Chapters 14, 15 & 16 Flashcards
During the financial crisis of 2007-2008,
A) the Federal Reserve took over and reorganized a number of insolvent firms.
B) the Federal Reserve served as lender of last resort to solvent firms, but let insolvent firms go bankrupt.
C) many solvent firms were in danger of bankruptcy because their assets were illiquid.
D) many large banks were insolvent and ultimately declared bankruptcy.
many solvent firms were in danger of bankruptcy because their assets were illiquid.
What function is money serving when you deposit money in a savings account?
A) a medium of exchange
B) a unit of account
C) a checkable deposit
D) a store of value
a store of value
Which of the following items are included in money supply M2 but not M1?
A) checkable deposits
B) coins
C) Federal Reserve notes
D) savings deposits
savings deposits
The basic requirement for an item to function as money is that it be
A) authorized as legal tender by the central government.
B) some form of debt or credit.
C) backed by precious metals—gold or silver.
D) generally accepted as a medium of exchange.
generally accepted as a medium of exchange.
The most important among the Federal Reserve district banks in conducting monetary policy is the
A) New York bank.
B) Chicago bank.
C) San Francisco bank.
D) Boston bank.
New York bank
Which of the following is included as part of the M1 money supply?
A) $200,000 balance in the checking account of Main Street Trading Corp.
B) $200 million in the vaults of the Federal Reserve Banks
C) $200,000 in reserves held by Main Street Commercial Bank in its vaults
D) $2 million balance in the checking account of the U.S. Treasury
$200,000 balance in the checking account of Main Street Trading Corp.
Which of the following would be considered to be the most liquid?
A) savings deposits
B) small time deposits
C) money market mutual funds
D) checkable deposits
checkable deposits
“Thrifts” refers to the following institutions except
A) commercial banks.
B) credit unions.
C) mutual savings banks.
D) savings and loan associations.
commercial banks
Money market deposit accounts are included in
A) M1 only.
B) M2 only.
C) neither M1 nor M2.
D) both M1 and M2.
M2 only
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
A) M1 increases and M2 stays the same
B) M1 increases and M2 decreases
C) M1 decreases and M2 increases
D) M2 increases and M1 stays the same
M1 increases and M2 stays the same
An asset’s liquidity refers to its ability to be
A) a means of payment.
B) used and enjoyed.
C) bought and stored.
D) increasing in value over time.
a means of payment
A bank temporarily short of required reserves may be able to remedy this situation by
A) granting new loans.
B) borrowing funds in the federal funds market.
C) shifting some of its vault cash to its reserve account at the Federal Reserve.
D) buying bonds from the public.
borrowing funds in the federal funds market.
The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of
A) its actual reserves.
B) the reserve ratio.
C) its excess reserves.
D) the MPS.
the reserve ratio
The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to
A) the reciprocal of the required reserve ratio.
B) 1 minus the required reserve ratio.
C) 1/MPS.
D) the reciprocal of the income velocity of money.
the reciprocal of the required reserve ratio.
A decrease in the reserve ratio increases the
A) amount of actual reserves in the banking system.
B) amount of excess reserves in the banking system.
C) ratio of coins to paper currency in the economy.
D) number of government securities held by the Federal Reserve Banks.
amount of excess reserves in the banking system.
