Exam 4: The Monetary System: What It Is and How It Works

Why can the Federal Reserve not control the money supply with complete accuracy?

When the Federal Reserve conducts an open-market purchase, it buys bonds from the:

The difference between banks and other financial intermediaries is that only banks have the legal authority to:

The ratio of the money supply to the monetary base is called:

Why does the Federal Reserve not have complete control over the size of the money supply? Give at least two reasons.

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

In a country on a gold standard, the quantity of money is determined by the:

A macroeconomist threatens to call the Secret Service to have Mr. Biggy Rich arrested for counterfeiting because Mr. Rich claims he "makes a lot of money." a. Carefully explain why the macroeconomist is making this threat based on the macroeconomic definition of money. Be sure to explain the macroeconomic functions of money. b. Suggest an alternative phrase that Mr. Rich can use that will not result in a charge of counterfeiting.

Two ways for banks to borrow reserves from the Federal Reserve are through:

In a 100-percent-reserve banking system, banks:

Bank reserves equal:

When the Fed decreases the interest rate paid on reserves, it:

The reserve-deposit ratio is determined by:

If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

John withdraws $100 from his checking account and deposits it in his saving account. What will be the effect of this transaction on different measures of money, i.e. C, M1, and M2?

In the United States, the money supply is determined:

To increase the money supply, the Federal Reserve:

The money supply will increase if the:

Assume that the monetary base (B) is $100 billion, the reserve-deposit ratio (rr) is 0.1, and the currency-deposit ratio (cr) is 0.1. a. What is the money supply? b. If $r r$ changes to $0.2$ , but $c r$ is $0.1$ and $B$ is unchanged, what is the money supply? c. If $r r$ is $0.1$ and cris $0.2$ , but $B$ is unchanged, what is the money supply?

As the U.S. economy approached the millennium, January 1, 2000, many people cautiously began to hold larger than normal quantities of currency as protection against a possible disruption of banking services that could result from computer glitches. a. How did this greater preference for currency affect the money supply? b. How could the Federal Reserve offset such an increase in currency preferences?