The federal funds rate and the quantity demanded of reserves have a(n) ____________ relationship. To decrease the money supply, the Fed may, 76. A discount loan is a loan the Federal Reserve makes to a commercial bank. . Which of the following will not increase the money supply in the United States? 98. To limit political influence on Fed policy, the terms of the Fed Board of Governors are staggered so that one new appointment is made every four years to coincide with the presidential elections. In the United States, paper currency is printed at the. The major policy-making group within the Fed is the __________ Committee. This will (likely) lead to an increase in new loans and checkable deposits and a(n) __________ in the money supply. As a result, interest rates rise, and economic activity slows down. It needs to balance economic growth with increasing inflation. If the Fed lowers the required reserve ratio, __________ in the banking system will remain unchanged but __________ will rise. Which of the following will increase the money supply? The interest rate that the Fed charges when it lends reserves to banks is called the federal funds rate. This means if a bank has deposits of $1 billion, it is required to have $110 million on reserve ($1 billion x .11 = $110 million), and could therefore make loans totaling $890 million. Which of the following statements is false? A Federal Reserve Bank is located in which of the following cities? The Federal Open Market Committee (FOMC) meets on the first Tuesday of each month. 128. 136. Lowering the bank reserve ratio has therefore increased the amount of money available to be loaned in the banking system, and vice versa when increasing in the bank reserve ratio. The reserve requirement (or cash reserve ratio) is a central bank regulation that sets the minimum amount of reserves that must be held by a commercial bank. In 1991, the Federal Reserve lowered the reserve requirement ratio from 12 percent to … Explain why a reduction in the required reserve ratio cannot, at least initially, increase total reserves in the banking system. How Does the Reserve Ratio Affect the Economy? 75. With quantitative easing, the Fed purchases _____________________. The Federal Reserve uses the reserve ratio as one of its key monetary policy tools. Lowering the required reserve ratio is expansionary monetary policy; raising the required reserve ratio is contractionary monetary policy. If the federal funds rate falls below the discount rate, banks will decrease their borrowings from __________ and __________ their borrowings from __________. 119. The __________ rate is the interest rate one bank pays another bank for a loan. The Fed can change the federal funds rate by issuing an order, but it cannot change the discount rate this way. 106. One of the Fed's functions is to be the government's banker. How can the Federal Reserve raise interest rates quizlet? Raising the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply. 156. Good luck!Need help? The reserve ratio is calculated as: When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. If the Fed ______________________, the money supply will ultimately __________. 95. . 92. The Federal Bank uses the reserve ratio to regulate the money supply. When the Fed increases the required reserve ratio, a bank's, 81. The Federal Open Market Committee (FOMC) is composed of the seven members of the Board of Governors. Suppose that the Fed undertakes an open market sale, selling $1 million worth of securities to a bank. Lagged Reserves is a method of bank reserve calculation whereby the institution must keep a certain level of reserves with a Federal Reserve bank. 75. 73. d. the money multiplier increases, and the amount of excess reserves decreases … 178. Why does the president of the Federal Reserve Bank of New York hold a permanent seat on the FOMC? Which of the following will cause the money supply to decline? 176. If reserves increase by $4 million and the required reserve ratio is 8%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? When commercial banks borrow from other commercial banks, the immediate impact is that reserves in the banking system. b. the money multiplier increases, and the amount of excess reserves increases in the banking system. Every time the Fed buys or sells on the open market, the __________ changes. 97. Is the same true of lowering the discount rate? If the Fed lowers the discount rate at the same time it conducts an open market sale, it follows that. 112. Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed, which lowers the bank's deposits at the __________ and __________ the bank's __________. Money growth in the economy can occur through the multiplier effect resulting from the reserve ratio. an increase in required reserve ratio raises the reserve ratio, lowers the money multiplier, and decreases the money supply. Which of the following is not a monetary policy tool of the Fed? Reserve requirements refer to the amount of cash that banks must hold in reserve against deposits made by their customers. 162. Which of the following Fed actions will increase the money supply? When the Federal Open Market Committee (FOMC) votes on policy, they do so, 147. If the required reserve ratio is 12%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? Which of the following will increase the money supply? 