has no intrinsic value
You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency
has no intrinsic value. The exchange is not an example of barter.
If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves
increase by $20 million and the money supply eventually increases by $250 million.
In 1991, the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have
increased both the money multiplier and the money supply.
At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply
increased. The central bank could have reduced the size of this increase by selling bonds
If an economy uses silver as money, then that economy's money
is commodity money.
The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?
it decreases by $250,000
The Fed can directly protect a bank during a bank run by
lending reserves to the bank.
The money supply increases when the Fed
lowers the discount rate. The increase will be larger the smaller the reserve ratio is.
Which of the following items is included in M2?
money market mutual funds
Which tool of monetary policy does the Federal Reserve use most often?
open-market operations
In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds,
reserves increase by $100 million and the money supply increases by more than $100 million.
The money supply decreases if the Fed
sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.
A decrease in the money supply might indicate that the Fed had
sold bonds in an attempt to increase the federal funds rate.
Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
store of value
Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?
the FOMC
A problem that the Fed faces when it attempts to control the money supply is that
the Fed does not control the amount of money that households choose to hold as deposits in banks.
If the money multiplier decreased from 20 to 12.5, then
the Fed increased the reserve ratio from 5 percent to 8 percent.
In recent years the Federal Open Market Committee has focused on a target for
the federal funds rate.
Today, bank runs are not a major problem for the U.S. banking system because
the federal government now guarantees the safety of deposits at most banks.
The agency responsible for regulating the money supply in the United States is
the federal reserve
The discount rate is
the interest rate the Fed charges banks.
One surprising thing about the U.S. money stock is that
there is so much currency per person.
When we measure and record economic value, we use money as the
unit of account.
The measure of the money stock called M1 includes
wealth held by people in their checking accounts.
The New York Federal Reserve Bank
- President always gets to vote at the FOMC meetings - Conducts open market transactions - Is one of 12 regional Federal Reserve Banks
If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as
12500
The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $355 million dollars in loans. Given this information you find that the reserve requirement must be
35/400.
If the reserve ratio is 2.5 percent, then the money multiplier is
40
bank runs
are a problem because banks only hold a fraction of deposits as reserves.
The members of the Federal Reserve's Board of Governors
are appointed by the president of the U.S. and confirmed by the U.S. Senate.
The federal funds rate is the interest rate
banks charge each other for short-term loans of reserves.
Treasury Bonds are
both liquid and a store of value
The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do?
buy bonds to increase reserves
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase reserves.
If the reserve ratio is 10 percent, banks do not hold excess reserves, people hold only deposits and no currency, then when the Fed sells $10 million worth of bonds to the public, bank reserves
decrease by $10 million and the money supply eventually decreases by $100 million.
If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million worth of bonds to the public, bank reserves
decrease by $65 million and the money supply eventually decreases by $433.33 million.
At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply
increased. The central bank could have reduced the size of this increase by selling bonds.
An open-market purchase
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public
the federal reserve
is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks.
You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?
medium of exchange
Which of the following does the U.S. president appoint and the U.S. Senate confirm?
members of the Board of Governors but not the regional Federal Reserve Bank Presidents.
The president of each regional Federal Reserve Bank is appointed by
the board of directors of that regional Federal Reserve Bank.
In an economy that relies upon barter,
there is no item in the economy that is widely accepted in exchange for goods and services.
Economists use the term "money" to refer to
those types of wealth that are regularly accepted by sellers in exchange for goods and services.