Problems and Short Answer Questions CH11 Flashcards
Suppose the Federal Reserve purchases a U.S government bond from you for $10,000. What is the name of the Fed’s action?
Open-market operations
What is barter and why does it limit trade?
Barter is trading goods and services directly for other goods and services. It requires a double coincidence of wants
What are the two main jobs of the Federal reserve?
- regulate banks to ensure the health of the banking system and 2. control the quantity of money in the economy
What are the monetary policy tools of the Fed?
Open market operations, the fed lending to the banks, reserve requirements and the Fed paying interest on bank reserves.
If the Fed buys $1,000 of government bonds from you and you hold all of the payment as currency at home, by how much does the money supply rise?
$1,000
What must the Fed do with open-market operations and the money supple if it wishes to reduce the federal funds rate?
It must buy bonds, wich injects reserves into the banking system and increases the money supply.
True or False? Commodity money has value independent of its use as money.
true
True or False? The M1 money supply is composed of currency, demand deposits, travelers checks, and other checkable deposits.
true
True or False?When you are willing to go to sleep tonight with $100 in your wallet and you have complete confidence that you can spend it tomorrow and receive the same ammout of goods as you would have received had you spent it today, money has demonstrated its function as a medium of exchange.
false, money has demonstyrated its function as a store of value
True or False? The federal reserve is the central bank of the United States and is run by the seven members of the Board of Governors?
true
True or False? The Federal Open Market committee (FOMC) meets about every six weeks and discusses the condition of the economy and votes on changes in monetary policy.
true
True or False?If there is 100% reserve banking system, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.
true
True or False?If the fed desires to contract the money supple is could to any of the following: sell government bonds, increase the discount rate, increase the reserve requirement, and increase the rate paid on reserves.
true
True or False? An increase in the reserve requirement increases the money multiplier and increases the money supply.
False, and increase in the reserve requirement decreases the money multiplier, which decreases the money supply.
If banks choose to hold excess reserves, lending decreases and the money supply decreases
true
The Board of Govenors of the Federal Reserve System consists of
seven members appointed by the president
To insulate the Federal Reserve from political pressure
The board of govenors are appointed to 14 year terms.
When the Fed sells government bonds, the money supply
decreases
Required reserves of banks are a fixed percentage of their
deposits
Reducing the reserve requirement will likely
increase the money supply
A decrease in the reserve requirement causes the money multiplier to
rise
The discount rate is
the interest rate the Fed charges on loans to banks.
Think of a policy combination that would consistently work to increase the money supply…
buy government bonds, decrease reserve requirements, decrease the discount rate.
True or False? Assets minus Liabilities equals owners equity or capital.
True
The Fed’s tools of monetary control are
- open-market operations 2. lending to banks 3. reserve requirements 4. paying interest on reserves
If banks increase their holdings of excess reserves…
The money multiplier and the money supply decrease.
If the Fed doesn’t want the money supply to rise when it purchases new furniture, what might it do to offset the purchase?
The Fed could sell government bonds of equal value to offset other purchases.
