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The reserve ration is equal to? |
A commercial bank’s required reserves divided by its checkable-deposit liabilities |
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A bank’s required reserves can be calculated by? |
Multiplying its checkable-deposit liabilities by the reserve ratio |
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A commercial bank has actual reserves of $50,000 and checkable deposits of $200,000, and the required reserve ratio is 20%. The excess reserves of the bank are? |
$10,000 |
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A commercial bank has required reserves of $6,000 and the reserve ratio is 20 percent. How much are the commercial bank’s checkable-deposit liabilities? |
$30,000 ($6,000/0.2 =$30,000) |
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A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves? |
$10,000 ($50,000*0.2 =$10,000) |
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A bank is in the position to make loans when required reserves? |
Are less than actual reserves |
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An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by? |
$10,800 ($12,000*0.1 = $1,2000>>> $12,000-$1,200 = $10,800) |
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When required reserved exceed actual reserves, commercial banks will be forced to have borrowers? |
Repay loans |
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When loans are repaid at commercial banks? |
Money is destroyed |
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Which of the following statements is correct? |
A bank can only grant loans to customers if it has excess reserves |
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Money is "created" when? |
People receive loans from their banks |
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When a check is cleared against a bank, it will lose? |
Checkable deposits and reserves |
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Other things being equal, an expansion of commercial bank lending? |
Increases the money supply |
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The primary reason commercial banks must keep required reserves on deposit at Fed is to? |
Allow the Fed to control the amount of bank lending |
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When a bank grants a loan to a customer who then keeps the funds and keeps it at home for a while, then the money supply will? |
Increase |
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A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions that size of the money supply has? |
Increase by $4,000 |
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The relative importance of various asset items on a commercial bank’s balance sheet reflects a bank’s pursuit of which two conflicting goals? |
Liquidity and profits |
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In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that? |
Reinforced cyclical variations in the economy |
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The basic purpose of imposing legal reserve requirements of commercial banks is to? |
Provide a device through which the credit-creating activities of banks can be controlled |
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A bank can get additional excess reserves by doing any of the following except? |
Buying Treasury securities from the Fed |
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Banks can lend their excess reserves to other banks in the? |
Federal funds market |
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In the Federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for a period? |
Overnight |
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The Federal funds rate that banks pay for loans from? |
Other banks |
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A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has? |
Decreased by $10,000 |
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If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks’ reserves would? |
Decrease by $5 billion |
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When people withdraw money from their deposits in the banking system, the? |
Excess reserves of the banking system will decrease |
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The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required ratio must be? |
25 percent |
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The establishment of a Federal deposit insurance program resulted from the? |
Bank panics of 1930-1933 |
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During the Financial Crisis of 2007-2008, the FDIC increased deposit insurance coverage from? |
$100,000 to $250,000 per account |
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The difference between Fed behaviors during the Bank Panics of 1930-1933 and the Financial Crisis of 2007-2008 is that the Fed? |
Stood idly by during the former crisis, but took dramatic actions during the latter crisis |
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A consumer holds money to meet spending needs. This would be an example of the? |
Transactions demand of money |
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When nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, the quantity of money demanded for transactions purposes will be? |
$200 billion |
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If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that? |
On average, each dollar will be spent five times a year |
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Which of the following varies directly with the interest rate? |
The opportunity cost of holding money |
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A wealthy executive is holding money for a good time to invest in the stock market. This action would be an example of the? |
Asset demand for money |
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There is an asset demand for money primarily because of which function of money? |
Store of value |
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An increase in nominal GDP will? |
Increase the transactions demand and total demand for money |
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When the interest rate falls, the? |
Total amount of money demand increases |
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In which case would the quality of money demanded by the public tend to increase by the greatest amount? |
The interest rate decreases and nominal GDP increases |
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The interest rate will fall when the? |
Quantity of money supplied exceeds the quantity of money demanded |
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An increase in the money supply is likely to reduce? |
Interest rates |
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Which of the following statements is true? |
Bond prices and the interest rate are inversely ralated |
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If bond prices decrease, then the? |
Interest rate increases |
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Loans of the Federal Reserve Banks to commercial banks are? |
An asset of the Federal Reserve Banks and a liability for commercial banks |
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U.S. Treasury deposits at the Federal Reserve Banks are? |
A liability of the Federal Reserve Banks and an asset for the U.S. Treasury |
