chpt 14

In the model of the money supply process, the depositor's role in influencing the money supply is represented by

the currency holdings.

In the model of the money supply process, the bank's role in influencing the money supply process is represented by

reserves

In the model of the money supply process, the Federal Reserve's role in influencing the money supply is represented by

the required reserve ratio, nonborrowed reserves, and borrowed reserves.

The monetary base consists of

currency in circulation and reserves.

The interest rate the Fed charges banks borrowing from the Fed is the

discount rate.

Both ________ and ________ are Federal Reserve assets.

securities; loans to financial institutions

Total reserves minus bank deposits with the Fed equals

vault cash.

Total Reserves minus vault cash equals

bank deposits with the Fed.

Both ________ and ________ are monetary liabilities of the Fed.

currency in circulation; reserves

The monetary liabilities of the Federal Reserve include

currency in circulation and reserves.

The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called

the monetary base.

When banks borrow money from the Federal Reserve, these funds are called

discount loans.

When the Federal Reserve purchases a government bond from a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.

When the Federal Reserve extends a discount loan to a bank, the monetary base ________ and reserves ________.

increases; increase

The monetary base minus currency in circulation equals

reserves

An increase in ________ leads to an equal ________ in the monetary base in the short run.

float; increase

The monetary base minus reserves equals

currency in circulation.

When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system

increase by $100.

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

decrease; remains unchanged

When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking system

decrease by $100.

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

increase by $100.

When a primary dealer sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

increase; increases

High-powered money minus reserves equals

currency in circulation.

All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system

decrease by $100.

The Fed does not tightly control the monetary base because it does NOT completely control

borrowed reserves.

There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks.

purchase; extend

If the Fed decides to reduce bank reserves, it can

sell government bonds.

When a primary dealer buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease; decreases

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

remain unchanged; remains unchanged

Purchases and sales of government securities by the Federal Reserve are called

open market operations.

High-powered money minus currency in circulation equals

reserves.

When the Federal Reserve sells a government bond to a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease; decreases

The monetary base declines when

the Fed sells securities.

A decrease in ________ leads to an equal ________ in the monetary base in the short run.

float; decrease

Subtracting borrowed reserves from the monetary base obtains

the nonborrowed monetary base.

The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is

the Federal Reserve System.

Individuals that lend funds to a bank by opening a checking account are called

depositors

Of the three players in the money supply process, most observers agree that the most important player is

the Federal Reserve System.

The three players in the money supply process include

banks, depositors, and the central bank.

Everything else held constant, a decrease in holdings of reserves will mean

a decrease in the money supply.

A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________.

rise; increase

The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves.

positively; positively

Everything else held constant, an increase in currency holdings will cause

the money supply to fall.

An increase in the nonborrowed monetary base, everything else held constant, will cause

the money supply to rise.

The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate.

negatively; positively