Chapter 13 Flashcards
- The supply of money in the economy is determined primarily by:
a. the banking system.
b. the actions of the Federal Reserve.
- In the _______ increases in the supply of money will __________.
a. short run, raise total demand and output
d. long run, lead to higher prices
- Barter transactions will occur only when:
c. there exists a double coincidence of wants.
When money is used to express the value of goods and services, it is
functioning as a:
c. unit of account.
- As inflation rates increase, money becomes less useful as a:
store of value
- Checking account balances are included in:
c. both M1 and M2.
- Checking accounts that pay interest are included in the:
b. “other checkable deposits” part of M1.
- Which of the following is included in M2?
a. commercial paper
b. U.S. Treasury bonds
c. savings accounts
d. AT&T bonds
e. stocks
c. savings accounts
- Which of the following appears in M2 and not M1?
a. currency.
b. checking account balances.
c. money market mutual funds.
d. travelers’ checks.
e. None of the above.
c. money market mutual funds.
- Economists keep an eye on both M2 and M1 because:
c. it is not clear how citizens use money market accounts.
- Which of the following is a bank liability?
a. reserve deposits held at the Fed
b. reserve deposits held at the bank
c. loans made to customers
d. securities the bank has p
E
- The fraction of deposits that banks are required by law to hold and not
lend out are called its:
required reserves
- Suppose that while vacationing in Monaco, you won 25,000 French francs
which is the equivalent of $5,000. When you return to the U.S., you
deposit the $5,000 into your checking account. The effect is to
(assuming the required reserve ratio is 20%):
a. increase your bank’s liabilities by $5,000.
b. increase your bank’s excess reserves by $4,000.
c. lead to a multiple expansion in the money supply (checking account
balances) by $25,000.
d. increase your bank’s required reserves by $1,000.
e. All of the above.
E
- Suppose Barry deposits $10,000 in his bank. If the reserve ratio is 20%,
this will lead to an increase of ________ in checking account balances.
50,000
Suppose Kirk deposits $5,000 in his bank. If the reserve ratio is 25%,
this will lead to an increase of ______ in M1.
d. $15,000
- If the banking system has a required reserve ratio of 5 percent, then
the money multiplier is:
e. 20.
- The money multiplier tends to be greater when:
b. banks hold few excess reserves.
- The money multiplier will be smaller when:
a. bank customers prefer to hold a bigger amount of their money as cash
(instead of in their checking account).
b. banks prefer to lend out 95% of their excess reserves instead of
100%.
Which of the following is responsible for buying government securities
in order to influence monetary policy?
d. The Federal Reserve
- An open market purchase occurs when:
e. the Federal Reserve purchases Treasury bonds.
- An open market sale by the Fed:
b. decreases the total amount of reserves in the banking system.
If the Fed buys $60,000 of U.S. bonds and the reserve requirement is
10%, M1 will eventually:
d. increase by $600,000.
- Changing the reserve requirement is:
c. disruptive to the banking system.
- An increase in the discount rate:
d. increases the cost of reserves borrowed from the Fed.
- A decrease in the discount rate will:
c. increase the money supply.
. In practice, the Federal Reserve keeps the discount rate close to the
______ rate in order to avoid large swings in borrowed reserves by
banks.
c. federal funds
- Which of the following is responsible for decisions on monetary policy?
c. The Federal Open Market Committee.
The president of the _______ Federal Reserve Bank is always a member of
the FOMC.
d. New York