126. A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the money supply. In order to raise the federal funds rate the Fed will ________________ securities on the open market which will ________________ the supply of reserves in the market for reserves, pushing the rate closer to the target rate. Monetary policy refers to the actions undertaken by a nation's central bank to control money supply and achieve sustainable economic growth. In order to lower the federal funds rate the Fed will ________________ securities on the open market which will ________________ the supply of reserves in the market for reserves, pushing the rate closer to the target rate. The president of the Federal Reserve Bank of ________________ holds a permanent seat on the _________________________. The three major tools of the Fed are open market operations, changing reserve requirements, and changing the discount rate . The reserve ratio is the central bank's mandate for banks to keep a certain reserve requirements, which are excess cash deposits that must be kept on hand and not loaned out. A Zero Coupon Bond Is A Bond That Quizlet can offer you many choices to save money thanks to 18 active results. The three ways in which the Federal Reserve achieves an expansionary or contractionary monetary policy include the use of the following: The reserve ratio dictates the reserve amounts required to be held in cash by banks. 129. Which of the following is not a responsibility of the Fed? Lowering the required reserve ratio _____ the simple deposit multiplier and _____ the economy's maximum potential money supply. It might offset the effect of this on the money supply by, An "open market operation" is said to occur when the Fed, The Fed can change the money supply by changing. If it adopts an expansionary monetary policy, it increases economic growth but also accelerates the rate of inflation. 74. 130. The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest. When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to … To do so, it lowers the reserve ratio to 10%. If the Fed wants to increase the money supply through open market operations, it will, Suppose the Fed sells a $50,000 U.S. Treasury security to Martha, a member of the public. 93. And the required reserve ratio is quizlet aggregate demand home, business, personal government securities any given.! Reserve Requirement Changes Affect the Money Stock. c. purchases and raising the discount rate. There are __________ Federal Reserve Districts. This is because as the federal funds rate moves down, it becomes _______________ for banks to hold reserves, encouraging banks to hold ____________ in reserves to guard against checkable deposit withdrawals. Definition: Also known as Cash Reserve Ratio, it is the percentage of deposits which commercial banks are required to keep as cash according to the directions of the central bank. 7. Increases the total reserves in the banking system B. b. the larger the simple deposit multiplier. A bank is less likely to borrow from the Fed when the __________ falls relative to the __________. Suppose that the Fed undertakes an open market purchase of $5 million worth of securities from a bank. D. forces banks to hold 0 excess reserves. 84. When the Federal Open Market Committee (FOMC) votes on policy, it does so in the following order: the chair votes first, the vice chair votes second, and the remaining FOMC members vote based on their seniority at the Fed. This increases the money supply, economic growth and the rate of inflation. This is a requirement determined by the country's central bank, which in the United States is the Federal Reserve. These banks can either keep the cash on hand in a vault or leave it with a local Federal Reserve bank. A required reserve ratio of 7 percent gives rise to a simple deposit multiplier of. If the Fed were to increase the discount rate so that it was much higher than the federal funds rate, eventually, 83. The demand for reserves curve in the federal funds market is. If the Federal Reserve instead lowers the reserve ratio through an expansionary monetary policy, commercial banks are required to hold less cash on hand and can make more loans. D.) Reduces the amount of excess reserves the banks keep. When the Fed sells government securities to a bank, the, 78. If banks are currently holding zero excess reserves and the Fed raises the required reserve ratio, which of the following will happen? The smaller the required reserve ratio, the larger the simple deposit multiplier. 174. Suppose that the current federal funds rate is below the federal funds target rate. The Board of Governors is comprised of _____________ members and the FOMC is comprised of __________ members. Also reduces the discount rate. The Board of Governors of the Federal Reserve. 122. 120. If banks are currently holding zero excess reserves and the Fed lowers the required reserve ratio, which of the following will happen? 131. Which of the following Fed actions will decrease the money supply? If the required reserve ratio is 9%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves? The Federal Reserve System came into existence with the Federal Reserve Act of. Which of the following has never been a monetary policy tool of the Fed? 167. 138. . The Banking Act of 1935 changed the name of the _______________ to the Board of Governors of the Federal Reserve System. If the Fed raises the discount rate at the same time it conducts an open market sale, it follows that the money supply will. The lower the required reserve ratio. The lower the required reserve ratio, a. the less money that can be loaned at each round of the lending process. Which of the following describes a change that the Federal Reserve made in response to the financial crisis of 2007-2009? When one commercial bank borrows from another commercial bank, it pays the __________ rate. With open market operations, the Fed purchases ______________________________. . The corridor is the ________________ section of the ______________________ curve of reserves in the federal funds market. 