ECON 2035 Chapter : Econ2035 PracticeMid3 F12

• School: LSU
• Department: Economics
• Course: ECON 2035
• Professor: All

Document Summary

Practice%midterm%3: when!a!bank!buys!a!government!bond!from!the!federal!reserve,!reserves!in!the! banking!system!________!and!the!monetary!base!________,!everything!else!held! constant. increase;!increases! increase;!decreases, decrease;!increases, decrease;!decreases, critics!of!the!current!system!of!fed!independence!contend!that, the!current!system!is!undemocratic, voters!have!too!much!to!say!about!monetary!policy, the!board!of!governors!is!held!responsible!for!policy!missteps. the!president!has!too!much!control!over!monetary!policy!on!a!dayatoaday!basis, a!financial!crisis!occurs!when!an!increase!in!asymmetric!information!from!a!disruption!in! the!financial!system, allows!for!a!more!efficient!use!of!funds, causes!severe!adverse!selection!and!moral!hazard!problems!that!make!financial! increases!economic!activity. reduces!uncertainty!in!the!economy!and!increases!market!efficiency. markets!incapable!of!channeling!funds!efficiently, a!credit!boom!can!lead!to!a(n)!________!such!as!we!saw!in!the!tech!stock!market!in!the! late!1990s. liability!war, assetaprice!bubble, decline!in!lending, decrease!in!moral!hazard! If!the!required!reserve!ratio!is!15!percent,!currency!in!circulation!is!!billion,! checkable!deposits!are!!billion,!and!excess!reserves!total!!billion,!then!the!m1! money!multiplier!is: 0. 551. , 2. 35. , 2. 54. , 2. 67. , which!of!the!following!are!primary!concerns!of!the!bank!manager, maintaining!sufficient!reserves!to!minimize!the!cost!to!the!bank!of!deposit! outflows, extending!loans!to!borrowers!who!will!pay!low!interest!rates,!but!who!are!poor! credit!risks, acquiring!funds!at!a!relatively!high!cost,!so!that!profitable!lending!opportunities! can!be!realized, maintaining!high!levels!of!capital!and!thus!maximizing!the!returns!to!the! owners. If!a!bank!has!,000!of!checkable!deposits,!a!required!reserve!ratio!of!20!percent,!and! it!holds!,000!in!reserves,!then!the!maximum!deposit!outflow!it!can!sustain!without! altering!its!balance!sheet!is: ,000, ,000, ,000, ,000, bank!capital!has!both!benefits!and!costs!for!the!bank!owners. ! ________!the!likelihood!of!bankruptcy,!but!lower!bank!capital!________!the!return!on! equity!for!a!given!return!on!assets. : reduces;!reduces! increases;!increases! reduces;!increases! increases;!reduces, the!________!is!used!to!be!the!research!document!given!to!the!federal!open!market! Committee!that!contains!the!forecast!of!national!economic!variables!for!the!next!two! years,!which!is!now!a!part!of!the!________: blue!book;!red!book, green!book;!teal!book, beige!book;!green!book, teal!book;!beige!book, goal!independence!is!the!ability!of!________!to!set!monetary!policy!________, congress;!goals, congress;!instruments! the!central!bank;!goals, the!central!bank;!instruments, a!sharp!decline!in!the!stock!market!means!that!the!________!of!corporations!has!fallen! making!lenders!________!willing!to!lend, net!worth;!more, net!worth;!less! liability;!more! liability;!less, under!the!european!system!of!central!banks,!the!governing!council!is!similar!in! structure!to!the!________!of!the!federal!reserve!system, board!of!governors, federal!open!market!committee, federal!reserve!banks, federal!advisory!council, as!of!now,!there!are!________!countries!that!have!representation!on!the!governing! ________!effects!on!lending!and!economic!activity!than!in!advanced!countries: affirming, advancing, negative, positive, everything!else!held!constant,!an!increase!in!the!currencyacheckable!deposit!ratio!will! mean, an!increase!in!currency!in!circulation!and!an!increase!in!the!money!supply, an!increase!in!money!supply!but!no!change!in!reserves, a!decrease!in!the!money!supply, an!increase!in!currency!in!circulation!but!no!change!in!the!money!supply, during!the!subprime!financial!crisis,!the!m1!money!multiplier!declined!significantly. !this! is!because!of!________!. increases!in!the!required!reserve!ratio! increases!in!the!excess!reserve!ratio! increases!in!the!currency!ratio: reductions!in!the!currency!ratio, the!federal!reserve!banks!are!________!institutions!since!they!are!owned!by!the! ________: quasiapublic;!board!of!governors, public;!board!of!governors, quasiapublic;!private!commercial!banks!in!the!district!where!the!reserve!bank!is! located, public;!private!commercial!banks!in!the!district!where!the!reserve!bank!is! located, the!president!from!which!federal!reserve!bank!always!has!a!vote!in!the!federal!open! Market!committee: philadelphia, boston, new!york, none!of!the!above,!since!voting!members!rotate!every!year, suppose!a!person!cashes!his!payroll!check!and!holds!all!the!funds!in!the!form!of! currency. ! !everything!else!held!constant,!total!reserves!in!the!banking!system!________! and!the!monetary!base!________: remain!unchanged;!increases, decrease;!increases, decrease;!remains!unchanged, decrease;!decreases, the!federal!open!market!committee!usually!meets!about!every!________!weeks. four, six, eight, twelve, suppose!that!from!a!new!checkable!deposit,!first!national!bank!holds!two!million! dollars!in!vault!cash,!eight!million!dollars!on!deposit!with!the!federal!reserve,!and!two! million!dollars!in!required!reserves. ! !after!the!elections,!the!bad!effects!of!these!policies! (for!example,!________!)!have!to!be!counteracted!with!________!policies: expansionary;!higher!unemployment;!contractionary, expansionary;!a!higher!inflation!rate;!contractionary, contractionary;!higher!unemployment;!expansionary, contractionary;!a!higher!inflation!rate;!expansionary, which!of!the!following!is!an!entity!of!the!federal!reserve!system, the!u. s. !treasury!secretary: the!comptroller!of!the!currency, the!fomc, the!fdic, the!federal!open!market!committee!consists!of!the! five!senior!members!of!the!sevenamember!board!of!governors, seven!members!of!the!board!of!governors!and!seven!presidents!of!the!regional!