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Chapter 17 - The Federal Reserve and the Money Supply

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Quiz on Chapter 17 - The Federal Reserve and the Money Supply, created by lseyer436 on 01/10/2015.
lseyer436
Quiz by lseyer436, updated more than 1 year ago
lseyer436
Created by lseyer436 over 8 years ago
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Resource summary

Question 1

Question
Only the Federal Reserve can create money.
Answer
  • True
  • False

Question 2

Question
If the Fed increases the supply of money, unemployment increases also.
Answer
  • True
  • False

Question 3

Question
The Fed can increase the money supply by buying securities.
Answer
  • True
  • False

Question 4

Question
The main reason the Fed changes the discount rate is to signal investors of future short-term interest rates.
Answer
  • True
  • False

Question 5

Question
National Banks have the option to be members of the Federal Reserve System.
Answer
  • True
  • False

Question 6

Question
Money is defined as currency and coins only.
Answer
  • True
  • False

Question 7

Question
Even though the Fed is independent of Congress, it still hesitates to make politically unpopular monetary policy decisions.
Answer
  • True
  • False

Question 8

Question
If the Fed were to sell securities, total reserves in the banking system would decrease.
Answer
  • True
  • False

Question 9

Question
When the Fed decreases the supply of money, the supple curve shifts left.
Answer
  • True
  • False

Question 10

Question
The President of the United States and the Senate choose the members of the Board of Governors.
Answer
  • True
  • False

Question 11

Question
Of its three functions, it is as a unit of account that distinguishes money from other assets.
Answer
  • True
  • False

Question 12

Question
Currency held by depository institutions (banks) is added to currency circulation in the hands of the public to get total currency in circulation.
Answer
  • True
  • False

Question 13

Question
A sale of government bonds by the Fed, all else the same, increase the monetary base.
Answer
  • True
  • False

Question 14

Question
Monetary policy is set by the Board of Governors.
Answer
  • True
  • False

Question 15

Question
If the Fed targets a monetary aggregate it is likely to lose control over the interest rate because of fluctuations in the money demand function.
Answer
  • True
  • False

Question 16

Question
Which of these terms does not refer to the same bank?
Answer
  • the Fed
  • central bank
  • member bank
  • The Federal Reserve Bank

Question 17

Question
__________ is the governing body of the Federal Reserve System.
Answer
  • The President
  • Congress
  • The Senate
  • The Board of Governors

Question 18

Question
When interest rates have increase, __________?
Answer
  • investments decrease
  • unemployment decreases
  • economic activity increases
  • firms borrow more money

Question 19

Question
__________ influences the economy through changes in interest rates.
Answer
  • The discount rate
  • Monetary policy
  • The money multiplier
  • Congress

Question 20

Question
What is the most important tool for controlling the money supply?
Answer
  • discount rate
  • open market operations
  • reserve requirements
  • investment spending

Question 21

Question
How many years is the Board of Governors appointed?
Answer
  • 2
  • 12
  • 14
  • life

Question 22

Question
Who demands the loanable funds?
Answer
  • individuals
  • businesses
  • government
  • all the above

Question 23

Question
If the fed buys $350 million in government securities and the reserve requirement is 5%, what is the change that would result in the money supply?
Answer
  • $7,000 million
  • $700 billion
  • $1,750 billion
  • $175 billion

Question 24

Question
If there is an increase in business development, the demand curve will __________?
Answer
  • shift left
  • shift right
  • not be effected
  • increase up

Question 25

Question
Which of the following is not one of the four primary responsibilities of the Fed?
Answer
  • Supervising and regulating commercial banks
  • Maximizing the profit to satisfy the investors
  • Holding the US treasury checking account
  • Implementing monetary policy

Question 26

Question
The Fed lacks complete control over the money supply because it cannot perfectly predict..
Answer
  • the amount of discount borrowing by banks
  • shifts from deposit to currency
  • the level of excess reserves held by banks
  • all of the above

Question 27

Question
For a given level of monetary base, a decrease in the required reserve ratio on checkable deposits will mean..
Answer
  • decrease in the money supply
  • an increase in the money supply
  • a decrease in checkable deposits
  • an increase in discount borrowing

Question 28

Question
The money multiplier is..
Answer
  • negatively related to high-powered money
  • negatively related to the required reserve ratio
  • positively related to holdings of excess reserve
  • positively related to the discount borrowing from the Fed

Question 29

Question
According to the Loanable Funds Theory of Interest Rates, which of the following statement is true?
Answer
  • an increase in interest rates results in greater savings
  • there is little relationship between the level of interest rates and the amount of new money created
  • the demand for loanable funds is a function of the demand for funds by individuals, business, and government
  • all of the above are true

Question 30

Question
Explain what happens when the money supply increases.
Answer
  • When the money supply increases, interest rates tend to fall. This causes firms to borrow more money to invest in new equipment and buildings.
  • Since industries are expanding, there would be an increase in jobs, which in turn would increase consumer spending.
  • All of the above.

Question 31

Question
What will happen to the supply curve if the Fed sells securities?
Answer
  • Interest rates will rise.
  • This would cause the supply curve to shift left because there is a decrease in the amount of loanable funds.
  • All of the above.

Question 32

Question
The Federal Reserve can influence __________.
Answer
  • the money supply
  • interest rates
  • politicians
  • and and b
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