Macroeconomics C16

What is the role of the Federal Reserve in holding government securities?

The Fed is the largest single holder of U.S. government securities.

Which of the following transactions occur when the Fed buys government bonds from commercial banks?

The commercial bank gives up their security. The Fed increases the reserves of the commercial bank.

Which of the following determine the price of bonds?

The demand for bonds The supply of bonds

What entries are found on the "liabilities and net worth" side of the Fed's consolidated balance sheet?

Treasury deposits Reserves of commercial banks Federal reserve notes outstanding

Which of the following are tools of monetary control that the Fed can use to alter the reserves of commercial banks?

Reserve ratio Discount rate Open-market operations Interest on reserves

What are the main assets of the Federal Reserve Banks?

Securities and loans

The purchase of securities from the public increases the ______ ability of the commercial banking system.

lending

Securities are mainly bought and sold to influence the ability of commercial banks to create money through ________.

loans

Bond markets are open to all buyers and sellers of corporate and government .

Blank 1: bonds or securities

When the price of a bond falls, the bondholder who sells the bond prior to the payback date of the full principal will suffer a loss.

Blank 1: capital

The transactions demand for money varies with nominal GDP.

Blank 1: directly or positively

The intersection of demand and supply determines the (one word) price for money.

Blank 1: equilibrium or clearing

Combining the demand for money and the supply of money determines the (one word) rate of interest.

Blank 1: equilibrium or nominal

The public determines how much of its financial assets to hold as money based mainly on the rate of .

Blank 1: interest

A disadvantage of holding money as an asset is that it earns no (one word).

Blank 1: interest or income

There is a(n) relationship between the amount of money demanded as an asset and the rate of interest.

Blank 1: inverse, indirect, or negative

The amount of money demanded as an asset varies with the rate of interest.

Blank 1: inversely or indirectly

Interest rates and bond prices are related.

Blank 1: inversely, indirectly, or negatively

Treasury deposits are one of the three of Federal Reserve Banks.

Blank 1: liabilities

The reserve ratio, open-market operations, and the discount rate are tools of policy used by the Fed to alter commercial bank reserves.

Blank 1: monetary or money

Many people like to hold some of their assets as because it is the most liquid of all assets, and there is no risk of capital loss.

Blank 1: money, cash, or currency

The public wants to hold some of its wealth as to make purchases with it and to hold it as an asset.

Blank 1: money, cash, or currency

The level of GDP is the main determinant of the amount of money demanded for transactions.

Blank 1: nominal

Securities are part of the debt.

Blank 1: public or national

A decrease in the supply of money will the equilibrium interest rate.

Blank 1: raise, increase, or boost

When interest rates , the public reacts by reducing its holdings of money as an asset.

Blank 1: rise or increase

Treasury bills, Treasury notes, and Treasury bonds are all examples of issued by the U.S. government to finance past budget deficits.

Blank 1: securities

When Federal Reserve Banks purchase government from commercial banks, they increase the reserves in the banking system, which then increases the lending ability of the commercial banks.

Blank 1: securities, treasuries, debt, or bonds

The demand for money as a medium of exchange is called the demand for money.

Blank 1: transactions

What is the term for the demand for money as a medium of exchange?

Transactions demand for money

The U.S. "central bank" is made up of what?

A group of Federal Reserve Banks

Whom are bond markets open to?

All buyers and sellers of corporate and government bonds

What is the amount of money that people want to hold as a store of value?

Asset demand for money

Which of the following are securities?

Treasury bills Treasury notes Treasury bonds

The Federal Reserve Banks together constitute the U.S. "central bank," nicknamed the "Fed."

Blank 1: 12 , twelve, or dozen

The two primary (one word) of the Fed are securities and loans to commercial banks and thrifts.

Blank 1: assets

What happens when the bond holder sells a bond after a price drop and before earning the full principal?

Capital loss

Which of the following are combined to determine the equilibrium rate of interest?

Demand for money and supply of money

The transactions demand for money varies in what way with nominal GDP?

Directly

Who is the largest single holder of U.S. government securities?

Federal Reserve

Commercial banks occasionally borrow from ______.

Federal Reserve Banks

The decision of the public on how much of its financial assets to hold as money depends primarily on what?

Interest rate

Which of the following aspects of the economy are directly controlled by the Fed?

Interest rates Money supply

What type of relationship exists between bond prices and interest rates?

Inverse

Which of the following is a disadvantage of holding money as an asset?

It does not earn interest.

When Federal Reserve Banks purchase securities from commercial banks, what happens to the lending ability of the commercial banks?

It increases.

An increase in the supply of money will do what to the equilibrium interest rate?

Lower

What does it mean when someone holds money to buy the dips?

Money can be used to immediately purchase other assets at opportune times.

When the Federal Reserve purchases bonds in the open market from the public, which of the following are elements of the transaction?

The seller gives up securities to the Federal Reserve Banks. The bank sends the check for collection. The seller gets a payment check to deposit in its bank account.

When Federal Reserve Banks buy securities in the open market, what happens to commercial banks' reserves?

They increase

How are a bank's reserves impacted when the Fed purchases a security from a commercial bank?

They increase.

What is the main reason why securities are bought and sold?

To influence the ability of commercial banks to create money by lending

Select all of the following choices which explain why the public keeps some wealth in the form of money.

To make purchases with it To hold it as an asset

To the extent that people want to hold money as an asset, there is ______.

asset demand for money

Which of the following represent how people might hold their financial assets?

bonds stocks money

Sometimes commercial banks ______ the Federal Reserve Banks.

borrow from

The Fed requires that the commercial banks hold reserves against their ______.

checkable deposits

In the market for money, the intersection of demand and supply determines the ______.

equilibrium interest rate equilibrium price of money

Bonds are sold in ______ markets.

financial

When the interest rate falls, the public ______ the amount of financial assets that it wants to hold as money.

increases

The Fed pays ______ on the required reserves held by commercial banks, as well as the excess reserves the banks hold at the Fed.

interest

The Fed's primary influence is on the money supply and _______.

interest rates

The main determinant of the amount of money demanded for transactions is the level of ______.

nominal GDP

As money borrowed by the Federal government, securities are part of ______.

public debt

Wealth can be held in the form of financial assets such as stocks, money, and bonds, or as ______ assets such as real estate.

tangible

When a public company sells government bonds to the Federal Reserve, the public company receives a payment check drawn by the ______.

the Federal Reserve