Exam 12: Exploring Central Banks and Their Impact on the Economy and Financial System

In the event of a stock market crash, a primary function of the central bank is to

Suppose the central bank injected $15 million in new reserves into the banking system and the current legal reserve requirement on deposits held by the banking system is 8 percent. Moreover, the banking system is perfectly efficient and there are no leakages of funds from that system except for the current legal reserve requirement. Please set up an EXCEL spreadsheet that shows how much in total required reserves and new deposits can be created in this banking system as a result of the injection of the $15 million in new legal reserves. Now suppose the central bank subsequently withdraws $20 million in legal reserves from this same banking system. What level of deposits and legal reserves would ultimately result? Please demonstrate on your Excel spreadsheet.

An increase in the reserve requirements of the Federal Reserve has which of the following effects?

Using the the description or the definition below, identify each of the terms and concepts from this chapter. a. Banks that have joined the Federal Reserve System and bought stock in the Federal Reserve banks. b. Services supplied by the central bank to the government. c. An effort made by central banks to influence the cost and availability of credit in order to achieve the nation's economic goals. d. The volume of assets depository institutions are required to hold based upon central bank rules.

Your text discusses how the Federal Reserve System and other modern central banks affect or influence conditions in the economy and financial system. Through which channel or channels listed below do central banks like the Fed affect the economy and financial markets?

While the concept of a deposit multiplier is useful, central bankers are usually more interested in the money multiplier, which defines the relationship between a measure of the money supply that is closely related to spending and income in the economy to the total reserve base available to depository institutions.

Control of the money supply's growth rate affects the growth rate of the economy.

Using the the description or the definition below, identify each of the terms and concepts from this chapter. a. Total legal reserves less required reserves. b. Volume of new deposit creation from a specific volume of excess reserves. c. Ratio of the size of the money supply relative to the total reserve base of depository institutions. d. Sum of legal reserves in the banking system.

A change in reserve requirements may force depositories to borrow to cover any reserve deficiencies or may make depositories more willing to accelerate the growth of credit. Both of these will affect:

If the price of home currency falls relative to the prices of foreign currencies as a result of central bank action, the home country's exports will become more costly relative to imports from abroad, resulting in less domestic production, fewer jobs and lower incomes.

If the nation's money supply is $800 billion and the multiplier is 4, what is the monetary base?

Like a supreme court justice, members of the Board of Governors are appointed for life.

The U.S. Treasury Department is charged with maintaining the stability and integrity of resources.

Which channel of central bank policy does each of the following events or situations represent? a. Stock prices decline rapidly following an increase in market interest rates. b. Recent speeches by central bank officials have cautioned the public about an apparently excessive rise in debt-financed spending. c. Several major corporations were recently denied direct loans by their principal banks. d. Following a heavy purchase of pounds by the Bank of England that bank moves to offset the domestic effects of the purchase by slightly tightening credit conditions. e. Concerned about the recent increase in checkable deposits the central bank moves to increase the proportion of legal reserves depository institutions must post behind these deposits.

The money multiplier differs from the deposit multiplier in that the money multiplier:

Today, the principal target of most central banks around the globe is market interest rates.

The volume of currency and coin held by the public has a direct bearing on the reserves held by depository institutions.

The function of money that makes possible the purchasing of goods and services is known as its:

The function of the money supply or money stock in which money serves as a reserve of purchasing power is known as its:

____ appears to be becoming the most popular monetary policy tool around the globe.