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The lending ability of commercial banks increases when the? |
Fed buys securities in the open market |
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The conduct of monetary policy in the United States is the main responsibility of the? |
Federal Reserve System |
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The fundamental objective of monetary policy is to assist the economy in achieving? |
A full-employment, noninflationary level of total output |
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Which one of the following is a tool of monetary policy for altering the reserves of commercial banks? |
Open-market operations |
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The purchase and sale of government securities by the Fed is called? |
Open market operations |
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The Fed’s lending of reserves to banks through a bidding process is referred to as the? |
Term auction facility |
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Which monetary policy tool was created in response to the Financial Crisis of 2007-2008? |
Term auction facility |
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The interest rate that the Fed charges banks for loans to them through the traditional channel is called? |
Discount rate |
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The tools of momentary policy for altering the reserves of commercial banks are the? |
Discount rate, reserve ratio, open-market operations, and term auction facility |
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The Board of Governors of the Federal Reserves System can increase commercial bank reserves by? |
Increasing the size of its term auction facility |
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The Federal Reserve alters the amount of the nation’s money supply by? |
Manipulating the size of excess reserves held by commercial banks |
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If the Fed buys government securities from commercial banks in the open market? |
Commercial banks give the securities to the Fed, and the Fed increases the banks’ reserves |
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Which of the following Fed actions increases the excess reserves of commercial banks? |
Lower the reserve ratio |
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Which of the following statements is correct? |
The supply of money declines when the public purchases securities from commercial banks |
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The Federal Reserve could reduce the money supply by? |
Selling government bonds in the open market |
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The major purpose of the Federal Reserve buying government securities in open market operations is to? |
Allow banks to increase their lending |
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When the Fed sells bonds to the public (securities dealers)? |
The money supply M1 immediately decreases, but not if the Fed sold to banks instead |
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If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in? |
Bank A’s excess reserves |
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The most frequently used monetary device for achieving price stability is? |
Open-market operations |
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Lowering the reserve ratio? |
Turns required reserves into excess reserves |
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If the board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will? |
Decrease the excess reserves of member banks and thus decrease the money supply |
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Lowering the discount rate has the effect of? |
Making it less expensive for commercial banks to borrow from central banks |
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A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to? |
Stimulate the economy |
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What policy tool of the Federal Reserve relies on bank borrowing to be effective? |
The discount rate |
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The interest rate that banks charge one another for the loan of excess reserves is the? |
Federal Funds rate |
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In recent years, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the? |
Federal Funds rate |
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A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." This headline indicates that the Federal Reserve is most likely trying to? |
Ease monetary policy |
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When the Fed wants to lower the Federal funds rate, it? |
Buys bonds from banks and the public |
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When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market? |
Increases and the Federal funds rate decreases |
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When the Federal Reserve raises the target Federal funds rate, it? |
Sells government securities to decrease the excess reserves available for overnight loan |
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When the Fed buys government securities in the open market, it? |
Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate |
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The interest rate that banks use as a benchmark rate for interest rates on a wide range of loans to businesses and individuals is the? |
Prime interest rate |
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If the Federal funds rate? |
Increase, the prime interest rate will increase |
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Which of the following statement is true? |
The prime interest rate will be higher than the Federal funds rate |
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Which of the following statements is correct? |
The prime interest rate rises and falls with the Federal funds rate |
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The Federal Reserve can increase aggregate demand by? |
Reducing the discount rate |
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Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks’ excess reserves? |
The money supply increased, which decreases the interest rate, and causes investment spending, output, and employment to increase |
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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 rate rise, thereby causing a decrease in investment spending and real GDP |
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If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when? |
The demand for money increases |
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The purpose of an expansionary monetary policy is to increase? |
Real GDP |
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Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment? |
The purchase of government securities in the open market and an increase in government spending |
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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 and lowering the discount rate |
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The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decided to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? |
Buying government securities and raising the discount rate |
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