ECON 3440 Lecture Notes - Lecture 7: Foreign Exchange Market, Balance Sheet
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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
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| 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
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| 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
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| 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?
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| William McChesney Martin | ||
| Arthur Burns | ||
| Paul Volcker | ||
| G. William Miller |
There are ____ Federal Reserve Banks.
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| 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
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| 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. |
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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. |
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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. |
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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. |
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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. |
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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. |
