Unit 4: Financial Sector

• Monetary Policy is created and executed by the: Federal Reserve.
• Which of the Federal Reserve Tools allows the Federal Reserve to manipulate the interest rate by the selling and buying of bonds or other securities? Open market operations.
• Which part of the Federal Reserve sets the reserve policy on purchase and sale of government securities? Federal Open Market Committee
• U.S. currency is 


  coins and paper money only.
• Banks in a fractional reserve banking system: are required to keep a portion of their deposits as reserves.
• If the current nominal interest rate is 5% and the current level of inflation is 6% , what is the real interest rate? -1%
• Some states pass laws preventing banks from charging interest rates that are considered too high.What are those laws called? Usury
• Why was the Federal Reserve Act created? Response to a banking crisis from the early 1900's resulting from pyramid reserves.
• When real interest rates move higher: the quantity of loanable funds supplied increases.
• Paper money in the U.S. has value because: people believe that the money holds value.
• Traveler's checks are counted as

  M1 money supply.
• Money is useful as a medium of exchange.Which of the following is the MOST accurate meaning of medium of exchange? Can be used to buy goods and services.
• What is it called when the government runs a deficit and some businesses stop borrowing because of the increase in interest rates? Crowding-Out Effect
• Suppose the Federal Reserve chose to increase the reserve requirement or to sell bonds to influence the economy. Which type of policy action is occurring? Monetary policy.
• Which of the following Federal Reserve tool(s) indirectly influences the federal funds rate?I. Open Market OperationsII. Reserve Requirement RatioIII. Discount Rate: I, II, and III.
• A financial asset that provides a share of ownership in a corporation is known as a: stock.
• The major difference between the nominal interest rate and the real interest rate is: the real interest rate takes into account inflation.
• The Beige Book refers to: information collected from regional banks on economic conditions.
• If the Federal Reserve sets the required reserve ratio at 10%, what is the value of the money multiplier in the banking system? 10
• Banks in Country X can set their own interest rates. How would a bank in this country set their nominal interest rates? Expected Real Interest Rate+Expected Inflation
• Juan Zom Cash has $1,000 in a demand deposit (checking) account at his bank. This money would be excluded from which measure of the money supply? M0
• Which of the following choices most accurately demonstrates the meaning of the term APR? Annual charge for use of money.
• During the banking crisis of 1907 many large banks failed. This caused small banks that had money on deposit in large banks to fail as well.This type of money and banking structure is known as: Pyramided Reserve.
• In a fractional reserve system, banks are required to hold a percentage (fraction) of their deposits on hand.Which institutions must follow this policy due to the Federal Reserve Act? All commercial banks, thrifts and credit unions doing interstate business.
• What are the main components of Money Demand? Transaction and Asset Demand
• The idea that an amount of money in the present is worth more than the same amount of money in the future is known as the: time value of money.
• In American society, the most common financial institution is: Commercial Bank.
• The Federal Reserve is the central bank of the United States
• Owner's Equity is listed in a T-Account: on the liability side.
• What is the formula used to calculate the money multiplier? 1 / ( Reserve Requirement )
• A bank decides to raise their nominal interest rate. Ceteris paribus, which of the following is most likely to occur? Real interest rates will increase.
• Bonds are essentially 


  long term loans.
• The Federal Reserve Board Chairperson is appointed by: the U.S. President.
• One of the Federal Reserve tools that allows the Federal Reserve to stipulate the size of its member banks reserves is: Reserve Requirement.
• Which statement best describes a mutual​ fund? An institution that sells shares to raise money by purchasing portfolio investments.
• The money supply will necessarily increase when: The Reserve Requirement falls.
• Interest: the price paid for the use of money.
• Monetary policy best fits with

  Keynesian Economics.
• Which of the following is the BEST example of the long run goal of monetary policy? Price Stability
• If the real interest rate is 3%, Which of the following situations would accurately reflect this rate?I. Nominal Interest Rate is 10%; inflation rate is 7%II. Nominal Interest Rate is 5%; inflation rate is 2%III. Nominal Interest Rate is 1%; inflation rate is 2%: I and II only.