ECON 2010 CH 16 HomeWork – Flashcards

A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1000 at a price of $10,000. If the interest rate in the economy is now 12.5% a year and you want to sell the bond, the maximum price that you can get for it is: a) $7,500 b) $8,000 c) $9,750 d) $12,500

The lending ability of commercial banks increases when the: a) Reserve ratio is raised b) Treasury collects tax revenues c) Fed sells securities in the open market d) Fed buys securities in the open market

A decrease in the interest rate will cause a(n): a) Increase in the transactions demand for money b) Decrease in the transactions demand for money c) Decrease in the amount of money held as an asset d) Increase in the amount of money held as an asset

When the Fed wants to lower the Federal funds rate, it: a) Increases the discount rate b) Increases the reserve ratio c) Buys bonds from banks and the public d) Sells bonds to banks and the public

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in: a) Money supply M1 b) Bank A's excess reserves c) Bank A's liabilities d) Bank A's required reserves

Which of the following statements is correct? a) Excess reserves may be found by subtracting actual from required reserves b) The supply of money declines when the public purchases securities from commercial banks c) Commercial bank reserves are a liability to commercial banks but an asset to Federal Reserve Banks d) Commercial banks reduce the supply of money when they purchase government bonds from the public

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will: a) Decrease by 1 percentage point b) Decrease by 2 percentage points c) Increase by 1 percentage point d) Increase by 2 percentage points

The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2013) is: a) Treasury deposits b) Federal Reserve Notes c) Reserves of commercial banks d) Loans to commercial banks

There is an asset demand for money primarily because of which function of money? a) Legal tender b) Store of value c) Measure of value d) Medium of exchange

The interest rate that the Fed charges banks for loans to them through the traditional channel is called: a) The discount rate b) Interest on reserves c) The federal funds rate d) The prime rate

When the Federal Reserve raises the target Federal funds rate, it: a) Sells government securities to increase the excess reserves available for overnight loan b) Buys government securities to increase the excess reserves available for overnight loan c) Sells government securities to decrease the excess reserves available for overnight loan d) Buys government securities to decrease the excess reserves available for overnight loan

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately: a) Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million b) Increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million c) Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million d) Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million

A consumer holds money to meet spending needs. This would be an example of the: a) Use of money as a measure of value b) Use of money as legal tender c) Transactions demand for money d) Asset demand for money

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: a) Reduce inflation in the economy b) Raise interest rates c) Ease monetary policy d) Tighten monetary policy