Macroeconomics Exam 4
A $20 bill is a? a) gold certificate. b) Treasury Note. c) Treasury bill. d) Federal Reserve Note.
d
Currency in circulation is part of? a) M1 only. b) M2 only. c) neither M1 nor M2. d) both M1 and M2.
d
Which of the following is not part of the M2 money supply? a) money market mutual fund balances b) small-denominated time deposits c) currency d) large-denominated time deposits
d
Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances? a) Nonbank firms will choose to lend less money to the Fed. b) Nonbank firms will choose to lend more money to the Fed. c) Banks will choose to leave more of their money at the Fed overnight. d) Banks will choose to lend into the money market instead of lending to the Fed.
d
How many members can serve on the Board of Governors of the Federal Reserve System? a) 7 b) 9 c) 12 d) 14
a
The Federal Reserve System was established by the Federal Reserve Act of? a) 1913. b) 1933. c) 1945. d) 1955.
a
If the Fed wants to encourage nonbank lending, it will? a) increase the IORB. b) decrease the ON RRP. c) decrease the IORB. d) increase the ON RRP.
b
If the effective federal funds rate is 1.64 percent, which of the following is most likely to be the Fed's target range for the federal funds rate? a) 1.00 to 2.00 b) 1.50 to 1.75 c) 1.14 to 2.14 d) 1.64 to 1.89
b
Stock market price quotations best exemplify money serving as a? a) store of value. b) unit of account. c) medium of exchange. d) index of satisfaction.
b
What function is money serving when you deposit money in a savings account? a) a store of value b) a unit of account c) a checkable deposit d) a medium of exchange
a
In a reverse repo transaction, the Fed _________ money? a) loans b) borrows c) prints new d) donates
b
In the U.S. economy, the money supply is controlled by the? a) U.S. Treasury. b) Federal Reserve System. c) Senate Committee on Banking and Finance. d) Congress.
b
Currency held in the vault of First National Bank is? a) counted as part of M1. b) counted as part of M2 but not M1. c) only counted as part of M2 if it was deposited into a checking account. d) not counted as part of the money supply.
d
Which of the following is a tool of monetary policy? a) open-market operations b) changes in banking laws c) changes in tax rates d) changes in government spending
a
The interest rate that the Fed uses as the policy rate is called the? a) administered rate. b) federal funds rate. c) IORB rate. d) ON RRP rate.
b
The sale of government securities by the Fed will cause? a) bank reserves to increase. b) the money supply to decrease. c) demand deposits to increase. d) the interest rate to decrease.
b
Currency held by banks is part of? a) both the M1 and M2 definitions of the money supply. b) the M2 definition of the money supply only. c) the M1 definition of the money supply only. d) neither the M1 nor the M2 definition of the money supply.
d
The interest rate that banks charge one another on overnight loans of currency held on deposit at the Fed is called the? a) administered rate. b) interest on reserve balances. c) overnight lending rate. d) federal funds rate.
d
The members of the Federal Reserve Board? a) serve seven-year terms. b) are appointed by the American Economic Association. c) are elected by votes of the 12 presidents of the Federal Reserve Banks. d) are appointed for 14-year terms.
d
Which of the following is not a tool of monetary policy? a) quantitative tightening b) open market operations c) the IORB rate d) the Taylor rule
d
If the price index rises from 100 to 180, then the purchasing power of the dollar will fall by about? a) 20 percent. b) 100 percent. c) 80 percent. d) 22 percent. e) 44 percent.
e
"Near-monies" are included in? a) both M1 and M2. b) M2 only. c) M1 only. d) neither M1 nor M2.
b
In the United States, monetary policy is the responsibility of the? a) U.S. Treasury. b) Department of Commerce. c) Federal Reserve System. d) U.S. Congress.
c
The Federal Reserve System was created in? a) 1926. b) 1946. c) 1895. d) 1913.
d
A neutral monetary policy is a Fed policy in which? a) the money supply and interest rates are left as they are. b) the money supply is increased but interest rates are not changed. c) both the money supply and interest rates are increased. d) the money supply is decreased and interest rates are increased.
