Exam 13: Money and the Banking System

M1 excludes which of the following?

Which of the following was the Fed's primary function when it first was created in 1913?

Liabilities plus net worth equal assets.

The president of which of the following district banks of the Federal Reserve System is always on the FOMC?

Jamie transfers $150 from his money market fund to his checking account. This transaction will:

The Federal Reserve is a privately- operated commercial bank.

When you take $100 from your saving account and deposit it in your checking account, M₂ decreases.

What is money? Explain the three functions that money performs.

After the 1980s, which of the following assets paid interest?

The required reserve ratio is 10%. If the banks hold excess reserves, then the money multiplier is:

First National Trust has assets of $900,000 and liabilities of $600,000. First National Trust's owners' equity is:

Bank of Sim City has $250 million in deposits. Bank of Sim City is meeting its reserve requirement and has no excess reserves. It has $50 million in reserves. Bank of Sim City faces a required reserve ratio of:

Which of the following is a function of the district Federal Reserve Banks?

Explain what is meant by the money multiplier. Include in your answer a discussion of what variable(s) affects the size of the money multiplier.

All presidents of the 12 district banks of the Federal Reserve can vote during FOMC meetings.

COPING WITH A STOCK MARKET CRASH: BLACK MONDAY, 1987 How did the Fed successfully respond to the major stock market crash in 1987? On October 19, 1987, known as "Black Monday," the Dow Jones index of the stock market fell a dramatic 22.6 percent in one day. Similar declines were felt in other indexes and stock markets around the world. These declines shocked both businesses and investors. In just 24 hours, many people and firms found themselves much less wealthy. The public began to worry that banks and other financial institutions—to protect their own loans and investments—would call in borrowers’’ existing loans and stop making new ones. A sharp drop in available credit could, conceivably, plunge the economy into a deep recession. Alan Greenspan had just become chairman of the Federal Reserve that year. As a sophisticated economist with historical knowledge of prior financial crises, he recognized the seriousness of the situation. He quickly issued a public statement in which he said that the Federal Reserve stood ready to provide liquidity to the economy and the financial system. Banks were told that the Fed would let them borrow liberally. In fact, the Fed provided liquidity to such an extent that interest rates even fell. As a result of Greenspan’s action, "Black Monday" did not cause a recession in the United States. -The potentially catastrophic impact of the dramatic drop in stock values on October 19, 1987, known as "Black Monday," was countered by the Fed through:

The United States is currently operating under a gold standard, where our currency is backed by its value in gold.

Explain the Federal Open Market Committee of the Federal Reserve System.

Recall Application 4, "Coping with the Financial Chaos Caused by the Mortgage Crisis," to answer the following questions: -According to Application 4, by buying commercial paper or extending short term loans to corporations, the Fed is applying which of its primary functions to private corporations?

A Bank has excess reserves if the actual reserves that the bank holds is less than the required reserves.