Multiple Choice Questions

money supply (or money stock)
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • The fraction of deposits that banks hold as reserves.
  • the quantity of money available/circulating in the economy. (currency + deposits)
  • households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
Which of the following is not correct?
  • the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.
  • Since February 1, 2005 he has been chairman of the Federal Reserve
  • The Federal Open Market Committee meets every 12 weeks.
  • (1) Society faces a short-run trade-off between inflation and unemployment, and (2) prices rise when the government prints too much money.
T-account
  • balances in bank accounts that depositors can access on demand by writing a check
  • an item that people can use to transfer purchasing power from the present to the future.
  • the yardstick people use to post prices and record debts
  • a simplified accounting statement that shows a bank's assets & liabilities.
LiabilitesDeposits - 10,000AssetsReserves - 750Loans - 9,250If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is:
  • 29,000
  • 13.33.
  • $360 increase in excess reserves and $40 increase in required reserves.
  • sell bonds. This selling would reduce the money supply.
Imagine that the federal funds rate was above the level the Federal Reserve had targeted. To move the rate back towards it's target the Federal Reserve could
  • sell bonds. This selling would reduce the money supply.
  • lower the discount rate, lower the reserve requirement
  • $360 increase in excess reserves and $40 increase in required reserves.
  • must increase its required reserves by $1.
If banks desire to hold no excess reserves, the reserve ratio is 10 percent, and a bank that was previously just meeting its reserve requirement receives a new deposit of $400, then initially the bank has a
  • $360 increase in excess reserves and $40 increase in required reserves.
  • sell bonds. This selling would reduce the money supply.
  • the bank keeps 8 percent of its deposits as reserves and loans out the rest.
  • must increase its required reserves by $1.
Ben S. Bernanke
  • money by government decree
  • Since February 1, 2005 he has been chairman of the Federal Reserve
  • In a fractional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans.
  • The Federal Open Market Committee meets every 12 weeks.
The Federal Reserve System consists of:
  • the interest rate the commercial banks charge each other for borrowing and lending reserves is called
  • Is the inter-bank market where excess reserves from one bank can be loaned to another bank
  • -Board of Governors (7 members), located in Washington, DC-12 regional Fed banks, located around the U.S.-Federal Open Market Committee (FOMC), includes the Bd of Govs and presidents of some of the regional Fed banks The FOMC decides monetary policy.
  • Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco
Banks' liabilities include
  • the interest rate on loans the Fed makes to banks
  • must increase its required reserves by $1.
  • The fraction of deposits that banks hold as reserves.
  • deposits, assets include loans & reserves.
When the Fed purchases $200 worth of government bonds from the public, the U.S. money supply eventually increases by
  • lower the discount rate, lower the reserve requirement
  • 29,000
  • more than $200.
  • those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
Bank Reserves
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.
  • A tool of monetary policy, it involves the Fed's buying (or selling) of securities from (or to) commercial banks and the general public.
  • In a fractional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans.
When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,
  • those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
  • decreases, the money multiplier increases, and the money supply increases.
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • more than $200.
12 Federal Reserve Banks
  • Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco
  • households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
  • Is the inter-bank market where excess reserves from one bank can be loaned to another bank
  • a government monetary authority that issues currency and regulates the supply of credit and holds the reserves of other banks and sells new issues of securities for the government
Liquidity refers to
  • objects that have value in themselves and that are also used as money
  • the interest rate on loans the Fed makes to banks
  • the ease with which an asset is converted to the medium of exchange.
  • the paper bills and coins in the hands of the public
A run on banks
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • the amount of money the banking system generates with each dollar of reservesThe money multiplier equals 1/R.
  • When people suspect their banks are in trouble, they may "run" to the bank to withdraw their funds, holding more currency and less deposits
  • a government monetary authority that issues currency and regulates the supply of credit and holds the reserves of other banks and sells new issues of securities for the government
The Federal Funds Market
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • the interest rate the commercial banks charge each other for borrowing and lending reserves is called
  • Is the inter-bank market where excess reserves from one bank can be loaned to another bank
  • Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco
The Fed's 3 Tools of Monetary Control
  • If households hold more of their money as currency, banks have fewer reserves, make fewer loans, & money supply falls. If banks hold more reserves than required, they make fewer loans, & money supply falls. Yet, Fed can compensate for household & bank behavior to retain fairly precise control over the money supply.
