ECO 372T Wk 4 - Apply: Money and the Federal Reserve Test

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ECO 372T Wk 4 - Apply: Money and the Federal Reserve Test

Determine which of the Federal Reserve entities controls each of the following policy tools.

New York Federal Reserve Bank.

Federal Open Market Committee.

Board of Governors.

12 Federal Reserve Banks.

Board of Governors.

Federal Open Market Committee.

12 Federal Reserve Banks.

New York Federal Reserve Bank.

For each of the following scenarios, determine whether money is being used as a medium of account, store of value, or unit of account.

Store of value

Unit of account

Medium of exchange

Unit of account

Store of value

Medium of exchange

Unit of account

Store of value

Medium of exchange

Medium of exchange

Unit of account

Store of value

Suppose that Ava withdraws $300 from her savings account at Second Bank. The reserve requirement facing Second Bank is 10%. Assume the bank does not wish to hold any excess reserves of new deposits. 

Use this information to complete the balance sheet below to show how Second Bank's assets and liabilities change when Ava withdraws the $300 from the bank.

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

A Simple Bank Balance Sheet

Assets     Liabilities

Change in Reserves: $ -30    Change in Deposits: $ -300

Change in Loans: $ -270        

Money is:

the gold and silver behind the currency and the coins that are issued by the government.

any good that buyers and sellers have a desire to purchase, use, or hold.

anything that both buyers and sellers will accept in exchange for goods and services.

only the printed paper currency and the coins that are produced by the government.

Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $500 million.

Instructions: Enter your answers as a whole number.

The part of the Federal Reserve that determines and implements the nation's monetary policy and controls the money supply to promote stable prices and economic growth is the:

president of the Board of Governors.

Federal Open Market Committee.

12 Federal Reserve District Banks.

Board of Governors.

Explain the changes in M1 and M2 for each of the following scenarios.

   a. When Lily transfers $100 from her savings account into her checking account, M1 increases by $

   b. If Miguel deposits $200 cash into his money market mutual fund, M1 decreases by

   c. If Sam takes $1,000 from his savings account to purchase Microsoft stock, M1 remains the same 

Other things being equal, an expansion of commercial bank lending

Multiple Choice

increases the money supply.

changes the composition, but not the size, of the money supply.

reduces the money supply.

is desirable during a period of demand-pull inflation.

Assets of the commercial banking system include

Multiple Choice

reserves and loans.

reserves and deposits.

loans and deposits.

Money is "created" when

Multiple Choice

people use money to pay for stuff they buy from one another.

a bank grants a loan to a customer.

someone lends money to a friend or a family member.

a depositor deposits money at the bank.

Use the following graph to answer the next question.

Which line in the graph would best illustrate the supply of money curve?

Multiple Choice

Line 1

Line 2

Line 4

Line 3