a
An interest rate set by a central bank to help it manage market-determined interest rates defines? a) an administered rate. b) the dollar/yen exchange rate. c) the Taylor rule. d) the policy rate.
a
Checkable deposits are classified as money because? a) they can be readily used in purchasing goods and paying debts. b) banks hold currency equal to the value of their checkable deposits. c) they are ultimately the obligations of the Treasury. d) they earn interest income for the depositor.
a
Checkable deposits are? a) debts of commercial banks and savings institutions. b) debts of the federal government and government agencies. c) assets of the federal government and government agencies. d) assets of commercial banks and savings institutions.
a
Checkable deposits are? a) included in M1. b) not included in either M1 or M2. c) considered to be one of the near-monies. d) also called time deposits.
a
If the Fed wants to discourage bank lending, it will? a) increase the interest paid on reserve balances held at the Fed. b) decrease the interest paid on reserve balances held at the Fed. c) buy government securities from banks. d) lower the policy rate.
a
If the economy appears to be operating at potential output, with stable prices and a low level of unemployment, the Fed would be inclined to choose? a) a neutral monetary policy. b) an expansionary monetary policy. c) a restrictive monetary policy. d) a tight money policy.
a
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as? a) a medium of exchange. b) a store of value. c) a unit of account. d) an economic investment.
a
In the United States, the money supply (M1) includes? a) coins, paper money, checkable deposits, and savings deposits. b) currency, checkable deposits, and Series E bonds. c) coins, paper money, checkable deposits, and credit balances with brokers. d) paper money, coins, gold certificates, and time deposits.
a
(Consider This) Credit cards are? a) the fastest-growing component of the M1 money supply. b) near-monies that are part of the M2 money supply but not the M1 money supply. c) not money, as officially defined. d) also known as time deposits.
c
If the Federal Reserve System buys government securities? a) bank reserves will decline. b) interest rates on the securities will rise. c) the money supply will increase. d) the money supply will not change.
c
If you are estimating your total expenses for school next semester, you are using money primarily as? a) a medium of exchange. b) a store of value. c) a unit of account. d) an economic investment.
c
In a reverse repo transaction? a) banks return foreclosed property to previous owners. b) banks sell foreclosed property to new owners. c) the Fed borrows money from nonbank financial firms. d) the Fed loans money to nonbank financial firms.
c
The interest rate at which the Federal Reserve Banks lend to banks is called the? a) policy rate. b) short-term rate. c) discount rate. d) federal funds rate.
c
The collateral used for overnight reverse repos is (are)? a) corporate securities. b) autos. c) homes. d) government securities.
d
The paper money used in the United States is? a) National Bank Notes. b) Treasury Notes. c) United States Notes. d) Federal Reserve Notes.
d
The seven members of the Board of Governors of the Federal Reserve System are? a) appointed by the president with the confirmation of the Senate. b) elected by Congress from a slate of nominees provided by the president. c) appointed by the Senate Finance Committee. d) appointed by the presidents of the 12 Federal Reserve Banks.
a
To say that the Federal Reserve Banks are quasi-public banks means that? a) they are privately owned but managed in the public interest. b) they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. c) they deal only with commercial banks, and not the public. d) they are publicly owned but privately managed.
a
What "backs" the money supply of the United States? a) the U.S. government's ability to keep the value of money relatively stable b) the amount of gold the U.S. government has on deposit at its banks c) the fact that currency is issued by the Federal Reserve System d) the fact that the intrinsic value of coins in circulation is greater than their face value
a
When economists say that money serves as a store of value, they mean that it is? a) a way to keep wealth in a readily spendable form for future use. b) a means of payment. c) a monetary unit for measuring and comparing the relative values of goods. d) declared as legal tender by the government.
a
Which of the following is paid to the Fed as a source of low-cost liquidity? a) discount rate b) interest on reserve balances c) policy rate d) overnight reverse repo rate
a
When economists say that money serves as a medium of exchange, they mean that it is? a) a way to keep wealth in a readily spendable form for future use. b) a means of payment. c) a monetary unit for measuring and comparing the relative values of goods. d) declared as legal tender by the government.
