Ch. 13 MGH: Money and Banks

True or false: Credit cards and mobile payment services are money.

False; they are a convenient way of obtaining a short-term loan from the financial institution that issues the cards.

Which of the following agencies has the authority to establish and vary the reserve ratio? The Secretary of the Treasury Congress The Federal Reserve Bank of America

The Federal Reserve

What is the money multiplier?

The number of deposit (loan) dollars that the banking system can create from $1 of excess reserves; equal to 1 ÷ required reserve ratio.

True or false: Mobile payments are not money.

True

True or false: Additional measures of the money supply (M2, M3, etc.) include the components of M1 plus some near money. True false question.

True; These other measures use M1 as a base then add near monies.

The banking system can increase the volume of loans by the total amount of excess reserves multiplied by the Blank______ required reserve ratio money multiplier excess reserves

money multiplier

A bank's reserves divided by its total deposits produces the deposit multiplier. lending ratio. required reserve ratio. excess ratio.

required reserve ratio.

The minimum amount of deposits that a bank is required by law to hold and not lend out is called its reserves required reserves profit excess reserves

required reserves

The ratio of a bank's reserves to its total transactions deposits is the loan amount reserve ratio fractional deposits assets

reserve ratio

What is a significant characteristic of fractional reserve banking? Banks can create money through lending. Reserves in bank vaults are 100% of the total money supply. Banks can earn interest through holding reserves.

Banks can create money through lending.

Which of the following is considered to be money? Currency Balances in transactions accounts Credit cards Mobile payment services linked to a credit card

Currency Balances in transactions accounts

Which of the following are components of the basic money supply (M1)? Currency in the hands of the public Money market mutual funds Savings deposits including money market deposit accounts All transactions accounts Traveler's checks

Currency in the hands of the public All transactions accounts Traveler's checks

What is store of value?

a means of holding purchasing power over time

What is fractional reserve banking?

banks keep some money on hand and lend out the rest

If an individual deposits into a checking account $100 that he/she had been saving in a piggy bank, how does the size of the money supply (M1) change? It increases the money supply by $100. It decreases the money supply by $100. It does not change the size of the money supply. It increases the money supply by more than $100.

It does not change the size of the money supply.

The narrowest definition of the money supply is checking accounts M1 cash M2

M1

Which of the following is not considered to be money? Mobile payment services Credit cards Currency Balances in transactions accounts

Mobile payment services Credit cards

Which of the following is considered to be money? Mobile payment services linked to a credit card Currency Credit cards Balances in transactions accounts

Balances in transactions accounts Currency

The constraint on deposit creation related to the willingness of consumers and businesses to continue accepting checks or debit cards rather than cash in the marketplace is: Willingness to lend Regulation Bank deposits Willingness to borrow

Bank deposits

What is a significant characteristic of fractional reserve banking? Banks are required to hold all deposits on reserve, so loans cannot be made, and the only way to increase the money supply is to print more cash. Banks are required to hold a fraction of deposits on reserve, so the excess can be loaned out, which will increase the money supply.

Banks are required to hold a fraction of deposits on reserve, so the excess can be loaned out, which will increase the money supply.

Are bitcoins money? Yes, because they are a liquid asset. No, because they are not a medium of exchange. No, because they are neither a store nor a standard of value. Yes, because they are a standard of value.

No, because they are neither a store nor a standard of value.

Reserve requirements are ______, meaning they are less than 100%. proportional multiple fractional additive

fractional

The maximum amount of money that a single bank can lend is equal to: its actual reserves. its excess reserves. its required reserves. its managers' limit.

its excess reserves

A bank will use your deposit as the basis for making a(n) __________ to somebody else.

loan

As long as something serves as a medium of exchange, a store of value, and a standard of value, it can be considered _________.

money

Currency held by the public plus balances in transactions accounts is typically referred to as bank balances money the interest rate money supply (M1)

money supply (M1)

M1 is a way of measuring the basic __________ supply.

money/monetary

Excess reserves times the money multiplier is equal to potential deposit creation. the initial deposit. required reserves. the money multiplier process.

potential deposit creation.

