40. What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is
14 percent assuming banks hold no excess reserves?
41. Discuss why the Fed rarely changes the reserve requirements.
42. The interest rate charged by the Fed to member banks is called the _____.
43. Trace the effects on the money supply when the Fed decreases the discount rate.
44. What is the Term Auction Facility?
45. Name three actions the Fed can take to increase the money supply.
46. List two reasons why the Fed can not control the exact size of the money supply.
47. Describe the role of the Federal Deposit Insurance Corporation (FDIC).
48. The _____ is the interest rate at which banks make overnight loans to other banks.
49. When the federal funds rate is below the target rate, the Fed will _____ bonds. This action will _____ the money
supply.
50. The Fed began paying interest on reserves in October 2008. Holding all else constant, what effect would this have on
the money supply?
51. Economists argue that the move from barter to money increased trade and production. How is this possible?
52. What is the difference between money and wealth?
53. Which of the three functions of money are commonly met by each of the following assets in the U.S. economy?
a.
paper dollar
b.
precious metals
c.
collectibles such as baseball cards, stamps, and antiques
a.
b.
c.
54. Are credit cards and debit cards money? What’s the difference between credit and debit cards?
55. What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for
goods and services?
56. What does the text mean by the question, “Where Is All the Currency?” How does it answer the question?
57. What is meant by the term “lender of last resort?” In what circumstances might the Fed be a lender of last resort?
58. Compare the Board of Governors and the Federal Open Market Committee.
59. What makes the New York Federal Reserve regional bank so important?
60. 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?
61. Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?
62. Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.
63. If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.
64. Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent,
and excess reserves of $300. Make sure your balance sheet balances.
65. Suppose that in a country the total holdings of banks were as follows:
required reserves = $45 million
excess reserves = $15 million
deposits = $750 million
loans = $600 million
Treasury bonds = $90 million
Show that the balance sheet balances if these are the only assets and liabilities.
Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve
requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don’t change their
holdings of Treasury bonds? How much does the money supply change by?
66. 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
and can lend more which will create more deposits and so more money.
have more to lend and so the money supply increases.
and the money supply decrease.
67. Describe the two things that limit the precision of the Fed’s control of the money supply and explain how each limits
that control.
68. 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.