b
Which of the following is not a tool of monetary policy? a) open-market operations b) changes in banking laws c) changes in one or more of the three administered interest rates d) the Fed communicating to the public how it intends to manage monetary policy
b
In defining money as M1, economists exclude time deposits because? a) the intrinsic value of time deposits is nil. b) the purchasing power of time deposits is much less stable than that of checkable deposits and currency. c) they are not directly or immediately a medium of exchange. d) they are not recognized by the federal government as legal tender.
c
Members of the Federal Reserve Board of Governors are? a) appointed by Congress to staggered 14-year terms. b) selected by the Federal Open Market Committee for 4-year terms. c) appointed by the president to staggered 14-year terms. d) selected by each of the Federal Reserve banks for 4-year terms.
c
Money functions as a store of value if it allows you to? a) measure the value of goods in a reliable way. b) make exchanges in a more efficient manner. c) delay purchases until you want the goods. d) increase your confidence in money.
c
One major advantage of money serving as a medium of exchange is that it allows society to? a) transfer purchasing power from the present to the future. b) measure the relative worth of products. c) escape the complications of barter. d) use credit cards instead of currency.
c
Purchasing groceries using a debit card best exemplifies money serving as a? a) store of value. b) unit of account. c) medium of exchange. d) index of satisfaction.
c
Small-denominated time deposits, by definition? a) mature in one month or less. b) mature in one year or less. c) are less than $100,000. d) are held by state and local banks only.
c
Stabilizing a nation's price level and the purchasing power of its money can be achieved? a) only with fiscal policy. b) only with monetary policy. c) with both fiscal and monetary policy. d) with neither fiscal nor monetary policy.
c
The Federal Open Market Committee (FOMC)? a) provides advice on banking stability to the Fed. b) monitors regulatory banking laws for member banks. c) sets policy on the sale and purchase of government bonds by the Fed. d) follows the actions and operations of financial markets to keep them open and competitive.
c
The Federal Reserve System changes the money supply by? a) controlling the production of coins at the U.S. Mint. b) changing the number of banks in the system. c) providing forward guidance about how it intends to conduct monetary policy. d) restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.
c
The Federal Reserve System's three administered rates are the? a) interest on reserve balances rate, overnight reverse repo rate, and policy rate. b) federal funds rate, policy rate, and discount rate. c) IORB rate, ON RRP rate, and discount rate. d) inflation rate, unemployment rate, and economic growth rate.
c
The federal backing for money in the United States comes from? a) providing sufficient quantities of precious metals, such as gold and silver, to cover the amount of paper money in circulation. b) pledging physical assets, such as land, natural resources, and public buildings, as collateral for outstanding currency. c) controlling the money supply in order to keep the value of money relatively stable over time. d) protecting checkable deposits at financial institutions with deposit guarantees.
c
The money market comprises short-term lending markets that include markets for? a) 20-year home mortgages. b) 20-year Treasury bonds. c) commercial paper. d) U.S. savings bonds.
c
The three main tools of monetary policy are? a) interest on reserve balances, open-market operations, and changing the federal funds rate. b) tax-rate changes, changes in government expenditures, and open-market operations. c) open-market operations, forward guidance, and changing the administered interest rates. d) changes in government expenditures, changing the discount rate, and forward guidance.
c
When economists say that money serves as a unit of account, they mean that it is? a) a way to keep wealth in a readily spendable form for future use. b) a means of payment. c) a monetary unit for measuring and comparing the relative values of goods. d) declared as legal tender by the government.
c
An expansionary monetary policy is a Fed policy in which? a) the administered rates may be raised to discourage bank and nonbank lending. b) forward guidance concerning raising the federal funds target range may be provided. c) quantitative tightening may be necessary to increase longer-term rates. d) the administered rates may be lowered to encourage bank and nonbank lending.
