Final Chapter 10 Flashcards
Expansionary monetary policy: Answers: fights the increase in the national debt. fights recession. fights inflation. fights communism.
fights recession.
Members of the Federal Reserve system’s Board of Governors
Answers:
are elected at large by district banks.
hold 14-year staggered terms.
are a special subcommittee of the Senate.
are elected for life.
hold 14-year staggered terms.
With a 20% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is Answers: $100. $90. $110. $80.
80
The regulatory function of the central bank began with the:
Answers:
ERA of the First and Second Bank of the U.S.
ERA of Regulation.
ERA of the FED.
National Banking ERA.
National Banking ERA.
The sum of currency in circulation and bank reserves is the \_\_\_\_\_\_\_\_. Answers: liabilities of the Fed reserves of the Fed monetary base assets of the Fed
monetary base
The interest rate the Fed charges banks borrowing from the Fed is the Answers: federal funds rate. Treasury bill rate. prime rate. discount rate.
discount rate.
The functions of money are
Answers:
medium of exchange, unit of account, and means of payment.
medium of exchange, unit of account, store of value, and standard of deferred value.
pricing, contracts, and means of payment.
medium of exchange and the ability to buy goods and services.
medium of exchange, unit of account, store of value, and standard of deferred value.
Money is created by Answers: banks taking in deposits. government taxation. banks making loans. banks paying for depositor's insurance.
banks making loans.
If bad credit risks are the ones who most actively seek loans then financial intermediaries face the problem of Answers: costly state verification. adverse selection. free-riding. moral hazard.
adverse selection.
Contactionary monetary policy: Answers: risks a stock market crash. increases global dependence. risks recession. risks inflation.
risks recession.
Contactionary monetary policy: Answers: fights recession. fights inflation. fights communism. fights the increase in the national debt.
fights inflation.
Which of the following is true:
Answers:
Monetary base = currency in circulation plus savings accounts balances.
Monetary base = currency in circulation plus bank reserves.
Monetary base = currency in circulation plus bank checking deposits.
None of the above.
Monetary base = currency in circulation plus bank reserves.
Expansionary fiscal policy:
Answers:
decreases government spending, raises taxes, decreases GDP, and increases unemployment.
decreases interest rates, increases investment, GDP, and decreases unemployment.
increases government spending, lowers taxes, increases GDP, and decreases unemployment.
increases interest rates, decreases investment, GDP, and increases unemployment.
increases government spending, lowers taxes, increases GDP, and decreases unemployment.
If the Fed wants to decrease the quantity of money, it can Answers: purchase U.S. government securities. sell U.S. government securities. raise income tax rates. decrease the government budget deficit.
sell U.S. government securities.
Greater optimism about the expected profits from investment projects
Answers:
causes a movement upward along the demand for loanable funds curve.
causes a movement downward along the demand for loanable funds curve.
shifts the demand for loanable funds curve leftward.
shifts the demand for loanable funds curve rightward.
shifts the demand for loanable funds curve rightward.
Being careless with fire because you have fire insurance," is an example of: Answers: fraud. adverse selection. high profit banking. moral hazard.
moral hazard.
A decrease in disposable income ________.
Answers:
results in movement up the supply of loanable funds curve
has no effect on the supply of loanable funds curve
shifts the supply of loanable funds curve leftward
shifts the supply of loanable funds curve rightward
shifts the supply of loanable funds curve rightward
When banks borrow money from the Federal Reserve, these funds are called Answers: discount loans. Treasury funds. federal funds. federal loans.
discount loans.
The Federal Open Market Committee (FOMC) is composed of
Answers:
the Board of Governors, the Vice-President of the United States, and the Secretary of Treasury for the United States.
the 12 Presidents of the Federal Reserve regional banks.
Presidents of 5 Federal Reserve regional banks and the Board of Governors.
representatives from the governors of all 50 states.
Presidents of 5 Federal Reserve regional banks and the Board of Governors.
