True or False problems.
1) To compute required reserves, you must multiply the required reserve ratio by the amount of transactions account balances on the bank's balance sheet.
2) In 1988 more banks failed than in any year since the Great Depression.
3) How well fiscal policy works depends on how much the velocity of money can be changed by government tax and spending decisions.
4) The Federal Open Market Committee impacts the economy via open market operations.
5) Without money, the process of acquiring services and goods would be much more efficient.
6) A horizontal aggregate supply curve causes higher inflation, instead of higher output, to result from increases in the money supply.
7) Only the federal government can create money.
8) When cash or coins are deposited in a transactions account at a bank, the size of M1 changes.
9) By increasing the required reserve ratio, the Fed can immediately decrease the lending capacity of the banking system.
10) The Fed now targets the federal funds rate instead of the money supply.
11) Transactions accounts permit for direct payment to a third party.
12) All checking accounts are transactions accounts.
13) Raising the reserve requirement decreases the money supply.
14) Open-market operations are the principal method for directly altering the reserves of the banking system.
15) When you pay off a loan at a bank, the money supply becomes smaller.
16) Regulations are a main constraint on deposit creation.
17) The federal funds rate reflects the cost for banks to borrow from the other banks.
18) The primary objective of Fed open market activity is to change the price of bonds and their yields.
19) When the Fed buys bonds, the money supply rises.
20) M1 is the most liquid form of money.
21) A change in the discount rate changes the size of money multiplier.
22) Because monetarists believe that output is sensitive to changes in the money supply, they suggest the money supply be allowed to grow at a constant rate.
23) If the minimum reserve ratio is 20 %, then $1 of reserves can support a maximum of $10 more in transactions deposits.
24) Each bank can lend an amount equavalent to its total reserves and no more.
25) According to the equation of exchange, total spending will increase if the money supply reduces and velocity is stable.
26) The reduction in the minimum required reserve ratio will decrease the money multiplier.
27) When cash or coins are deposited in the transactions account at a bank, the money supply instantly increases by the amount of the deposit multiplied by the money multiplier.
28) The reserve requirements and discount rates affect M2 though do not have much impact on M1.
29) As the price of a bond rises, its yield increases.
30) The banking system creates additional money by making loans equavalent to total reserves.
31) If banks are willing to make loans and consumers and businesses are willing to borrow money, this constrains the money supply.
32) The most profitable manner for a bank to maintain the minimum required reserves is to hold large amounts of excess reserves.
33) When someone takes out a loan at a bank, the money supply becomes smaller.
34) When the Fed buys bonds from the public, it reduces the flow of reserves to the banking system.
35) The globalization of money weakens the Fed's control over the money supply.
36) The success of Fed intervention depends in part on how well changes in long-term interest rates mirror changes in short-term interest rates.
37) If banks don't have enough reserves to satisfy the reserve requirement, they can borrow additional reserves in the federal funds market.
38) The liquidity trap exists as some portion of the money demand curve is horizontal.
39) The ability of the banking system to make loans depends on excess reserves and the reserve requirement.
40) The price of money is the interest rate.