d
An important routine function of the Federal Reserve System is to? a) supervise the liquidation of the assets of bankrupt state banks. b) help large commercial banks develop correspondent relationships with smaller commercial banks. c) advise commercial banks as to the most profitable ways of reinvesting profits. d) provide facilities by which commercial banks and thrift institutions may collect on checks.
d
During periods of rapid inflation, money may cease to work as a medium of exchange? a) unless it has been designated legal tender. b) unless it is backed by gold. c) because it is too scarce for everyone to have enough for transactions. d) because people and businesses will not want to accept it in transactions.
d
If the price index rises from 100 to 110, the purchasing power value of the dollar? a) will rise by one-eleventh b) may either rise or fall. c) will rise by 20 percent. d) will fall by one-eleventh
d
Money functions as? a) a store of value. b) a unit of account. c) a medium of exchange. d) a store of value, a unit of account, and a medium of exchange.
d
Research suggests that? a) the more independent the central bank, the lower the average annual growth of real GDP. b) the more independent the central bank, the higher the average annual growth of real GDP. c) there is no relationship between the degree of independence of a country's central bank and the growth rate of its real GDP. d) the less independent the central bank, the higher the average annual rate of inflation.
d
The Federal Open Market Committee (FOMC) is made up of? a) the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. b) the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. c) the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. d) 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.
d
The M1 money supply is composed of? a) all coins and paper money held by the general public and the banks. b) bank deposits of households and business firms. c) bank deposits and mutual funds. d) checkable deposits, currency in circulation, and savings accounts.
d
The M2 money supply includes? a) stock certificates. b) currency in bank vaults. c) the cash value of life insurance policies. d) individual shares in money market mutual funds.
d
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the? a) Federal Deposit Insurance Corporation (FDIC). b) Federal Bond Sale Authority. c) Council of Economic Advisers. d) Federal Open Market Committee (FOMC).
d
The purchasing power of the dollar? a) has been increasing in recent years because of economic growth. b) varies directly with the cost-of-living index. c) is inversely related to the level of aggregate demand. d) is the reciprocal of the price level.
d
Time deposits of $100,000 or more are? a) a component of M1. b) a component of M2 but not of M1. c) a component of M1 but not of M2. d) not a component of M1 or M2.
d
Which of the following best describes the cause-effect chain of expansionary monetary policy? a) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and real GDP. b) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and real GDP. c) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and real GDP. d) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and real GDP.
d
Which of the following statements about the federal funds market since the 2007-2009 financial crisis is accurate? a) The federal funds market is a competitive market in which supply and demand determine an equilibrium price. b) Federal funds market participants include banks and thrifts, branches of foreign banks, savings and loan organizations, securities firms, and agencies of the federal government. c) The federal funds market is a highly constrained and aggressively managed market. d) All of the above are accurate statements.
d
The discount rate is the rate of interest at which? a) Federal Reserve Banks lend to banks. b) savings and loan associations lend to some builders. c) Federal Reserve Banks lend to large corporations. d) banks lend to large corporations.
a
A decrease in the money supply? a) increases the interest rate and decreases aggregate demand. b) increases both the interest rate and aggregate demand. c) lowers the interest rate and increases aggregate demand. d) lowers both the interest rate and aggregate demand.
a
PayPal and Venmo are? a) cash-transfer systems. b) federally chartered commercial banks. c) unchartered credit unions. d) mutual savings banks.
a
Reserve balances are so-called because? a) they are the funds that the Federal Reserve keeps on deposit for banks and thrifts to take care of ongoing commercial bank and thrift operations. b) banks and thrifts must call the Fed and request they (the Fed) "reserve" a certain amount of money each day for them (the commercial banks and thrifts) to be able to cover their transactions. c) the Fed asks banks and thrifts to "reserve" any money lent out as loans in a special account called "reserve balances" until the end of the week when it can then be released. d) none of the above.
a
Actions or communications by a central bank intended to help it achieve its macroeconomic policy objectives defines? a) fiscal policy. b) monetary policy. c) trade policy. d) economic policy.
b
An increase in the money supply will? a) lower interest rates and lower the equilibrium GDP. b) lower interest rates and increase the equilibrium GDP. c) increase interest rates and increase the equilibrium GDP. d) increase interest rates and lower the equilibrium GDP.
