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A problem that the Fed faces when it attempts to control the money supply is that
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since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. |
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federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks. |
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while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. |
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the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools.
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All Fed purchases and sales of
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corporate stocks and bonds are conducted at the New York Fed’s trading desk. |
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government bonds are conducted at the New York Fed’s trading desk. |
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real estate and other real assets are conducted by the Federal Open Market Committee. |
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All of the above are correct.
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When the Fed conducts open-market purchases,
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it lends money to member banks, which decreases the money supply. |
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it buys Treasury securities, which increases the money supply. |
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it buys Treasury securities, which decreases the money supply. |
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it borrows money from member banks, which increases the money supply.
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If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by
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$64 of new reserves. |
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$448 of new reserves. |
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$700 of new reserves. |
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$800 of new reserves.
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If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
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$200 of new money. |
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$2,000 of new money. |
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$20,000 of new money. |
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None of the above is correct. |
Prisoners sometimes determine a single good to be used as money. This good becomes
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a medium of exchange, but not a unit of account. |
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a medium of exchange and a unit of account. |
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a unit of account, but not a medium of exchange. |
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neither a unit of account nor a medium of exchange.
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Which of the following is a liability of a bank and an asset of its customers?
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deposits of its customers but not loans to its customers |
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loans of its customers but not the deposits of its customers |
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neither the deposits of its customers nor the loans to its customers |
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deposits of its customers and loans to it customers
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The set of items that serve as media of exchange clearly includes
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demand deposits |
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short-term bonds. |
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credit cards. |
The existence of money leads to
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greater specialization and to a higher standard of living. |
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neither greater specialization nor to a higher standard of living. |
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greater specialization in production, but not to a higher standard of living. |
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a higher standard of living, but not to greater specialization.
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Which of the following is not included in either M1 or M2?
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large time deposit |
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money market deposit accounts |
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money market mutual funds
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Bank runs
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can be neither prevented nor mitigated by the Federal Reserve. |
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are a problem because banks only hold a fraction of deposits as reserves. |
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are only a problem for insolvent banks. |
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will affect neither the money supply nor the money multiplier.
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The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 8 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by
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$16. |
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$200. |
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$1,600. |
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$2,500.
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Which of the following increases when the Fed makes open-market sales?
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currency and reserves |
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reserves but not currency |
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currency but not reserves |
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neither currency nor reserves
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What does the Fed auction at the Term-Auction Facility?
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government bonds of a quantity it sets |
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loans of a quantity it sets |
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loans with the quantity determined at the auction |
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government bonds with the quantity determined at the auction
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Demand deposits are included in
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M1 but not M2. |
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M2 but not M1. |
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M1 and M2. |
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neither M1 nor M2. |
