Exam 5: Policy Makers and the Money Supply

The Fed closely monitors the Treasury account and takes any changes into consideration in conducting daily open market operations in order to minimize the effect on bank reserves.

In the fractional reserve system, banks must hold, with the Fed, reserves equal to a certain percentage of their deposits.

Inflation occurs when an increase in the price of goods or services is more than offset by an increase in quality.

The deposit of a check drawn on the Fed is a derivative deposit because it adds new reserves to the bank where deposited and to the banking system.

Assume that a bank receives a primary deposit of $1,000.If the reserve requirement is 25%, what will be the amount of excess reserves available for lending purposes?

Tax receipts tend to increase during economic downturns.

In September, 2008 ____________ was acquired by Bank of America and _____________ declared bankruptcy when no viable financial alternatives surfaced.

The money multiplier indicates the maximum increase in deposits (and money supply) that can result from a given increase in excess reserves.

Nations that export more than they import will have a trade deficit.

When income taxes are cut, disposable income is slowly increased under our system of tax withholding.

Transfer payments are income payments for which no current productive service is rendered.

To equal M1 money supply, the monetary base:

If the Fed wishes to stimulate the economy, it may:

A primary focus of the Economic Stabilization Act of 2008, which became know as the ___________________________, was to allow the U.S.Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions.

Monetizing the deficit occurs when the Fed increases the money supply by purchasing government securities.

The Treasury's primary checkable deposit accounts for day-to-day operations are kept at several commercial banks in large cities.

One factor that decreases the volume of bank reserves is a decrease in:

The President of the United States has no influence over the Federal Reserve System nor exerts any pressure on the Fed.

Government financing of large budgetary deficits:

Assume that a bank must keep reserves of 20% against deposits.The bank receives a primary deposit of $50,000.What amount of excess reserves can the bank safely lend?