Money and banking exam 2
If GDP is $16 trillion and the money supply is $4 trillion, then the velocity of the money is
4
The Bank of Japans ability to respond to the global financial crisis that began in 2007 was limited by
A bloated balance sheet, which was a result of its response to a financial crisis in Japan in the late 1990's
When the federal reserve began its policy of quantitative easing in November 2008, the was _____ in the monetary base
A dramatic increase
If the public's confidence in the banking system is shaken, it may cause
A run on banks
The loan application process that banks require potential borrowers to go through is an attempt to deal with
Adverse selection
One of the main reasons that banks exist to deal with the issues of _____ and ______
Adverse selection : moral hazard
A one time deposit in a bank will result in
An explanation in the money supply that is larger than the side of the one time deposit.
The channel through which the federal reserve impacts the monetary base is
Bank reserves
An example of asymmetric information in financial markets is that, in baking
Borrowers know more about their capacity to repay loans than lenders
Today in the federal reserve system, the powers rests with the
Chair of the Federal Reserve
Holly goes to her bank to take out a loan, and the bank agrees to the loan on the condition that Holly maintain a balance of $1,000 in her savings account with the bank. This is an example of the bank using a bank a
Compensating balance as a way to mitigate the problem of moral hazard
When a bank repays a loan at the discount window to the federal reserve, it will ____ the monetary base by _____ bank reserves
Decrease ; decreasing
Irving Fishers equation of exchange led to the conclusion that the _______ is a function of the level of ______ income in the economy
Demand for money ; nominal
Banks that have some financial difficulty and borrow from the federal reserve in what is known as secondary credit will pay an interest rate equal to the
Discount rate plus a penalty
During the Great Recession, the price level in the United States
Fell sharply
When central banks were first created, their primary function was to
Finance government spending
Open market operations in which the European central bank specifies an interest rate at which it will lend as then participating banks submit bids on the money they wish to borrow at that rate are know as
Fixed rate standard tenders
The two major goals of Canadian monetary policy are
Flexible exchange rates ; inflation control
The three governing bodies of the European Central Bank
Governing council, general council, and executive board
An example of asymmetric information in financial markets in that, the bond market, bond issues
Have a better insight about their future profitability than bond buyers
An example of asymmetric information in financial markets is that, in equity markets, directors _______________ than shareholders.
Have a better sense of future profitability
If the goal of monetary policy is to keep interest rates stable, the federal reserves response to increase in the demand for money will be to
Increase the supply of money
Those who argue against the pursuit of the dual objectives of stable prices and high employment point to the ______ as evidence that the pursuit of dual objectives is misguided
Inflation of the 1970's
To achieve its goal of monetary stability, the Bank of England sets a target
Inflation rate of 2% per year
The business of banking solves the problem of
Liquidity mismatch with savers desiring liquidity and borrowers desiring illiquid loans
In the face of a credit crunch, the federal reserve will most likely attempt to
Lower interest rates to inject liquidity into the financial system
Within an economy, money gets created when banks
Make loans
The president of which district bank is a permanent member of the Federal open market committee?
New York
The bank of Canada conducts monetary policy by setting a target for the
Overnight interest rates
Overnight bank borrowing from the Federal reserve is known as
Primary credit
The main responsibility of the Bank of Japan is to use monetary policy to
Pursue price stability
Imagine that Roland goes to his bank and deposits $10,000 in cash into his savings account. The bank, wanting to use those funds to generate revenue for itself, will look to make a loan with this cash. An important determination of how much that $10,000 the bank can lend is the
Required resrve ratio
When the excess reserve ratio decreases, the impact of changes in the monetary base in the monetary supply is
Strengthened
When the required reserve ration decreases, the impact of changes in the monetary base in the money supply is
Strengthened
In a very basic sense, banks preform two functions in society: they _____ and _____
Take deposits and make loans
John Maynard Keynes argued that there were three reasons that people demanded money. They are
Transactions motive, precautionary motive, and speculative motive
Unemployment is not only terribly costly to people who are unemployed but also to society as a whole because
Unemployment represents a underutilization of societies available resources
When the currency ration increases, the impact of changes in the monetary base in the money supply is
Weakened