3-6-3 Rule: Pay savers 3% interest on savings, charge borrowers 6% on loans, and be on the golf course by 3pm.
true or false?
true
The free banking ERA was from:
1836-1864
The current chairman of the Federal Reserve is
jerome Powell
Today the United States has a dual banking system in which banks supervised by the \_\_\_\_\_\_\_\_ and by the \_\_\_\_\_\_\_\_ operate side by side. Answers: federal government; municipalities municipalities; states federal government; states state governments; municipalities
federal government; states
Technological progress that increases the expected profit shifts the demand for loanable funds curve
Answers:
rightward and increases the real interest rate.
rightward and reduces the real interest rate.
leftward and increases the real interest rate.
leftward and reduces the real interest rate.
rightward and increases the real interest rate.
When the inflation rate is positive, the
Answers:
real interest rate is greater than the nominal interest rate.
real interest rate is less than the nominal interest rate.
real interest rate equals the nominal interest rate.
nominal interest rate is zero.
real interest rate is less than the nominal interest rate.
Which of the following is a tool that is most used by the Fed to control the quantity of money? Answers: government expenditure multiplier excess reserves open market operations real interest rate
open market operations
"Those borrowers who most desperately want loans are the ones who are least able to repay the loans," is an example of: Answers: adverse selection. fraud. moral hazard. high profit banking.
adverse selection.
The definition of M2 includes Answers: savings deposits. M1. time deposits. all of the answers in this question.
all of the answers in this question.
The "double coincidence of wants" problem is Answers: resolved under a system of barter. resolved by the use of money. created by the use of money. always present in all economic systems.
resolved by the use of money.
Depository institutions
Answers:
earn money by charging the government for their services.
earn profit according to how much the Federal Reserve pays them.
make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans.
earn zero profit but receive compensation by the government because their services are so valuable.
make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans.
For a commercial bank, the term “reserves” refers to
Answers:
the net interest that it earns on loans.
a banker’s concern (“reservation”) in making loans to an individual without a job.
the cash in its vaults and its deposits at the Federal Reserve.
the profit that the bank retains at the end of the year.
the cash in its vaults and its deposits at the Federal Reserve.
Money that has value simply because the government declares it so, is called: Answers: fiat money. commodity money. gold. representative commodity money.
fiat money.
During periods of inflation, which function of money is most severely affected? Answers: unit of account means of payment medium of exchange store of value
store of value
On the Fed’s balance sheet, assets include
Answers:
Federal Reserve notes and depository institutions’ deposits at the Federal Reserve.
Federal Reserve notes and loans to depository institutions.
U.S. government securities and loans to depository institutions (discount loans).
depository institutions deposits at the Federal Reserve and loans to depository institutions.
U.S. government securities and loans to depository institutions (discount loans).
The most important function of money is its role as: Answers: unit of account. store of value. medium of exchange. standard of deferred value.
medium of exchange.
When you keep money in a change jar to be used later, what function is it fulfilling? Answers: unit of account. recording device. medium of exchange. store of value.
store of value.
M1 includes
Answers:
money, stocks and bonds.
currency, checking deposits, and travelers checks.
money market mutual funds, stocks and bonds.
savings, checking deposits and travelers checks.
currency, checking deposits, and travelers checks.
Changes in all of the following shift the supply curve of loanable funds EXCEPT Answers: the real interest rate. expected future income. disposable income. wealth.
the real interest rate.
The nation is divided into \_\_\_\_\_\_\_\_ Federal Reserve districts, each having a Federal Reserve Bank. Answers: 10 7 12 52
12
What do these dates in the U.S. have in common (1819,1837,1857,1873,1884,1893,1907, 1930-1933, 2007-2009)? Answers: special state elections introduction of new currency issues minting of new types of coins Financial panics that caused recessions
Financial panics that caused recessions
According to many mainstream economists (and the view of your instructor), the financial markets:
Answers:
are (1) inherently stable and need very little regulation.
answers 1 and 2 are correct.
are inherently unstable due to substantial negative externalities.
should (2) be deregulated by the Trump administration.
are inherently unstable due to substantial negative externalities.
The FED was founded in 1913 due to the banking panic of 1907
true or false?
true
Financial intermediaries reduce transaction costs by: Answers: all of the answers are correct. diversification. economies of scale. expertise.
all of the answers are correct.
Monetary policy is controlled by Answers: Congress. the Federal Reserve. the president. the Treasury Department.
the Federal Reserve.
Money that has value simply because the government declares it so, is called: Answers: representative commodity money. commodity money. gold. fiat money.
fiat money.
