1. The primary reason for the creation of the Federal Reserve System was:
- To reduce or eliminate future bank panics
2. Why was the Federal Reserve system set up with twelve Federal Reserve banks rather than one
central bank, as in other count
1. The players in the money supply process include all of the following except:
- The Treasury
2. Loans that the Fed makes to banks appear on the balance sheer as a part of its ASSETS, and
deposits made by banks appear on the Feds balance sheet
Chapter 19 Homework & Quiz
1. Calculate what happens to nominal GDP if velocity remains constant at 5 and the money
supply increases from $300 billion to $450 billion.
- Originally, nominal GDP is $1.5 trillion. After the money supply increases, nominal
1. Risk premiums on corporate bonds are usually anticycilical; that is, they decrease during business cycle
expansions and increase during recessions. Why is this so?
- As the economy enters an expansion, there is greeter likelihood that borrowe
1. What are the four components of planned expenditure?
- Consumption expenditure, planned investment spending, government purchases,
and net exports.
Why did Keynesian analysis emphasize the concept?
- Keynes viewed the total amount of output
1. If the next chair of the Federal Reserve Board has a reputation for advocating an even slower
rate of money growth than the current chair, what will happen to interestrates?
-Slower money growth will lead to a liquidity effect, which will rai
1. If the treasury has just paid a large bill to defense contractors and as a result its deposits with the
Fed fall, what defensive open market operation will the manager of the open market desk
- A defensive open market sale
Chapter 1 Why Study Financial Markets and Institutions? 1.1 Multiple Choice Questions
1) Financial markets and institutions A) involve the movement of huge quantities of money. B) affect the profits of businesses. C) affect the types of goods and services
Chapter 1: Thursday Jan/12
Money and Banking
Financial markets: market that channels funds from those who have an excess of available funds to those
with a shortage.
Moving money to those who doesnt have it .
It promotes economic efficiency.