Macro Chapters 14, 15 *CONNOR*

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Refer to the table. Money supply M1 for this economy is

$140

The members of the Federal Reserve Board:

are appointed for 14-year terms.

The federal funds rate is the interest rate that __________ charge ________.

banks; other banks

The extremely large increase in the inflation rate in 2021 was in large part due to

both A and B

The money supply is backed

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

One of the strengths of monetary policy relative to fiscal policy is that monetary policy

can be implemented more quickly

In the US the money supply M1 includes

coins, paper currency, and checkable deposits and savings deposits

The Federal Deposit Insurance Corporation (FDIC) insures deposits in

commercial banks and thrifts

Which of the following is correct? When the Federal Reserve transacts a reverse repo agreement with a nonbank firm, the money supply

contracts because that money will sit in the Fed's vaults

Which of the following is the basic economic policy function of the Federal Reserve Banks?

controlling the supply of money

Other things equal, an excessive increase in the money supply will

decrease the purchasing power of each dollar

The interest rate at which the Federal Reserve Banks lend to banks is called the

discount rate

All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually

fall

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, interest rates

fall

Other things equal, a reduction in income taxes will

increase consumption and increase aggregate demand

An expansionary monetary policy may be less effective than a restrictive monetary policy because

households and businesses may not wish to borrow even at very low interest rates

The purpose of a restrictive monetary policy is to

increase interest rates to rein in spending

Other things equal, a restrictive monetary policy during a period of inflation will

increase the interest rate, reduce investment, and reduce aggregate demand

In 2020, the Fed began to

let banks decide for themselves how big their reserves against withdrawals should be

The largest component of the money supply (M1) is

liquid deposits other than checkable deposits at commercial banks

An increase in the money supply will

lower interest rates and increase the equilibrium GDP.

Currency held in the vault of First National Bank is:

not counted as part of the money supply

Which of the following actions by the Fed would cause the money supply to increase?

optimistic forward guidance

Which of the following Fed actions will decrease the money supply?

raising the overnight reverse repo rate

Answer the question based on the info in the table. The equilibrium interest rate in this economy is

4 percent

The banks increase their lending when the

Fed buys bonds in the open market

The paper money used in the United States is:

Federal Reserve Notes

In the U.S. economy, the money supply is controlled by the:

Federal Reserve system

Assuming no other changes, if checkable deposits decrease by $40 billion and currency in circulation decreases by $40 billion, the

M1 money supply will not change

Money market deposit accounts are included in

M2 only

Upon which of the following industries is a restrictive monetary policy likely to be most effective?

residential construction

If you place a part of your summer earnings in a savings account, you are using money primarily as a:

store of value

Money functions as

store of value, unit of account, medium of exchange

The liquidity trap refers to the situation where

the Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand.

The difference between M1 and M2 is that

the latter includes small-denominated time deposits and money market mutual fund balances.

Answer the question based on the info in the table. The amount of investment that will be forthcoming in this economy at equilibrium is

$500

Refer to the table. Money supply M2 for this economy is

$530

The federal reserve system was created in

1913

Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances?

Banks will choose to lend into the money market instead of lending to the Fed

The central authority of the US banking system is the

Board of Governors of the Federal Reserve

Big Bucks Bank currently holds $20 million in reserve balances. If the Fed increases the rate of interest on reserve balances held at the Fed, we would expect Big Bucks Bank to

hold even more reserves in its reserve account at the Fed, thereby reducing the amount it is willing to lend

Which one of the following is true about the US Federal Reserve System?

There are 12 Federal Reserve districts each with one central bank

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

a decrease in the money supply will raise the interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation

When economists say that money serves as a medium of exchange, they mean that it is

a means of payment

A restrictive monetary policy is designed to shift the

aggregate demand curve leftward

Open-market operations refer to

the purchase or sale of government securities by the Fed

The Federal Open Marker Committee (FOMC) is made up of

the seven members of the Board of Governors of the federal reserve system along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis

To say that coins are "token money" means that:

their face value is greater than their intrinsic value

In defining money as M1, economists exclude time deposits because

they are not directly or immediately a medium of exchange


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