  • households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
  • 1.) Open-Market Operations (OMOs): the purchase and sale of U.S. government bonds by the Fed (Used the Most)2.) Reserve Requirements (RR): affect how much money banks can create by making loans (Rarely Used)3.) The Discount Rate: the interest rate on loans the Fed makes to banks (Used 2nd Most)
  • Is the inter-bank market where excess reserves from one bank can be loaned to another bank
Suppose banks desire to hold no excess reserves. If the reserve requirement is 10 percent and if a bank receives a new deposit of $10, then this bank
  • the interest rate on loans the Fed makes to banks
  • currency, demand deposits, money market mutual funds
  • deposits, assets include loans & reserves.
  • must increase its required reserves by $1.
At the Federal Reserve,
  • the interest rate the commercial banks charge each other for borrowing and lending reserves is called
  • the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.
  • money by government decree
  • In a fractional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans.
Which of the following lists ranks types of assets from most liquid to least liquid?
  • lower the discount rate, lower the reserve requirement
  • currency, demand deposits, money market mutual funds
  • convert Federal Reserve Notes into gold
  • Currency, demand deposits, traveler's checks, and other checkable deposits.
The problem faced by the Fed stems from two of the Ten Principles of Economics. Those principles are as follows:
  • (1) Society faces a short-run trade-off between inflation and unemployment, and (2) prices rise when the government prints too much money.
  • In a fractional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans.
  • A tool of monetary policy, it involves the Fed's buying (or selling) of securities from (or to) commercial banks and the general public.
  • Since February 1, 2005 he has been chairman of the Federal Reserve
Open-Market Operations (OMOs)
  • A tool of monetary policy, it involves the Fed's buying (or selling) of securities from (or to) commercial banks and the general public.
  • households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
  • Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco
  • money by government decree
Other things the same if reserve requirements are decreased, the reserve ratio
  • the ease with which an asset is converted to the medium of exchange.
  • sell bonds. This selling would reduce the money supply.
  • currency, demand deposits, money market mutual funds
  • decreases, the money multiplier increases, and the money supply increases.
M1
  • everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.
  • balances in bank accounts that depositors can access on demand by writing a check
  • currency, demand deposits, money market mutual funds
  • Currency, demand deposits, traveler's checks, and other checkable deposits.
Central bank
  • regulations set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district bank
  • When people suspect their banks are in trouble, they may "run" to the bank to withdraw their funds, holding more currency and less deposits
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • a government monetary authority that issues currency and regulates the supply of credit and holds the reserves of other banks and sells new issues of securities for the government
Problems Controlling the Money Supply
  • the amount of money the banking system generates with each dollar of reservesThe money multiplier equals 1/R.
  • a government monetary authority that issues currency and regulates the supply of credit and holds the reserves of other banks and sells new issues of securities for the government
  • If households hold more of their money as currency, banks have fewer reserves, make fewer loans, & money supply falls. If banks hold more reserves than required, they make fewer loans, & money supply falls. Yet, Fed can compensate for household & bank behavior to retain fairly precise control over the money supply.
  • Is the inter-bank market where excess reserves from one bank can be loaned to another bank
The Discount Rate
  • the ease with which an asset is converted to the medium of exchange.
  • the interest rate the commercial banks charge each other for borrowing and lending reserves is called
  • the interest rate on loans the Fed makes to banks
  • the yardstick people use to post prices and record debts
The Money Multiplier
  • Is the inter-bank market where excess reserves from one bank can be loaned to another bank
  • the amount of money the banking system generates with each dollar of reservesThe money multiplier equals 1/R.
  • the interest rate the commercial banks charge each other for borrowing and lending reserves is called
  • households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.
Federal Reserve
  • The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.
  • balances in bank accounts that depositors can access on demand by writing a check
  • an item that people can use to transfer purchasing power from the present to the future.
  • an item that buyers give to sellers when they want to purchase goods and services
Monetary policy
  • the yardstick people use to post prices and record debts
  • The fraction of deposits that banks hold as reserves.
  • -Board of Governors (7 members), located in Washington, DC-12 regional Fed banks, located around the U.S.-Federal Open Market Committee (FOMC), includes the Bd of Govs and presidents of some of the regional Fed banks The FOMC decides monetary policy.
  • the setting of the money supply by policymakers in the central bank
Suppose the Fed requires banks to hold 10 percent of their deposits as reserves. A bank has $20,000 of excess reserves and then sells the Fed a Treasury bill for $9,How much does this bank now have to lend out if it decides to hold only required reserves?
  • more than $200.
  • must increase its required reserves by $1.
  • 29,000
  • 13.33.
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Multiple Choice Questions
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