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Quiz on Chapter 17 - The Federal Reserve and the Money Supply, created by lseyer436 on 01/10/2015.

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Chapter 17 - The Federal Reserve and the Money Supply

Question 1 of 32

1

Only the Federal Reserve can create money.

Select one of the following:

  • True
  • False

Explanation

Question 2 of 32

1

If the Fed increases the supply of money, unemployment increases also.

Select one of the following:

  • True
  • False

Explanation

Question 3 of 32

1

The Fed can increase the money supply by buying securities.

Select one of the following:

  • True
  • False

Explanation

Question 4 of 32

1

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

Select one of the following:

  • True
  • False

Explanation

Question 5 of 32

1

National Banks have the option to be members of the Federal Reserve System.

Select one of the following:

  • True
  • False

Explanation

Question 6 of 32

1

Money is defined as currency and coins only.

Select one of the following:

  • True
  • False

Explanation

Question 7 of 32

1

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

Select one of the following:

  • True
  • False

Explanation

Question 8 of 32

1

If the Fed were to sell securities, total reserves in the banking system would decrease.

Select one of the following:

  • True
  • False

Explanation

Question 9 of 32

1

When the Fed decreases the supply of money, the supple curve shifts left.

Select one of the following:

  • True
  • False

Explanation

Question 10 of 32

1

The President of the United States and the Senate choose the members of the Board of Governors.

Select one of the following:

  • True
  • False

Explanation

Question 11 of 32

1

Of its three functions, it is as a unit of account that distinguishes money from other assets.

Select one of the following:

  • True
  • False

Explanation

Question 12 of 32

1

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

Select one of the following:

  • True
  • False

Explanation

Question 13 of 32

1

A sale of government bonds by the Fed, all else the same, increase the monetary base.

Select one of the following:

  • True
  • False

Explanation

Question 14 of 32

1

Monetary policy is set by the Board of Governors.

Select one of the following:

  • True
  • False

Explanation

Question 15 of 32

1

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.

Select one of the following:

  • True
  • False

Explanation

Question 16 of 32

1

Which of these terms does not refer to the same bank?

Select one of the following:

  • the Fed

  • central bank

  • member bank

  • The Federal Reserve Bank

Explanation

Question 17 of 32

1

__________ is the governing body of the Federal Reserve System.

Select one of the following:

  • The President

  • Congress

  • The Senate

  • The Board of Governors

Explanation

Question 18 of 32

1

When interest rates have increase, __________?

Select one of the following:

  • investments decrease

  • unemployment decreases

  • economic activity increases

  • firms borrow more money

Explanation

Question 19 of 32

1

__________ influences the economy through changes in interest rates.

Select one of the following:

  • The discount rate

  • Monetary policy

  • The money multiplier

  • Congress

Explanation

Question 20 of 32

1

What is the most important tool for controlling the money supply?

Select one of the following:

  • discount rate

  • open market operations

  • reserve requirements

  • investment spending

Explanation

Question 21 of 32

1

How many years is the Board of Governors appointed?

Select one of the following:

  • 2

  • 12

  • 14

  • life

Explanation

Question 22 of 32

1

Who demands the loanable funds?

Select one of the following:

  • individuals

  • businesses

  • government

  • all the above

Explanation

Question 23 of 32

1

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?

Select one of the following:

  • $7,000 million

  • $700 billion

  • $1,750 billion

  • $175 billion

Explanation

Question 24 of 32

1

If there is an increase in business development, the demand curve will __________?

Select one of the following:

  • shift left

  • shift right

  • not be effected

  • increase up

Explanation

Question 25 of 32

1

Which of the following is not one of the four primary responsibilities of the Fed?

Select one of the following:

  • Supervising and regulating commercial banks

  • Maximizing the profit to satisfy the investors

  • Holding the US treasury checking account

  • Implementing monetary policy

Explanation

Question 26 of 32

1

The Fed lacks complete control over the money supply because it cannot perfectly predict..

Select one of the following:

  • the amount of discount borrowing by banks

  • shifts from deposit to currency

  • the level of excess reserves held by banks

  • all of the above

Explanation

Question 27 of 32

1

For a given level of monetary base, a decrease in the required reserve ratio on checkable deposits will mean..

Select one of the following:

  • decrease in the money supply

  • an increase in the money supply

  • a decrease in checkable deposits

  • an increase in discount borrowing

Explanation

Question 28 of 32

1

The money multiplier is..

Select one of the following:

  • 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

Explanation

Question 29 of 32

1

According to the Loanable Funds Theory of Interest Rates, which of the following statement is true?

Select one of the following:

  • 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

Explanation

Question 30 of 32

1

Explain what happens when the money supply increases.

Select one of the following:

  • 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.

Explanation

Question 31 of 32

1

What will happen to the supply curve if the Fed sells securities?

Select one of the following:

  • 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.

Explanation

Question 32 of 32

1

The Federal Reserve can influence __________.

Select one of the following:

  • the money supply

  • interest rates

  • politicians

  • and and b

Explanation

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