Chapter 16 set A

There are ___ members of the Federal Reserve Board of Governors. Which of the following is a responsibility of the Federal Open Market Committee (FOMC)? A- Buying and selling stocks B- Issuing mortgages to homeowners C- Making decisions regarding monetary policy The Federal Reserve's primary tool for changing the money supply is ______. In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve will _____ U.S. government bonds.

Suppose the money supply (as measured by demand deposits) is currently $500 billion. The required reserve ration is 25%. Banks hold 125 billion in reserves, so there are no excess reserves. The Federal Reserve ("the Fed") wants to decrease the money supply by $40 billion, to $460 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the money multiplier. If the Fed wants to decrease the money supply using open-market operations, it should ____ _____ worth of U.S. government bonds. Banks, as financial intermediaries, create value for depositors such as Yvette by doing which of the following? (Check all that apply.) A- create networks B- keep credit card rates low pay interest

The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A higher discount rate _____ banks' incentives to borrow reserves from the Federal Reserve ,thereby _____ the quantity of reserves in the banking system and causing the money supply to _____. The Federal Funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserves uses open-market operations to buy government bonds, the quantity of reserves in the banking system _____, banks' demand for borrowed reserves _____, and the federal funds rate ____.

Assume that banks do not hold excess reserves and that households do not hold currency - the only form of money is demand deposits. Suppose the banking system has total reserves of $500 billion. Find the money multiplier and the money supply for each reserve requirement listed in the following table: A - RR = 5% B - RR = 10% For a given level of reserves, a lower reserve requirement is associated with a _____ money supply Suppose the Federal Reserve (the Fed) wants to increase the money supply by $500 billion. Again, you can assume that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to _____ _____ worth of U.S. government bonds Now, suppose that rather than immediately lending out all excess reserves, banks begin holding some excess reserves due to uncertain economic conditions. Specifically, in addition to the required reserves of 10%, banks hold an additional 40% of their deposits as reserves. This increase in the reserve ratio causes the money multiplier to _____ to _____. Under these conditions, the Fed would need to _____ _____ worth of U.S. government bonds in order to increase the money supply by $500 billion. Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. A- The Fed cannot prevent banks from lending out required reserves. B- The Fed cannot control the amount of money that households choose to hold as currency. The Fed cannot control whether and to what extent banks hold excess reserves.

Match the correct motive for holding money to the following definitions. 1. The stock of money people hold to pay unpredictable expenses 2. The stock of money people hold to ensure liquidity within an investment portfolio. 3. The stock of money people hold to pay everyday predictable expenses. Identify the motive for holding money in the following scenario: Robert moves to a smaller apartment. Because of the lower monthly rent, he places a larger share of funds from is paycheck in a retirement fund and a smaller share in his savings account. This is an example of a decrease in Robert's _____ demand for money. Complete the following statement about the relationship between the interest rate and financial assets in the form of money. As the interest ate falls, the opportunity cost of holding money ____, and people ____ their financial assets in the form of money.

Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 in a non-interest -bearing checking account so that you can use it whenever you want (that is, hold it as money) or to use it to buy a U.S. Treasury bond. Suppose the interest rate on the bond is 6% per year. What would be the opportunity cost of holding the $10,000 as money? Now, suppose that the interest rate rose to 11% per year. This would cause the opportunity cost of holding the $10,000 as money to _____ to _____ per year. What does the previous analysis suggest about the market for money?