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Exam 29: The Monetary System

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Question 1

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Which of the following statements regarding the Federal Open Market Committee is correct?

A) Only the five voting regional Fed presidents attend the meetings.
B) All regional Fed presidents attend and vote at the meetings.
C) All regional Fed presidents attend the meetings, but only five get to vote.
D) Regional Fed presidents may neither attend nor vote the meetings.

E) A) and D)
F) None of the above

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Question 2

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The interest rate charged by the Fed to member banks is called the _____.

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Question 3

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The money supply decreases when the Fed

Scenario 29-1 The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $375 million of required reserves, $225 million of excess reserves, have issued $7,500 million of deposits, and hold $750 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Tazian Banks?

Explain how each of the following changes the money supply. a.the Fed buys bonds b.the Fed auctions credit c.the Fed raises the discount rate d.the Fed raises the reserve requirement

An increase in the reserve requirement increases reserves and decreases the money supply.

Bank capital is

Table 29-4 ​ -Refer to Table 29-4. Assume the Fed's reserve requirement is 6 percent and all banks besides the Bank of Cheerton are exactly in compliance with the 6 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Cheerton decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

If the Fed decreases reserve requirements, the money supply will increase.

Which of the following is not an example of monetary policy?

Monetary policy has an important influence on _____ and _____ in the short run.

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

Sam wants to trade eggs for sausage. Sally wants to trade sausage for eggs. Sam and Sally have a double-coincidence of wants.

Which of the following is not included in M1?

Economists argue that the move from barter to money increased trade and production. How is this possible?

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true.

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

When the Fed conducts open-market sales,

A debit card is more similar to a credit card than to a check.

The Federal Reserve is a privately operated commercial bank.