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Economics Exam #3
Terms in this set (56)
The financial system consist of financial _______, such as commercial banks, and financial _______, such as the stock market.
Two reasons savers keep deposits at banks are to:
earn a return on their savings and to facilitate making payments
A bond is a(n):
legal promise to repay a debt
Regular interest payments made to bondholders are called _______ payments.
When the interest rates on newly issued bonds increases, the price of existing bonds:
Shares of stocks are:
claims to partial ownership of a firm
Stockholders receive returns on their financial investment in the form of ______ and _______.
capital gains; dividends
The current price of stock increases when:
interest reates decrease
The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:
A financial intermediary that sells shares in itself to the public, and then uses these funds to buy a wide variety of financial assets is called a:
any asset used to make a purchase
The three functions of money are:
1. Serving as a medium of exchange
2. Unit of account
3. Store of value
The M1 measure of money consist of the sum of:
currency, checking deposits, and traveler's checks
The M2 measure of money consist of the sum of:
M1, saving deposits, small time deposits, and money market mutual funds
M1 differs from M2 in that:
M2 includes saving deposits, small-denomination time deposits, and money market mutual funds that are not included in M1.
Credit card balances are not considered to be money primarily because they:
are not apart of people's wealth
The amount of money in the US is determined by:
The combined behavior of commercial banks and the public, as well as actions of the Federal Reserve
Bank reserves are:
cash and similar assets held to meet depositor withdrawal or payments
Bank hold reserves:
to meet depositor withdrawal and payments
Commercial banks create new money:
through multiple rounds of lending
If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:
The central bank of the US is:
The Federal Reserve System
The two main responsibilities of the Federal Reserve are to ______ and ______
conduct monetary policy; oversee financial markets
The most important tool of monetary policy is:
open market operations
In an open-market purchase the Federal Reserve ________ government bonds and the supply of bank reserves ______.
The Federal Reserve System is:
The central bank of the US
The two main responsibilities of the Federal Reserve System are to ______ and to _________.
conduct monetary policy; oversee financial market
The Federal Reserve consist of ____ regional Banks, ______ governors on the Board of Governors, and ______ voting members?
The seven Fed governors, the president of the Federal Reserve Bank of New York, and four of the presidents of the other regional Federal Reserve Banks constitute the:
Federal Open Market Committee
The Federal Open Market Committee makes decisions about ______ policy.
The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:
conducting open-market operations
The federal funds rate is the interest rate on short-term loans made by:
commercial banks to other commercial banks
For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for:
the federal funds rate
A higher interest rate ______ investment spending and ______ consumption spending.
In the short-run, if the Federal Reserve increases interest rates, then consumption and investment _____, planned aggregated expenditure _______, and short-run equilibrium output ______.
decrease; decreases; decreases
To close a recessionary gap, the Federal Reserve must _____ real interest rates by _______ the money supply.
To close the expansionary gap, the Fed ______ interest rates which _______ planned aggregated spending and ________ short-run equilibrium output.
raises; decreases; decreases
Higher real income _____ the demand for money and a higher price level ______ the demand for money.
The money demand curve will shift to the right if:
-the price level increases
-real income increases
The money demand curve will shift to the left if:
-real income decreases
-price level decreases
Because the Fed determines the money supply, the:
money supply curve is vertical
The equilibrium quantity of money in circulation is determined by:
The Federal Reserve
Any value of the money supply chosen by the Federal Reserve implies a specific value for _______.
the nominal interest rate
Any value of the nominal interest rate chosen by the Federal Reserve implies a specific value for _______.
the money supply
If the Fed wishes to increase nominal interest rates, it must engage in a open market _____ of bonds that _______ the money supply.
During Christmas shopping season, the demand for money increases significantly. To offset the increase in money demanded, the Fed must ____ the money supply, which will put ______ pressure on nominal interest rates.
Prior to January 2000, the demand for money increased as people anticipated Y2K problems. To offset this increase in money demand, the Fed would have had to _____ the money supply, which would have put ______ pressure on nominal interest rates .
Refer to the figure above. Based on the diagram, the nominal interest rate equals ________ and the money supply equals _______. (Quiz 12, #26)
5 %; 500
Refer to the figure above. If the Federal Reserve wants to lower the interest rate to 3%, it must _______ the money supply to _________. (Quiz 12, #27)
When the Federal Reserve lends reserves to commercial banks, this is an example of:
discount window lending
The Federal Reserve discount rate is the rate of interest charged on loans from ______to ______.
The Federal Reserve; commercial banks
The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate.
Commercial banks are maintaining a 5% reserve/deposit ratio and the Fed lowers the required reserve ratio to 3%, then banks may _____ their loans and deposits, and the money supply may ________.
The Federal Reserve can increase the money supply by:
reducing reserve requirements
The ______ is the interest rate commercial banks pay to the Fed; the ______ is the interest rate commercial banks charge each other for short-term loans.
discount rate; federal funds rate
If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that _____the money supply.
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