Post Chapter 13 Quiz – Flashcards
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Checking account deposits are counted as part of the M1 money supply because
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they are widely used as a means of making payment.
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Which of the following is the primary tool the Fed uses to control the supply of money?
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open market operations
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Which of the following will limit the money creation process to an amount less than the potential amount?
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increase in currency holdings by the public
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A bank that has $10,000 in excess reserves can extend new loans up to a maximum of
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$10,000.
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If the prices of goods and services fall, what happens to the value of money (its purchasing power)?
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It increases.
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When the Fed lowers the discount rate, it makes it
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cheaper for banks to obtain additional reserves by borrowing from the Fed.
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An individual bank can lend out at most its
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excess reserves.
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What is the primary benefit of a monetary system of exchange compared to a barter system?
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Better efficiency in arranging transactions.
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Banks are considered a safer place to deposit money now than they were prior to 1933 because
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the creation of the FDIC reduced the likelihood of bank runs.
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In its conduct of open market operations, the Fed now buys and sells
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a wide range of assets including corporate bonds and mortgage-backed securities.
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What are open market operations?
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The tool most often used by the Fed to alter the money supply.
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When the actual reserves held by a bank exceed the legal requirement, the bank
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has excess reserves, which can be used to extend additional loans.
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The Fed acquired the authority to do which of the following during the economic crisis of 2008?
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Pay interest to commercial banks on their reserves.
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Who owns the Fed?
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member banks
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Which of the following is true regarding the foreign holdings of U.S. dollars?
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They indicate that foreigners have confidence in the monetary policy and economy of the United States.
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(MA) When the Fed buys Treasury Bonds on the open market, it will tend to
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increase the money supply; decrease interest rates
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(MA) When the Fed sells Treasury Bonds on the open market, it will tend to
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decrease the money supply; increase interest rates
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If the Fed lends to member banks, what happens to required reserves, excess reserves, and the money supply?
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Required reserves remain the same, excess reserves increase, and the money supply will increase.
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(MA) Suppose you deposit $1,000 into your checking account. If the reserve requirement is 10 percent, what impact does this transaction have?
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The money supply remains the same; The bank's required reserves increase by $100; The bank can make new loans of $900
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Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?
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There is initially no change in the supply of money; your bank's excess reserves are reduced by $800.
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If you have a checking account at a local bank, your bank account there is
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a liability of the bank and an asset to you.
