Exam 16: The Monetary System: Part A

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

Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"

When banks decide to increase their reserves, the money supply will _____ (holding all else constant).

How does the Fed Open Market Committee increase the money supply?

Money, such as gold, with some intrinsic value is called _____. Money with no intrinsic value is called _____.

Suppose a bank purchases $50 of government securities using funds from reserves.How much do bank assets change as a result of this transaction?

The ease with which an asset can be converted into the economy’s medium of exchange is known as _____.

A bank has $30,000 in deposits and has $5,400 in reserves.What is its reserve ratio?

During the early 1930s there were a number of bank failures in the United States.What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases.Would these purchases have reversed the change in the money supply and helped banks? Explain.

The primary tool used by the Federal Reserve to change the money supply is _____.

Why do Federal Reserve Board of Governors have long (14 year)terms?

In a fractional reserve economy where the required reserve ratio is 10%,must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Discuss why the Fed rarely changes the reserve requirements.

The _____ is the interest rate at which banks make overnight loans to other banks.

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Designers of the Federal Reserve System were concerned that the Fed might form policy favorable to one part of the country or to a particular party. What are some ways that the organization of the Fed reflects such concerns?

What does the text mean by the question,"Where Is All the Currency?" How does it answer the question?

If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.

Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?