4.The monetary system- part 2

the money supply is equal to ______ divided by ______ multiplied by B.

(cr + 1); (cr + rr)

A bank balance sheet consists of only the following items: Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?

+$1,000

The reserve-deposit ratio is determined by:

business policies of banks and the laws regulating banks

In a 100-percent-reserve banking system, banks:

cannot affect the money supply

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement

capital

The value of banks' owners' equity is called bank:

capital

The difference between banks and other financial intermediaries is that only banks have the legal authority to:

create assets that are part of the money supply

Liabilities of banks include:

demand deposits

Bank reserves equal:

deposits that banks have received but have not lent out

The interest rate charged on loans by the Federal Reserve to banks is called the:

discount rate

The use of borrowed funds to supplement existing funds for purposes of investment is called:

leverage

The banking system creates:

liquidity

Assets of banks include:

loans to customers

In a fractional-reserve banking system, banks create money when they:

make loans

High-powered money is another name for:

monetary base

The money supply will increase if the:

monetary base increases

In a system with 100-percent-reserve banking:

no banks can make loans

The ratio of the money supply to the monetary base is called:

the money multiplier

The size of monetary base is determined by:

Federal Reserve

Banks create money in:

a fractional-reserve banking system but not in a 100-percent-reserve banking system

In a system with fractional-reserve banking:

all banks must hold reserves equal to a fraction of their deposits

The monetary base consists of:

currency held by the public, plus reserves held by banks

The preferences of households determine the:

currency-deposit ratio

The money supply will decrease if the:

currency-deposit ratio increases

The most frequently used tool of monetary policy is:

open market operations

The currency-deposit ratio is determined by:

preferences of households about the form of money they wish to hold

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same

If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

reserves divided by rr

The amount of capital that banks are required to hold depends on the:

riskiness of the bank's assets

Financial intermediation is the process of:

transferring funds from savers to borrowers

In the United States, bank reserves consist of:

vault cash; deposits at the Federal Reserve