ECO 2013 (Ch.34, Ch.35, Ch.36)

(Last Word) During the financial crisis of 2007-2008, the Federal Reserve

Served as a lender of last resort to both solvent and insolvent firms

As it relates to Federal Reserve activities, the acronym FOMC describes the

Federal Open Market Committee

Collateralized default swaps

Insured holders of loan-backed securities in case the underlying loans were not repaid

If the price index rises from 100 to 120, the purchasing power value of the dollar

Will fall by one-sixth.

If you are estimating your total expenses for school next semester, you are using money primarily as

A unit of account

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as

No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

The Federal Reserve System performs the following functions except

Providing banking services to the general public

The blurring of the lines separating the subsets of the financial industry started in the

1990s

The seven members of the Board of Governors of the Federal Reserve System are

Appointed by the President with the confirmation of the Senate.

A bank that has assets of $85 billion and a net worth of $10 billion must have

Liabilities of $75 billion.

A commercial bank can expand its excess reserves by

Demanding and receiving payment on an overdue loan

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be

10 percent

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction:

The supply of money is increased by $5,000.

Money is "created" when

People receive loans from their banks

The market for immediately available reserve balances at the Federal Reserve is known as the

Federal funds market

Disequilibrium in the money market is mainly corrected via a change in

Bond Prices

If the Fed wants to discourage commercial bank lending it will

Increase the interest paid on excess reserves held at the Fed

The Federal Reserve can increase aggregate demand by

Reducing the discount rate

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

Buying government securities, doing repos, and lowering the discount rate

The problem of cyclical asymmetry refers to the idea that

A restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.

The purpose of a restrictive monetary policy is to

Raise interest rates and restrict the availability of bank credit.

Which of the following best describes the cause-effect chain of an expansionary monetary policy

An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP

Which of the following best describes what occurs when monetary authorities sell government securities

There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP

Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply

Expands and commercial bank reserves increase

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5000 of cash is deposited in the bank, it can increase its loans by a maximum of

$3,750

An asset's liquidity refers to its ability to be

A means of payment

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking system will be

Decreased by $40 billion

Assume no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual finds increase by $40 billion, the

M1 money supply will decline and the M2 money supply will remain unchanged

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the

M1 money supply will not change

Cash held by a bank in its vault is a part of the bank's

Reserves

Coins in people's pockets and purses are

Included in both M1 and M2

Consider the following information about a banking system: new currency deposited in the system= $40 billion, legal reserve ratio= 0.20, excess reserves prior to the currency deposit= $0. With $40 billion deposit, the banking system will be able to expand the money supply through loans by

$200 billion

If the Federal Reserve System sells $5 Billion of government securities to commercial banks, the bank's reserves would

Decrease by $5 Billion

If the monetary multiplier is 6, then the reserve ratio must be

0.167

Money market deposit accounts are included in

M2 only

Small-denominated time deposits, by definition

Are less than $100,000

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of

$75000

The ABC Commercial has $5,000 in excess reserves, and the reserve ration is 30 percent. This information is consistent with the bank having

$90,000 in checkable deposit liabilities and $32,000 in reserves

The most important among the Federal Reserve district banks in conducting monetary policy is the

New York bank

The purchasing power of the dollar

Is the reciprocal of the price level.

Wells Fargo, J.P. Morgan Chase, and Citibank, are all primarily:

Commercial banks

When a bank grants a loan to a customer who then keeps the funds in her checking account at that bank, the bank's

Actual reserves will increase

When a bank has a check drawn and cleared against it

The amount of required reserves the bank must have will fall

Which of the following functions of money enables society to gain the benefits of geographic and labor specialization

Medium of exchange

True or False: Actual reserves minus required reserves equal excess reserves

True

Which of the following is not part of the M2 money supply

Large-denominated time deposits

Which one of the following is presently a major deterrent to bank panics in the United States

Deposit insurance