ECON-2120 Lecture 3: Econ 212 April 18
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Each Federal Reserve Bank is
Answer
a corporation. | ||
a government owned enterprise. | ||
a government subsidized entity. | ||
a government-sponsored enterprise. |
A transaction in which the Fed agrees to buy a security one day and sell it back the next day is
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an overnight securitization operation. | ||
a repurchase agreement. | ||
a legal tender. | ||
a rebate sale. |
The Federal Reserve document that states the goals of the FOMC and the target for the federal funds rate is known as the
Answer
Directive. | ||
Beige book. | ||
Bluebook. | ||
Green book. |
How long is the normal term in office for a Governor of the Federal Reserve Board?
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Five years | ||
Seven years | ||
Fourteen years | ||
Life |
The federal funds rate is the interest rate on
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loans to banks from the Fed. | ||
loans by banks to the Fed. | ||
short-term loans between banks. | ||
Treasury bills. |
Expenditures of each Federal Reserve Bank are approved by
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the U.S. Senate. | ||
the President of the United States. | ||
the U.S. Treasury Department. | ||
the Federal Reserve Board of Governors. |
Federal Reserve Banks pay for their central banking operations through
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government tax revenue. | ||
interest on the securities they own. | ||
fees charged to banks that use their services. | ||
dividends paid by local banks. |
When the Fed engages in open-market operations, the transactions are conducted by
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the Open Market Desk at the Federal Reserve Bank of New York. | ||
the Open Market Desk at the Federal Reserve Board in Washington, D.C. | ||
the National Bureau of Economic Research. | ||
the Federal Open Market Committee. |
In 2006, Chairman Greenspan left the Fed because
Answer
President Bush wanted him to resign. | ||
he reached mandatory retirement age. | ||
his term as Governor expired. | ||
his term as Chairman expired. |
The Federal Reserve publication that discusses forecasts for the economy is known as the
Answer
Redbook. | ||
Beigebook. | ||
Bluebook. | ||
Greenbook. |
The FOMC directive
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describes forecasts for the economy. | ||
states the target for the federal funds rate. | ||
discusses the regional economies around the country. | ||
shows the Fed's balance sheet. |
The chairman of the Federal Reserve Board who reduced the inflation rate from over 10 percent to about 3 percent in the early 1980s was
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Arthur Burns. | ||
G. William Miller. | ||
Paul Volcker. | ||
Alan Greenspan. |
Which Fed chairman ensured the independence of the Federal Reserve in the 1950s?
Answer
William McChesney Martin | ||
Arthur Burns | ||
Paul Volcker | ||
G. William Miller |
There are ____ Federal Reserve Banks.
Answer
seven | ||
ten | ||
twelve | ||
fifteen |
Purchases and sales of government securities in the secondary market are known as
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discount borrowing and lending. | ||
federal funds purchases and sales. | ||
discounting. | ||
open-market operations. |
The monetary base can be divided into
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currency plus transactions deposits. | ||
vault cash plus reserves held at the Fed. | ||
required clearing balances plus currency. | ||
reserves plus currency. |
The Fed does not generally change reserve requirements to affect the money supply because
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the impact is too large. | ||
the Fed needs the approval of Congress to do so. | ||
it's not legal for the Fed to do so. | ||
the Fed needs the approval of the President of the United States to do so. |
The Fed has decided to tighten monetary policy, so it decreases the money supply through
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defensive open-market operations. | ||
dynamic open-market operations. | ||
reduced discount loans for profit. | ||
reduced discount loans for business needs. |
A haircut is
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the extra collateral the Fed requires above the value of a discount loan. | ||
the extra principal a commercial bank requires the Fed to pay when making a discount loan. | ||
the difference between what an investor pays for a bond and what the investor sells the bond for. | ||
expected personal grooming for a member of the Board of Governors. |
Currency held by the nonbank public plus banks' vault cash plus banks' deposits at the Fed equals
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the Fed's capital stock. | ||
discount loans. | ||
the monetary base. | ||
required clearing balances. |
The extra collateral the Fed requires above the value of a discount loan is known as
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the term premium. | ||
a haircut. | ||
a covenant. | ||
secondary credit. |
Currency held by the nonbank public plus banks' reserves equals
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the Fed's capital stock. | ||
discount loans. | ||
the monetary base. | ||
required clearing balances. |
The money supply divided by the monetary base equals
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the reserve ratio. | ||
velocity. | ||
high-powered money. | ||
the money multiplier. |
The main liability on the Federal Reserve's balance sheet is
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discount loans. | ||
