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Macro Exam #2 Chapter 15
Terms in this set (30)
Which of the following can create money?
the Federal Reserve System
Which of the following is a function of the Federal Reserve?
taking deposits from commercial banks
Of the following means of payment which is the most liquid?
The M1 measure of the money supple includes:
currency and checkable deposits
Which of following is the largest or broadest measure of the money supply?
Credit cards are counted in which definition of money?
none of the answers are correct
The Fed has the most control over which measure of the money supply?
In a fractional reserve banking system, the reserve ratio will be:
less than 1
The money multiplier process refers to changes in the money supply that come:
indirectly from commercial bank loans
If banks are hiding 100 percent of deposits in reserves, the money multiplier will be:
If 1,000 of new reserves issued directly by the Fed results in a 5,000 increase in the money supply, the reserve ratio must be:
If the Fed buys 100,000 worth of U.S government bonds and the reserve ratio is 0.1, how much will the money supply increase?
What is the Federal Funds rate?
the rate banks pay to borrow money from each other overnight
how is the discount rate set?
it is simply announced by the Fed
if the Fed wishes to decrease the money supple, it could:
increase the interest rate it pays on reserve held by commercial banks
The Term Auction Facility was designed to
encourage banks to borrow money from the Fed
Systemic risk is:
the risk that one financial institution's failure will lead to many other institutions failing
Which of the following is likely to increase the Federal Funds rate?
open market sales
The Fed's control of the money multiplier process is incomplete because:
- it does not know how many loans banks will want to make
- it does not know how much currency the public will deposit into the banking system
-it does not know how many loans the public will demand
The members of the Board of Governors of the Federal Reserve System hold terms that are:
14 years long and nonrenewable
What is the central bank in the United States, what is its primary function, and how does it carry out this function?
What three measures of the money supply are discussed in this chapter?
How is money created directly by the Fed?
How is money created indirectly by fractional reserve banking?
We often think of the Fed as controlling the money supply. Explain how the Fed, in reality, controls only a small part of the money supply.
If the Federal Reserve credits your account with an extra 10,000 and banks have a reserve ratio of 0.05, how much will the money supply increase? Show your work.
Explain how an open market purchase by the Fed causes lower interest rates in the economy.
What is systemic risk and how does the Fed deal with it?
What does it mean that a central bank is independent?What makes the Fed independent?
Why doesn't the Fed know how much money will be created through the money multiplier process?
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