Currency Paper Money Plus Coins Constitutes About

Question: Currency (paper money plus coins) constitutes about:

Answer: 43 percent of the U.S M1 money supply.

Question: In defining money as M1, economist exclude time deposits because

Answer: they are not directly or immediately a medium of exchange

Question: The money supply is backed

Answer: by the government's ability to control the supply of money and therefore to keep its value relatively stable.

Question: The purchasing power of money and the price level vary

Answer: inversely

Question: The Federal Reserve System was created in

Answer: 1913

Question: The Federal Open Market Committee (FOMC) is made up of

Answer: the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

Question: To say that the Federal Reserve Banks are quasi-public banks means that

Answer: they are privately owned but managed in the public interest

Question: The Federal Reserve System

Answer: is basically an independent agency.

Question: Commercial banks and thrift institutions

Answer: have become increasingly similar in the recent years

Question: Collateralized default swaps

Answer: insured holders of loan-backed securities in case they underlying loans were not repaid.

Question: The "shadow banking system" refers to

Answer: the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.

Question: Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008?

Answer: Prior to the rise in defaults, banks had become lax in their lending practices, resulting in a large number of bad loans.

Question: Some economist are concerned that he financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of

Answer: moral hazard

Question: Which of the following statements is correct?

Answer: A bank's liabilities plus its net worth equal its assets.

Question: A bank that has assets of $80 billion and a net worth of $10 billion must have

Answer: liabilities of $75 billion

Question: A bank that has liabilities of $150 billion and a net worth of $20 billion must have

Answer: assets of$170 billion

Question: The claims of owners of a firm against the firm's assets are called

Answer: net worth

Question: Which of the following are all assets to a commercial bank?

Answer: vault cash, property, and reserve

Question: Excess Reserves

Answer: the difference between actual reserves and its required reserves

Question: Commercial banks and thrifts

Answer: 6,000 commercial banks 8,500 Thrifts

Question: TARP

Answer: Troubled Assets Relief Program

Question: Balanced Sheet for a Bank

Answer: Assets=Liabilities+Net worth

Question: Reserve Ratio

Answer: commercial bank's required reserves/commercial bank's checkable-deposit liabilities

Question: Excess Reserve/ Required Reserve

Answer: actual reserves - required reservescheckable deposits- reserve ratio

Question: The Monetary Multiplier

Answer: 1/required reserve ratio