My Pearson Econ ch. 13
If a customer withdrew $3,000 in cash from a bank and the reserve ratio was 0.9, checking account balances would eventually be reduced by____________
$3,333.33 = 3000/.9
If the reserve ratio is 0.05 and a deposit of $400 is placed into a bank, that bank can lend out $______
$380
1.) The most basic measure of money in the United States is called_____________ 2.) M1 is the sum of: A. currency in the hands of the public, demand deposits, savings deposits, and traveler's checks. B. currency in the hands of the public, demand deposits, savings deposits, and money market mutual funds. C. currency in the hands of the public, demand deposits, other checkable deposits, and money market mutual funds. D. currency in the hands of the public, demand deposits, other checkable deposits, and traveler's checks.
1.) M1 2.) D.) currency in the hands of the public, demand deposits, other checkable deposits, and traveler's checks.
If the required reserve ratio is 0.20, and there is a cash withdrawal of $10,000, there would be a total decrease in checking account balances of $50,00050,000 throughout all of the banks. (Enter your response as a whole number.)
1/.2 x -10000= 50000
To help ensure political independence, each member of the Board of Governors is appointed to ▼ 7 9 10 14 16 year terms.
14
If the required reserve ratio is 0.25, and there is an increase in cash deposits of $7,000, there would be a total increase in checking account balances of $nothing throughout all of the banks._______
28,000
Some critics of the Fed's actions with AIG and Bear Stearns said that the government was just bailing out failing financial firms and they should have been allowed to fail. The rationale of the Fed was A. a complete collapse of the companies would devastate the financial system and cause a global panic. B. these companies could lend money to banks. C. not very well thought out. D. these companies owed too much to the Fed to allow them to fail.
A.) a complete collapse of the companies would devastate the financial system and cause a global panic.
The Federal Reserve arranged for JPMorgan Chase & Co. to ▼ buy invest in sell Bear Stearns during the financial crisis in 2008.
Buy
In 1973, several major companies went bankrupt and were not going to be able to pay interest on their short-term loans. This caused a crisis in the market. There was concern that the short-term credit market would collapse, and that even healthy corporations would not be able to borrow. How did the Fed handle this situation? A. The Fed did nothing and let the market adjust on its own. B. The Fed extended additional credit to make sure the economy had plenty of liquidity. C. The Fed took credit away from banks to punish them for making bad loans.
B.) The Fed extended additional credit to make sure the economy had plenty of liquidity.
The Federal Reserve is not the: A. lender of last resort. B. agency that decides the tax rate. C. U.S. central bank. D. agency that conducts monetary policy.
B.) agency that decides the tax rate.
In a financial crisis like those that occurred in 2001 and 2008, the Fed can A. use contractionary policy to offset expansionary fiscal policy and prevent inflation. B. help stabilize the economy by adjusting its policies and relationships with banks. C. coordinate with central banks in other countries to weaken their economies. D. keep interest rates a bit higher to prevent deflation.
B.) help stabilize the economy by adjusting its policies and relationships with banks.
Which of the following is not a key function of the Federal Reserve? A. providing a system of check collection and clearing B. printing currency C. conducting monetary policy D. holding reserves from banks and other depository institutions
B.) printing currency
If a bank fails a stress test, the Fed A. will shut it down. B. will not let a bank pay dividends to its shareholders. C. requires a bank to pay dividends to its shareholders. D. will take over operations of the bank.
B.) will not let a bank pay dividends to its shareholders.
Money solves the problem of double coincidence of wants that would regularly occur under a system of___________
Barter
The Federal Open Market Committee (FOMC) is a 12-person board consisting of the seven members of the Board of State Governors , the president of the Federal Reserve Bank of Dallas , and the presidents of four of the other 50 regional Federal Reserve Banks on a rotating basis. (The seven nonvoting bank presidents attend the meetings and offer their opinions.) The chairperson of the FOMC is the chairperson of the New York Fed . The FOMC is assisted by vast teams of professionals at the Board of Governors and at the regional Federal Reserve Banks. The FOMC is responsible for A. the reserve requirement. B. the discount rate. C. monetary policy. D. discount loans.