67. ABC bank ltd is registering itself as a bank for the first time with the central bank. Here is how an open market purchase works: The Fed __________ government securities to (from) a commercial bank, which raises the bank's deposits at the __________ and increases the bank's __________. . Assuming that there are no cash leakages, the resulting change in checkable deposits (or the money supply) is approximately, 100. The greater the reserve requirement, the less money that a bank can potentially lend - but this excess cash also staves off a banking failure and shores up its balance sheet. Paper money is printed at the _______________________, but it is issued to commercial banks by the ______________________________. Lowering the reserve ratio: A. Assuming no cash leakages and no excess reserves held by banks, a required reserve ratio of 0 percent would mean that the simple deposit multiplier is, 104. 99. The three members of the commission that originally drew up the boundaries of the Federal Reserve Districts and the locations of the district banks were the, The original boundaries for the Federal Reserve districts were determined based on. 96. a. 133. The boundaries of the Federal Reserve districts were determined based on trade patterns between cities. When a commercial bank borrows from the Fed. If the required reserve ratio is 11%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves. Investopedia uses cookies to provide you with a great user experience. 170. The supply curve of reserves has two kinks in it: one at the _________________ and the other at the ____________________ rate. The United States is divided into __________ Federal Reserve districts, each with a district bank. b. sales and lowering the reserve requirement. To decrease the money supply, the Fed may sell government securities or lower taxes. C.) Turns required reserves into excess reserves . The higher the coupon total remaining, the higher the price. A lower reserve ratio means that banks can issue more loans, increasing the money supply. 166. The Fed is one of the largest departments within the U.S. Treasury. b. lowering the required reserve ratio c. an open market purchase d. an open market sale. Second, it can create or destroy reserves. The interest rate that a commercial bank pays when it borrows from the Fed is the __________ rate. If the Fed purchases government securities from Bank A, __________ in the banking system __________ and the money supply __________. Primary reserves are the minimum amount of cash under U.S. federal rules required to operate a bank. 135. Try it on your own. Which would NOT be a way that the Fed would use its policy tools to engage in expansionary (stimulative) policy? 163. The discount rate is the interest rate, 90. 71. 117. When the Federal Reserve raises the reserve requirement, banks must hold larger reserves and thus have less money to lend. It did so to encourage banks to lend out all of their funds during the COVID-19 coronavirus pandemic. c. there is no change in either the money multiplier or the amount of excess reserves in the banking system. 113. A required reserve ratio of 12 percent gives rise to a simple deposit multiplier of, 148. In 2007, the Fed began using an additional monetary policy tool called the term auction facility program. In emerging markets decreases the reserve requirement ratio to zero effective March 26,,. Which of the following is not a function of the Federal Reserve System? 107. The Fed has been called "the lender of last resort" because it. First, it can adjust the reserve ratio. The Board of Governors of the Federal Reserve is part of a larger policy-making group called the. 110. Lowering the reserve ratio increases the money supply because it. In this video I explain the reserve requirement, the money multiplier, and how money is created. If reserves increase by $5 million, what is the difference in the resulting change in checkable deposits when the required reserve ratio is 12.5 percent compared to when it is 10 percent? C. encourages discount loans. When a bank repays a _________________ loan, the Fed _____________________ the bank's reserve account. Members of the Board of Governors of the Federal Reserve are appointed by the President and approved by the Senate to serve a 14-year term. The most common way it effects these changes in interest rates, called “open-market operations,” is by buying and selling government securities among a small group of major banks and bond dealers. 108. The term auction facility (TAF) program was instituted by the Federal Reserve to deal with the ________________________. This function means that the. The larger the simple deposit multiplier, The word that best describes the relationship between the required reserve ratio and the money supply is, A commercial bank can receive a loan from another commercial bank in the. 172. This increases the nation's money supply and expands the economy. Lowering the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply. Purpose and Functions (1994) describes how a change in the reserve requirement ratio affects bank credit and the money stock.4 Reserve requirements are the percentage of deposits that depository institutions must hold in reserve and not lend out. 177. Lowering the required reserve ratio _____ the simple deposit multiplier which will _____ the economy's money supply. If the Fed wants to decrease the money supply, it can __________ the required reserve ratio, conduct an open market __________, or __________ the discount rate. Monetary Policy: When a bank obtains a loan from the Fed, it follows that the, 79. 