b
In a reverse repo transaction? a) the nonbank firm will pay the Fed the IORB rate. b) the Fed is the borrower and the nonbank firm is the lender. c) the nonbank firm is the borrower and the Fed is the lender. d) the nonbank firm will pay the Fed the ON RRP rate.
b
Interest paid on reserve balances held at the Fed? a) is available to the general public, but not to banks. b) will incentivize banks to hold more reserves and reduce riskier lending. c) is determined by the policy rate. d) amounts to just a few billion dollars a year.
b
Monetary policy is expected to have its greatest impact on? a) Xn. b) Ig. c) C. d) G.
b
Money market deposit accounts are included in? a) M1 only. b) M2 only. c) neither M1 nor M2. d) both M1 and M2.
b
Near monies? a) include all financial and real assets that can be easily converted into currency. b) are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1. c) are excluded from M2 because they are highly liquid. d) are defined as monetary balances that are immediately available, at zero cost, for household and business transactions.
b
Open-market operations include? a) the Fed communicating how it sees the current state of the economy. b) quantitative easing. c) paying interest on reserve balances held at Federal Reserve Banks. d) changes in the discount rate.
b
Quantitative easing refers to? a) the Fed buying short-term bonds to reduce short-term interest rates. b) the Fed buying longer-term bonds to reduce longer-term interest rates. c) the Fed selling short-term bonds to increase short-term interest rates. d) the Fed selling longer-term bonds to increase longer-term interest rates.
b
The Federal Reserve System changes the money supply by? a) using the bullseye chart. b) issuing a statement about any monetary actions the Fed intends to take. c) using negative interest rates. d) following the Taylor rule.
b
The Federal Reserve System? a) has the same status as the Supreme Court. b) is basically an independent agency. c) has the status of a congressional committee. d) is an agency of the executive branch of the federal government.
b
The administered rates are the rates of interest at which? a) Federal Reserve Banks lend to large corporations. b) set by a central bank to help it manage market-determined interest rates. c) that are not set by the Fed but influenced through buying and selling securities. d) banks lend to large corporations.
b
The amount of money reported as M2? a) is smaller than the amount reported as M1. b) is larger than the amount reported as M1. c) excludes coins and currency. d) includes large ($100,000 or more) certificates of deposit.
b
The discount rate is the interest? a) rate at which the central banks lend to the U.S. Treasury. b) rate at which the Federal Reserve Banks lend to banks. c) yield on long-term government bonds. d) rate at which banks lend to the public.
b
The functions of money are to serve as a? a) resource allocator, method for accounting, and means of income distribution. b) unit of account, store of value, and medium of exchange. c) determinant of consumption, investment, and government spending. d) factor of production, exchange, and aggregate supply.
b
The interest on reserve balances is the interest? a) rate banks pay the Fed to keep their money overnight. b) rate the Fed pays banks for any money they deposit on an overnight basis. c) rate at which banks lend to the public. d) rate at which the central banks lend to the U.S. Treasury.
b
The term "bankers' banks" means that the Federal Reserve? a) will allow any employee of a commercial bank or thrift to open a checking account and obtain a loan at the central bank in their district. b) performs essentially the same functions for banks and thrifts as those institutions perform for the public. c) will allow the commercial banks and thrifts to open a reserve account with them, but will not lend them money. d) will allow the commercial banks and thrifts to borrow money from them (the Fed), but will not hold reserves in an account for them.
b
To say "money is what money does" means that? a) money has been defined in a Constitutional amendment. b) whatever performs the functions of money extremely well is considered to be money. c) the money supply includes all public and private securities purchased by society. d) society, acting through Congress, specifies what shall be included in the money supply.
b
U.S. monetary policy is conducted by? a) the president and Congress. b) the central bank. c) each individual state. d) the banks and thrifts.
b
When a consumer wants to compare the price of one product with another, money is primarily functioning as a? a) store of value. b) unit of account. c) checkable deposit. d) medium of exchange.
b