Board of governors, New York, 11, Board of governors. C.) monetary policy
During the financial crisis in 2007, there was an increased demand to hold U.S. dollars, despite the fact that the U.S. was the main source of the crisis. Which of the following statements best explains this? A. The U.S. adopted export promotion policies that resulted in an increase in demand for U.S.-produced goods. B. In response to the crisis, the Federal Reserve raised the interest rate, lowering the exchange rate, making U.S. dollars cheaper. C. Even with all the uncertainty surrounding the 2007 financial crisis, the U.S. dollar was seen as safe. D. In response to the crisis, the Treasury Department increased the supply of dollars, which increased the money multiplier, thus increasing the demand to hold U.S. dollars.
C.) Even with all the uncertainty surrounding the 2007 financial crisis, the U.S. dollar was seen as safe.
In recent years, several members of Congress have sponsored bills that would subject the Fed to audits of its monetary policy. This is a form of intensive Congressional oversight. What are the pros and cons of more Congressional oversight of the Fed? Increased oversight can A. result in financial default. B. result in a merger of the executive and the congressional branches of government. C. create pressure to help finance a country's government deficit by creating money. D. add to a country's deficit since the oversight of the central bank is expensive.
C.) create pressure to help finance a country's government deficit by creating money.
The Federal Open Market Committee (FOMC) votes on: A. the reserve requirement. B. discount loans. C. monetary policy. D. the discount rate.
C.) monetary policy.
Decisions about the supply of money are made by A. the president of the New York Federal Reserve Bank and Congress. B. the Federal Open Market Committee which includes the members on the Senate and the president of the New York Federal Reserve Bank. C. the Federal Open Market Committee which includes the seven members on the Board of Governors and the president of the New York Federal Reserve Bank. D. Congress and the seven members on the Board of Governors.
C.) the Federal Open Market Committee which includes the seven members on the Board of Governors and the president of the New York Federal Reserve Bank.
The Fed provides a system of check collection and_______________
Clearing
The largest component of M1 is/are____________
Currency held by the population
Which of the following is a reason that the president of the New York Federal Reserve Bank is always a voting member of the Federal Open Market Committee? A. NY is the world's financial center. B. NY is a major economic power of the U.S. C. The FRB of NY conducts monetary policy. D. All of the above.
D.) All of the above.
The three functions of money do not include money as a A. unit of account. B. store of value. C. medium of exchange. D. collectible.
D.) Collectible
The most basic measure of money in the United States is called A. M2 and is the sum of currency in the hands of the public, demand deposits, other checkable deposits, and traveler's checks. B. M1 and is the sum of currency in the hands of the public, demand deposits, savings deposits, and one year certificates of deposit. C. M2 and is the sum of currency in the hands of the public, demand deposits, savings deposits, and one year certificates of deposit. D. M1 and is the sum of currency in the hands of the public, demand deposits, other checkable deposits, and traveler's checks.
D.) M1 and is the sum of currency in the hands of the public, demand deposits, other checkable deposits, and traveler's checks.
Bitcoins are a new form of electronic, privately issued money that can potentially preserve the anonymity of transactions. In recent years, the prices of a single Bitcoin has varied between $400 and $19,000. From the point of view of money as a store of value, Bitcoins are A. a poor store of value because their interest earning capacity is low. B. no store of value since they cannot be used for all purchases. C. a good store of value because their prices don't fluctuate too much. D. a poor store of value because their prices fluctuate too much.
D.) a poor store of value because their prices fluctuate too much.
If the Fed set an interest rate on reserves close to the market interest rate on commercial loans, A. banks would have little incentive to make loans. B. banks would have more incentive to make loans. C. banks would have more incentive to borrow funds. D. banks would be unnecessary.
D.) banks would have little incentive to make loans
In the United States, the A. Federal Reserve Board members are elected by all citizens. B. chairperson of the Board of Governors is elected by Congress. C. Federal Reserve Board members are elected by Congress. D. chairperson of the Board of Governors is required to report to Congress on a regular basis.
