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The Federal Reserve System:

is basically an independent agency.

The main function of the Federal Reserve System is to:

Control the money supply

In a fractional reserve banking system:

banks can create money through the lending process.

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be an example of:

A liability

A commercial bank has required reserves of $6,000 and the reserve ratio is 20 percent. What are the commercial bank's checkable-deposit liabilities?

$30,000

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, while the required reserve ratio is 10 percent. The excess reserves of the bank are:

$100,000

A bank is in the position to make loans when required reserves:

Are less than actual reserves

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

A bank has excess reserves of $5,000 and deposit liabilities of $50,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, this bank can lend a maximum of:

$2,500

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

m = 1/R.

Which one of the following is a tool of monetary policy for altering loan amounts of commercial banks?

Reserve ratio

Which increases the excess reserves of commercial banks?

The central banks buy bonds from commercial banks

Which of the following will likely accompany a money policy designed to expand the economy?

a lower Federal funds rate

The Federal funds rate is the interest rate that _______ charge(s) _______.

banks; other banks.

When the Federal Reserve acts to expand loans in the economy, then the aggregate:

Demand curve will shift to the right

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal policy

The crowding-out effect suggests that:

Increases in government spending may raise the interest rate and thereby reduce investment

The crowding-out effect arises when:

Government borrows in the money market, thus increasing interest rates and decreasing net investment spending

The crowding-out effect works through interest rates to:

Decrease the effectiveness of expansionary fiscal policy

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:

Decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy

Assume that when there is no crowding-out, an increase in government spending increases GDP by $100 billion. If there had been partial crowding-out, then GDP would have:

Increased by less than $100 billion

If the U.S. dollar appreciates relative to the British pound, then:

The pound will depreciate relative to the U.S. dollar

Foreign exchange rates refer to the:

Price of one nation's currency in terms of a second nation's currency

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is:

$2.25

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then:

fewer U.S. goods and services will be demanded by the South Koreans.

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:

Americans will buy more Mexican goods and services.

Depreciation of the dollar will:

increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.

Appreciation of the Canadian dollar will:

make Canada's exports more expensive and its imports less expensive.

The U.S. demand for British pounds is:

downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.

The supply of Japanese yen is:

upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

Which of the following will generate a demand for country X's currency in the foreign exchange market?

the desire of foreigners to buy stocks and bonds of firms in country X

Which of the following will generate a demand for country X's currency in the foreign exchange market?

the desire of foreigners to buy bonds of firms in country X

Government borrowing will cause an appreciation of the dollar because:

higher interest rates cause the demand for dollars to increase

If government borrowing causes the dollar to appreciate, the effect on Real GDP will be:

decreased G, increased X, decreased M

Depreciation of the dollar will cause the value of Imports (M) to increase:

in the short run because of the ability in alter quantities purchased

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