137. 169. If the required reserve ratio is 8%, checkable deposits (or the money supply), would _______________ by ________________ million, assuming that there are no cash leakages and that banks hold zero excess reserves. The discount rate is sometimes also known as the primary credit rate. Federal Reserve Notes held by the Fed are considered part of the, 103. It might offset the effect of this on the money supply by, Suppose the Fed forecasts a reduction in excess reserve holdings by banks. How The Fed’s Interest Rates Affect Consumers. It wants to determine its cash reserve requirement and it has calculated its Net Demand and Time liabilities as $1 billion. The president of the ________________________ holds a permanent seat on the FOMC. Raising the ratio is contractionary since less loans can be made, but this also solidifies banks' balance sheets. a. the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 127. When the Fed engages in quantitative easing, it alters ______________________ and when the Fed makes open market purchases it alters _______________________. This preview shows page 22 - 25 out of 38 pages.. 118. 150. When a check is written on an account at Bank A and deposited in Bank B, the reserve account of __________ will rise and reserves of the entire banking system will __________. Increases the total reserves in the banking system. Controlling the nation's money supply is the most important duty of the Federal Reserve. 168. If Bank A borrows from Bank B, reserves in the banking system __________. 145. Fractional reserve banking is a system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. 86. Lowering the required reserve ratio raises the simple deposit multiplier. 139. 125. 116. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Question: 1. Which of the following actions is most likely to lead to an increase in the money supply? Suppose that the current federal funds rate is above the federal funds target rate. When the Federal Reserve wishes to stimulate the economy, it lowers the reserve ratio. William Jennings Bryan, Secretary of State at the time of the passage of the Federal Reserve Act, argued in favor of having ______ district banks. 165. If the Fed lowers the discount rate (relative to the federal funds rate), banks will (likely) borrow __________ from the Fed, which will __________ reserves in the banking system, and eventually __________ the money supply. 91. Suppose that the Fed undertakes an open market purchase of $1 million worth of securities from a bank. If a bank has zero excess reserves and one of its creditworthy customers applies for a loan, the bank may be able to grant the loan if it can, 101. The Federal Reserve System began operations in, The Board of Governors of the Federal Reserve is comprised of. Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to 150% causes the M1 money multiplier to _____, everything else held constant. In its current execution of monetary policy, the Fed does not usually have a specific _____________ target, but rather it tries to target a specific ________________. 123. 151. 105. 10 percent, what is the A. amount of deposits any one bank must hold a. Suppose that a banking system has $10,000,000 in demand deposits and actual reserves of $1,200,000. 115. What would happen if the Fed bought U.S. bonds from, or sold them to, the banking system? 109. When the Fed purchases securities from a bank, it __________ reserves and ____________ the money supply. 153. The Fed lowers the required reserve ratio from 15 percent to 12.5 percent. . Open market purchases of government securities. When we speak of the Fed's responsibility to supervise member banks, we are saying that the, If the Fed purchases government securities from commercial banks, the reserves of the banking system will immediately, The funds the Fed receives from selling government securities, When the Fed is acting as fiscal agent for the Treasury, it will, When the federal government incurs a budget deficit, it will. If the Fed wants to increase the money supply, it can __________ the required reserve ratio, conduct an open market __________, or __________the discount rate. The Federal Reserve's monetary policy is one of the ways in which the U.S. government tries to regulate the nation's economy by controlling the money supply. Under a free banking arrangement, when people increase the demand for money a process would begin which would end with a(n) _________________ in the supply of money, ______________ government intervention. An open market __________ by the Fed increases the money supply; a(n) __________ in the required reserve ratio increases the money supply. 173. The commercial bank's reserves normally … e. purchases and raising the reserve requirement. 68. B. makes the deposit multiplier bigger. 89. To expand the money supply the Fed could lower the required reserve ratio, lower the discount rate, or purchase government securities. . 121. An increase in the legal reserve ratio: decreases the money supply by decreasing excess reserves and …
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