D.) chairperson of the Board of Governors is required to report to Congress on a regular basis.
Banks create money by A. making loans which decreases deposits because the required reserve ratio is a fraction of loans. B. lending from bank to bank. C. printing money which is then deposited into banks. D. making loans which increases deposits because the required reserve ratio is a fraction of deposits.
D.) making loans which increases deposits because the required reserve ratio is a fraction of deposits.
The Fed can supply funds to the markets in the case of a financial panic because A. they control the Treasury. B. panic raises interest rates. C. more funds are demanded. D. they are the lender of last resort.
D.) they are the lender of last resort.
Occasionally, some economists or politicians suggest that the Secretary of the Treasury become a member of the Federal Open Market Committee. This would most likely ▼ increase decrease have no impact on the independence of the Federal Reserve.
Decrease
In recent years, debit cards have become popular. Debit cards allow the holder of the card to pay a merchant for goods and services directly from a checking account. The introduction of debit cards most likely _______________ on the amount of currency in the economy.
Decreased
Where Should Regional Banks Be Located Today? Given the changes in the location of economic activity that have occurred since the founding of the Federal Reserve, how would the location of the regional banks change if they were allocated by economic activity? The locations of the banks and the branches would be different since economic activity has geographically shifted. There would probably be more banks in the ▼ EastWest, and the ▼ ClevelandPhiladelphiaSan Francisco district would be smaller, or have more banks.
Different, west, san Francisco
Economist Kenneth Rogoff at Harvard has recommended removing $100 bills from circulation. He made this recommendation because he believed these bills_________________
Facilitate illegal transactions and tax evasion.
Even though both insurance companies and banks are financial intermediaries, macroeconomists study insurance companies more intensively because insurance companies have a much larger and direct impact on the money supply. T or F
False
The San Francisco Federal Reserve Bank is the only one in the West because San Francisco outbid Los Angeles to be its host. t or f
False
Money market mutual funds are hard to classify in a definition of money because they are only held to facilitate transactions. T or F
False (M2)
The Secretary of the Treasury who developed the idea of stress tests was Henry Paulson. T or f
False (Timothy)
The actual money multiplier in the United States today is close to 5. T or F
False, below 1
In 2014, a major bank paid the government $13 billion to settle a lawsuit. This payment immediately ▼ increasedhad no effect ondecreased assets, ▼ increasedhad no effect ondecreased liabilities, and ▼ increasedhad no effect ondecreased owners' equity.
Had no effects on, Had no effects on, decreased.
A $100 bill________
Has no intrinsic value
The president of the Minneapolis Federal Reserve, Neel Kashkari, argues that banks today are too big to let fail and the government would have to bail them out in a true emergency. He believes the banks should be downsized to prevent this possibility. You may wish to see President Kashkari discuss this idea at www.minneapolisfed.org/publications/special-studies/endingtbtf. Accessed March 2018. By "too big to fail," he means that if a bank is too big, ▼ its scale of operation would be large enough to shield it from incurring lossesits failure would cause extensive financial disruption, forcing the government to bail out the bank. The costs of breaking up the large banks would depend on whether A. fewer services would be provided, thereby reducing the efficiency of the financial system. B. any cost savings would disappear if the bank was forced to reduce its size. C. there are significant cost savings from having larger institutions. D. All of the above are factors to consider when breaking up the large banks.
Its failure would cause extensive financial disruption, forcing gov to bail out the bank D.) All of the above are factors to consider when breaking up the large banks.
Part 1.) Gifts cards have grown in popularity as a mechanisms to give gifts. Cards are available for popular book stores and for coffee shops. Gift cards A. are not considered part of the money supply since they have a fixed value paid for in advance. B. are not considered part of the money supply since they have a variable value depending on the purchaser. C. are considered part of the money supply since they can be used for spending. D. are considered part of the money supply since they transmit funds from the checking account. Part 2.) Traveler's checks are sold by A. vendors for purchases in their enterprise. B. vendors but must be redeemed at a bank. C. banks and can be used for specific vendors. D. banks and non-banks and can be used for purchases in any enterprise.
