Financial Intermediation and Monetary Policy

Financial Intermediation

1. In direct financing, the lender… Trades money for the financial claim of the borrower
2. Which of the following is an example of indirect financing? … An SSU purchasing a financial claim from a commercial bank
3. Denomination intermediation is best exemplified by… issuing five $3,000 CDs and making one $15,000 loan
4. Maturity intermediation is best associated with… receiving funds in six-month CDs and offering thirty-year mortgage loans
5. All of the following are benefits provided by financial intermediaries, except: elimination of default risk

The Federal Reserve

6. Which of the following is not one of the original goals of the Federal Reserve? Maintaining the value of the U.S. dollar relative to gold
7. Which of the following are members of the Federal Reserve System? Board of Governors and Federal Open Market Committee
8. The primary tools of Federal Reserve monetary policy include all of the following except… Changes in the federal funds rate
9. The purchase of government securities by the Fed will… cause the money supply to increase
10. Increases in the Fed's assets…. Increase the monetary base
11. The monetary base will decrease when … the Fed sells securities on the open market.
12. In order to reduce the level of inflation, the Federal Reserve could…. Increase reserve requirements
13. The sequential process by which monetary policy expands economic activity is… the Fed's sale of securities; expansion of bank loans; decrease in interest rates; increase in investment spending
14. If the real rate of interest is 4%, actual inflation is 5%, and expected inflation is 8%.... The nominal interest rate is 12 percent
15. A decrease in the money stock by the Federal Reserve… will shift the supply of loanable funds to the right, increasing interest rates
16. As one expands the definition of money supply from M1 to M2, to M3 and L, … the liquidity of financial assets involved decreases.

Theories of Money

17. According to the quantity theory of money, represented by MV+PQ, an increase in money supply will cause… an increase in the level of inflation
18. Which theory of money supports that an increase in money supply will cause an increase in the level of goods and services produced by the economy?…. Keynesian theory
19. Which theory of money supports a stable growth of money supply and considers that the velocity of money is not constant?…. Monetarism
20. Which of the following members of the Federal Reserve System is in charge of securities? Federal Open Market Committee