If the Federal Reserve lowers the reserve requirement, which of the following would most likely occur?
Businesses will purchase more factories and equipment
Commercial Banks can create money by
lending excess reserves to customers
According to both monetarists and Keynesians, which of the following happens when the Federal Reserve reduces the discount rate?
The supply of money increases and market interest rates decrease
Which of the following constitutes the largest component of the United States money supply (MI)?
Checkable deposits (demand deposits)
A commercial bank is facing conditions given below. If the reserve requirement is 12 percent and the bank does not sell and of its securities, the maximum amount of additional lending this can undertake is
Assets/Liabilities
Total Reserves/ $15,000
Demand
$3,000
If on receiving a checking deposit of $300 a bank's excess reserves increase by $225, the required reserve ratio must be
15%
Which of the following is most likely to occur when the Federal Reserve buys government bonds on the open market?
Interest rates will decrease
Under a fractional reserve banking system, banks are required to
keep part of their demand deposits as reserves
An increase in the money supply will have the greatest effect on real gross domestic product if
the quantity of money demand is not very sensitive to interest rates
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes
Speculation
If the Federal Reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes, it should
increase the money supply when government spending is increased
Assume that the reserve requirement is 20 percent, but banks voluntarily keep some excess reserves. A $1 million increase in new reserves will result in
an increase in the money supply of less than $5 million
The federal funds rate is the interest rate that
banks charge one another for short-term loans
One way in which the Federal Reserve works to change the United States money supply is by changing the
discount rate
Open market operations refer to which of the following activities?
The buying and selling of government securities by the Federal Reserve
Which of the following most undermines the ability of a nation's currency to store value?
A decrease in the purchasing power of the currency
Suppose the required reserve ratio is 20 percent and a single bank with no excess reserves receives a $100 deposit from a new customer. The bank now has excess reserves equal to
$80
If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000?
$9,000
The real value of the United States dollar is determined by
the goods and services it will buy
Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is
$8,000
To counteract a recession, the Federal Reserve should
buy securities on the open market and lower the reserve requirement
The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when
people hold a portion of their money in the form of currency
If a baking system's reserves are $100 billion, demand deposits are $500 billion, and the system is fully loaned-up, then the reserve requirement must be
20 percent
The required ratio is 0.2 and the Federal Reserve sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, the which of the following is the change in the money supply?
A decrease of $5 million
Which of the following policy combinations is most likely to cure a severe recession?
Row B (Buy securities, decrease taxes, increase government spending)
If the public's desire to hold money as currency increases, what will the impact be on the banking system?
Banks would be less able to expand credit
Which of the following actions by the Federal Reserve reduces the ability of the banking system to create money?
Increasing the reserve requirement
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
Interest rates will increase
When the Federal Reserve increases the money supply to stimulate aggregate demand, workers believe that this action will cause inflation in the future and ask for high wages to offset the expected increase in inflation. This is an example of
rational expectations