securities. | ||
monetary base. | ||
capital. |
A bank in good condition may take out a loan without the Fed questioning the purpose or nature of the loan. Such a loan is known as
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a no documentation discount loan. | ||
a haircut. | ||
a covenant. | ||
a primary credit discount loan. |
If the Open-Market Desk at the Fed buys securities when the federal funds rate is below the primary credit discount rate, the most likely effect is that the
Answer
federal funds rate decreases. | ||
primary credit discount rate decreases. | ||
primary credit discount rate increases. | ||
federal funds rate increases. |
In November and December, people use more currency than usual, so the Fed increases the money supply through
Answer
defensive open-market operations. | ||
dynamic open-market operations. | ||
discount loans for profit. | ||
discount loans for business needs. |
Reserves held by banks at the Fed that earn implicit interest payments in the form of earnings credits for Fed services are known as
Answer
required clearing balances. | ||
reserve requirements. | ||
excess reserves. | ||
non-transaction deposits. |
Required clearing balances
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pay interest in the form of earnings credits. | ||
count as reserves and can be used to meet reserve requirements. | ||
pay interest equal to the federal funds rate minus one percent. | ||
are required to be held against transactions deposits. |
QUESTION 46
When the Fed buys a U.S. bond in the open market
its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another. | ||
its action expands total reserves and the money supply. | ||
its action contracts total reserves and the money supply. | ||
total reserves increase by the amount of the purchase but the money supply stays the same. |
1.11 points
QUESTION 47
When the Fed sells government securities,
reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities. | ||
reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities. |
1.11 points
QUESTION 48
The maximum potential money multiplier is equal to
the reserve ratio. | ||
one minus the reserve ratio | ||
the inverse of the required reserve ratio. | ||
the number of dollars on reserve. |
1.11 points
QUESTION 49
The potential money multiplier gives us
the growth in the money supply when income increases. | ||
the growth in real national income when the money supply increases. | ||
the maximum potential change in the money supply due to a change in income. | ||
the maximum potential change in the money supply due to a change in reserves. |
1.11 points
QUESTION 50
An increase in the reserve ratio
increases the money multiplier. | ||
will cause banks to make more loans. | ||
has an expansionary effect on the money supply. | ||
has a contractionary effect on the money supply. |
1.11 points
QUESTION 51
The Federal Deposit Insurance Corporation insures
banks against lawsuits. | ||
the deposits held in member banks. | ||
the deposits held in the Fed. | ||
the federal funds market. |
1.11 points
QUESTION 52
Bank runs are a possibility because
in difficult times people want currency instead of demand deposits. | ||
the FDIC is inefficient. | ||
banks do not keep enough reserves to cover all their depository liabilities. | ||
bankers are often poor businesspeople. |
1.11 points
QUESTION 53
The manner in which FDIC deposit insurance is set up in the United States encourages banks to
make riskier loans than they otherwise would. | ||
reject some loans that probably would be profitable. | ||
maintain excess reserves that are too great. | ||
be too conservative in their lending practices. |
1.11 points
QUESTION 54
The Federal Deposit Insurance Corporation
discourages banks from engaging in excessive risk taking. | ||
was established after the Panic of 1907. | ||
only insures deposits in money-center banks. | ||
increases the stability of the banking system by reducing the likelihood of bank runs. |
1.11 points
QUESTION 55
What are the two features of money that distinguish it from all other goods in the economy?
Money is government issued and it is redeemable for gold or silver. | ||
Money is part of every barter transaction and it is divisible. | ||
Money is accepted as a medium of exchange and it is the common unit of account used to express prices. | ||
Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate. |
1.11 points
QUESTION 56
Holding money to meet unplanned expenditures and emergencies is known as
asset demand. | ||
precautionary demand. | ||
aggregate demand. | ||
transactions demand. |
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QUESTION 57
When people want to hold money to make regular planned expenditures, this is
the transaction demand for money. | ||
the spending demand for money. | ||
the asset demand for money. | ||
the precautionary demand for money. |
1.11 points
QUESTION 58
When interest rates rise, the transactions demand for money usually
decreases. | ||
increases. | ||
decreases initially and then increases to the original position. | ||
does not change. |
1.11 points
QUESTION 59
As nominal Gross Domestic Product (GDP) rises, the transactions demand for money
increases, and the money demand curve shifts to the right. | ||
remains constant, and the money demand curve remains the same. | ||
decreases, and the money demand curve shifts to the left. | ||
increases, and the money demand curve shifts to the left. |
1.11 points
QUESTION 60
One of the economic costs of holding currency is that
it fulfills no precautionary role. | ||
it fulfills no transactions role. | ||
it earns no interest income. | ||
its real value always increases. |