Part 1.) A.) are not considered part of the money supply since they have a fixed value paid for in advance. Part 2.) D.) banks and non-banks and can be used for purchases in any enterprise.
Part 1.) "Greeks have increased their holdings of euros in cash because they have great faith in the monetary system of Europe." This quote is__________ Part 2.) The reason that the Greeks held cash in euros is because they A. thought that Greece might exit the system and the older Greek currency would have less value. B. expected Greece to adopt a brand new currency. C. had great faith in the monetary system of Europe. D. thought that Greece might join the Italian state.
Part 1.) Not accurate part 2.) A.) thought that Greece might exit the system and the older Greek currency would have less value.
Banks are required by law to keep a fraction of their deposits as__________
Reserves
The portion of banks' deposits set aside in either vault cash or as deposits at the Federal Reserve. ▼ (2) The sources of funds for a bank, including deposits and owners' equity (3) Any additional reserves that a bank holds above required reserves. (4) The funds provided to a bank by its owners. (5) An account statement for a bank that shows the sources of its funds (liabilities) as well as the uses of its funds (assets). (6) The amount of their deposits that banks are required by law to hold as reserves. (7) The uses of the funds of a bank, including loans and reserves.
Reserves, liabilities, excess reserves, owners equity, balance sheet, required reserves, assets
Deposits in checking accounts are included in the definition of money because they are a very liquid asset. T or F
True
So much U.S. currency is in global circulation because it is a safe asset compared to assets denominated in foreign currency. T or F
True
During the Great Depression, banks held excess reserves because they were concerned that depositors might be more inclined to withdraw funds from their accounts. At one point, the Fed became concerned about the "excess" reserves and raised the reserve requirements for banks. a. Assuming that banks were holding excess reserves for precautionary purposes, would they continue to hold excess reserves even after reserve requirements were raised? Yes or no After the Fed raised the reserve requirement, the money supply would__________________
Yes decrease
Banks consider loans they make to be ▼ assets liabilities . If a customer brings in $2,000 to deposit into a checking account, it is ▼ an asset a liability for the bank. If a customer enters the bank and secures a $2,000 personal loan, it is ▼ an asset a liability for the bank.
assets, a liability, an asset
When reserves paid interest, banks_______________
could keep reserves rather than make loans
If you write a check from your checking account to your money market account, M1 will ________ and M2 will ____________
decrease, remain the same
If $1,000 is deposited into a checking account in a bank, then the money supply: A. increases by $1,000. B. decreases by $1,000. C. does not change. Your answer is correct. D. increases by more than $1,000. If the bank that received the $1,000 deposit keeps 10% of it as reserves and loans out the remainder, then the money supply will increase by $900900. (Enter your response using an integer.) The money multiplier provides the maximum increase in checking account balances for any initial cash deposit. It is given by the ratio: A. 1Initial cash deposit. B. Initial cash depositReserve ratio. Your answer is not correct. C. Reserve ratioInitial cash deposit. D. 1Reserve ratio. This is the correct answer. Thus, if the reserve ratio is 10%, then the money multiplier is 10.010.0. (Enter your response rounded to one decimal place.) If the reserve ratio is 10% for all banks, banks hold no excess reserves and checking account balances increase by the full amount of all loans made, then the initial $1,000 deposit will result in a maximum increase in checking account balances throughout all of the banks of $2121 and increase the money supply by $2121. (Enter your responses using integers.)
does not change, 900, 1/ reserve ratio, 10, initial cash x 1/ reserve ratio=10,000, max increase - initial cash deposit =9000
The value of the money multiplier ▼ rosefell sharply around 2008. Thereafter, its value remained ▼ below 1above 1 until the end of 2017. Post 2018, its value came close to ▼ 11.50.5. This change in the series was because the Federal Reserve began paying interest on ▼ depositsreserves.
fell, below 1, 1, reserves