Macro Econ Exam 4
If the monetary multiplier is 6, then the reserve ratio must be
0.167
A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent. It makes a loan of $6,000 to a borrower. The borrower writes a check for $6,000 that is deposited in another commercial bank. After the check clears, the first bank will be short of reserves in the amount of
1000
Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal
2 million
If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?
9,000
Money is "created" when
A bank grants a loan to a customer
A checkable deposit at a commercial bank is a(n)
Asset to the depositor and a liability to the bank
A bank's net worth is equal to its
Assets minus its liabilities
A decrease in the interest rate will cause a(n)
Increase in the amount of money held as an asset
An increase in nominal GDP will
Increase the transactions demand and the total demand for money
A bank's required reserves can be calculated by
Multiplying its checkable-deposit liabilities by the reserve ratio
When the interest rate falls, the
Total amount of money demanded increases
The purpose of an expansionary monetary policy is to shift the
aggregate demand curve rightward
A decrease in the reserve ratio increases the
amount of excess reserves in the banking system.
What is one significant consequence of fractional reserve banking?
banks are vulnerable to panics or bank runs
If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?
buy bonds in the open market
One of the strengths of monetary policy relative to fiscal policy is that monetary policy
can be implemented more quickly
If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would
decrease by 5 million
A federal funds rate reduction that is caused by monetary policy will
decrease the prime interest rate
Maximum checkable-deposit expansion in the banking system is equal to
excess reserves times the monetary multiplier
When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will
increase
When the Fed lends money to a commercial bank, the bank
increase its reserves and enhances its ability to entend credit to bank customers
If the Fed wants to discourage commercial bank lending, it will
increase the inerest paid on excess resvers held at the fed
A contraction of the money supply
increases the interest rate and decreases aggregate demand.
Which of the following monetary policy tools was introduced in 2008?
interest on reserves held at the fed
An increase in the money supply is likely to reduce
interest rates
The fractional reserve system of banking started when goldsmiths began
issing paper money in ecess of the amount of gold stored with them
According to the Taylor rule, when real GDP is at its potential and inflation is at its target rate of 2 percent, the Fed should
keep the federal funds rate at 4%
The transactions demand for money will shift to the
left when nominal gdp decreases
When loans are repaid at commercial banks,
money is destroyed
Why wouldn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?
negative nominal inetrest rates would cause people to withdrawn thier money from banks, reducing what banks could lend out to the cosumers and business
Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?
open-market operations
In the federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for
overnight
The discount rate is the interest
rate at which the Federal Reserve Banks lend to commercial banks
When required reserves exceed actual reserves, commercial banks will be forced to have borrowers
repay loans
Cash held by a bank in its vault is a part of the bank's
reserves
There is an asset demand for money primarily because of which function of money?
store of value
If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government
surplus and the sale of securities in the open c
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 prime interest rate
the benchmark interest rate that banks use as a reference point for a wide range of loans to businesses and individuals
When the reserve requirement is increased,
the excess reserves of member banks are reduced
Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?
the reserve ratio
Which of the following tools of monetary policy has not been used since 1992?
the resver ratio
When the Fed sells bonds to the bank and the public, the expected result is that
the supply of federal funds will fall. federal funds rate will rise, and a contraction of the money supply will occur
A consumer holds money to meet spending needs. This would be an example of the
transactions demand for money
One major component of money supply M1 is part of a bank's
liabilities
The federal funds rate is the rate that banks pay for loans from
other banks
A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves?
10,000
An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by
10,800
A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are
100,000
Which of the following are liabilities to a bank?
Demand and time deposits
If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be
a multiple of 1 million
The problem of cyclical asymmetry refers to the idea that
a tight money policy can force a contration of the money supply, but an easy money policy may not
An increase in the money supply will
all of the above
A bank can get additional excess reserves by doing any of the following except
buying treasure securities from the fed
According to the Taylor rule, if inflation has risen by 6 percentage points above its target of 2 percent, the Fed should
raise the real federal funds rate by 3% points
The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2016) is
securities
The Fed's inability to stimulate the economy by reducing interest rates is known as the
zero lower bound problem
