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Econ Ch 16 Flashcards | StudBud
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Econ Ch 16
Econ Ch 16
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Questions
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Answers
1
the fraction of deposits that banks must keep on hand
net worth
required reserve ratio
prime rate
easy money policy
2
Which of the following is one way the Federal Reserve Bank serves the government?
making loans to the government
selling government securities
financing state government projects
minting coins for the government
3
What does “lender of last resort” mean with respect to the Federal Reserve?
It will lend money to a bank in a financial emergency.
It makes decisions about who a bank can lend money to.
It decides interest rates for interbank loans.
the power to decide how much money a bank can lend out.
4
What is the relationship between interest rates and demand for money?
As interest rates decrease, demand for money increases.
Interest rates and demand for money are unrelated.
Interest rates are determined by demand for money.
As interest rates increase, demand for money increases.
5
How many Federal Reserve Districts are there?
20
12
9
6
6
The Required Reserve Ratio is 10 percent. The money multiplier is
1
10
9
.1
7
What is the cost of money?
the bank’s use of money creation
the price of the interest rate
the economy’s use of open market operations
the smoothing out of fluctuations in the market
8
The Federal Reserve system consists of _____ Federal Reserve Banks.
12
14
8
10
9
What type of policy does the Fed use to counteract a contraction?
tight money policy
policy lags
easy money policy
fiscal policy
10
Which of these tools in an example of monetary policy?
changing reserve requirements
borrowing money through deficit spending
reducing income taxes
increasing government spending
11
What effect would an increase in the discount rate have on the money supply?
It would cause the money supply to expand.
It would have no effect on the money supply.
It would cause the money supply to contract.
It would increase the money multiplier.
12
Why does a bank sometimes hold excess reserves?
to be sure they can meet their customers’ demands
to keep from lending too much money
to make check clearing easier
to protect against high prices
13
The most-used instrument for controlling week-to-week changes in the money supply is
the money multiplier.
the discount rate.
open market operations.
the required reserve ratio.
14
Why does the Federal Reserve alter monetary policy?
to lessen the effect of natural business cycles
to provide services to member banks
to regulate the banking industry
to enable banks to clear checks
15
rate of interest banks charge on short-term loans to their best customers
tight money policy
net worth
federal funds rate
prime rate
16
Which instrument is NOT used by the Federal Reserve to change the money supply
the discount rate
the federal tax code
the required reserve ratio
open market operations
17
Which of these situations is most likely to cause the Fed to introduce a tight money supply?
recession reduced aggregate demand and employment
relatively low inflation and low unemployment.
The economy is expanding quickly and inflation is a concern
federal government passes a new budget with a large deficit
18
the seven-member group that oversees the Federal Reserve System
open market operations
federal funds rate
Federal Reserve Districts
Board of Governors
19
interest rate banks charge each other for loans
tight money policy
federal funds rate
easy money policy
prime rate
20
What is one possible short-term effect of an easy money policy?
increased investment spending
a contracting money supply
decreasing inflation
higher interest rates
21
How could the Federal Reserve encourage banks to lend out more of their reserves?
raise the required amount of reserve
reduce the money supply
increase the prime rate
reduce the discount rate
22
the buying and selling of government securities to alter the supply of money
check clearing
required reserve ratio
open market operations
prime rate
23
As commercial banks keep more excess reserves, money creation
could either increase or decrease.
remains the same.
decreases.
increases.