A withdrawal of cash will reduce the bank's transaction deposits but not change the total money supply increase the bank's transaction deposits and increase the money supply not change the bank's transaction deposits but reduce the total money supply reduce the bank's transaction deposits and decrease the total money supply

reduce the bank's transaction deposits but not change the total money supply

A smaller ______ means a higher money multiplier and greater potential deposit creation through loans. marginal propensity to consume excess reserve capital ratio required reserve ratio

required reserve ratio

One of the main functions of banks is to transfer purchasing power from ______ to ______. savers; spenders government agencies; spenders spenders; government agencies spenders; savers

savers; spenders

When money measures the prices of goods and services it is functioning as a: medium of exchange standard of value store of value

standard of value

The balance in your transactions account ______, and is therefore a form of money. substitutes for barter substitutes for cash is cash substitutes for savings

substitutes for cash

Deposit creation is the creation of cash by bank lending the creation of transactions deposits by bank lending the increase in wealth by bank lending

the creation of transactions deposits by bank lending

The ______ at alternative price levels in a given time period, ceteris paribus, is aggregate demand.

total quantity of output demanded

A bank account that permits direct payment to a third party (e.g., with a check) is called a cash advance transactions account savings account bank account

transactions account

The primary economic function of banks is to ______ from savers to spenders. transfer interest transfer money reduce spending transfer real income

transfer money

Money serves as a store of _______ that enables people to hold it for future purchases.

value

If a bank has $1 million in excess reserves, how much can this bank loan out? $1 million divided by the money multiplier $1 million $1 million times the money multiplier

$1 million

If a bank has total reserves of $100,000, transactions deposits of $100,000, and a reserve ratio of 50%, its excess reserves are $50,000 $150,000 $100,000 $75,000

$50,000

If a bank has total reserves of $110,000, transactions deposits of $100,000, and a reserve ratio of 20%, its excess reserves are $90,000. $80,000. $10,000. $88,000.

$90,000

Money is usable for buying and selling goods and is therefore considered what? A standard of value A store of value A medium of exchange

A medium of exchange

Banks perform TWO essential functions for the macro economy: Banks transfer money from savers to spenders by lending funds (reserves) held on deposit. Banks earn profits through making loans to individuals and businesses. The banking system creates additional money by making loans in excess of total reserves. Banks earn revenue for the government.

Banks transfer money from savers to spenders by lending funds (reserves) held on deposit. The banking system creates additional money by making loans in excess of total reserves.

Which of the following characterize near money? Can usually be withdrawn easily Do not function directly as a medium of exchange Are just like cash Are included in the M1 measure of money supply

Can usually be withdrawn easily Do not function directly as a medium of exchange

True or false: Bank balances come from cash deposits and direct deposits.

True

Which of the following statements best explains how the movement of reserves and deposits leads to the existence of the money multiplier? Reserves and deposits lost by one bank become reserves of another bank and reduce available excess reserves to be loaned. Reserves and deposits are lost from all banks due to bank loans, but money is created. Reserves and deposits lost by one bank become reserves of another bank and magnify available excess reserves to be loaned. Reserves and deposits lost by one bank are lost to all banks in the system.

Reserves and deposits lost by one bank become reserves of another bank and magnify available excess reserves to be loaned.

Which of the following represent functions of money? Something that enables people to transfer purchasing power from the present to the future. It provides government intervention in bartering although it is not as efficient. Anything that is acceptable for the payment of goods or services. It serves as a yardstick for measuring the relative worth of things.

Something that enables people to transfer purchasing power from the present to the future. Anything that is acceptable for the payment of goods or services. It serves as a yardstick for measuring the relative worth of things.

True or false: Banks create money by lending.

T

What are bank reserves?

Assets held by a bank to fulfill its deposit obligations

Which of the following is NOT an essential function for banks in the macro economy? Banks earn profits by giving loans to individuals and businesses. The banking system creates additional money by making loans in excess of total reserves. Banks transfer money from savers to spenders by lending funds (reserves) held on deposit.

Banks earn profits by giving loans to individuals and businesses.

Bitcoins are not considered money because they are not a savings account cash or currency a medium of exchange a store of value

a store of value

How much money people have directly affects their spending behavior and therefore aggregate demand fiscal policy full employment aggregate supply

aggregate demand

The total quantity of output demanded at alternative price levels in a given time period, ceteris paribus, is M1 M2 money supply aggregate demand

aggregate demand

At a maximum a bank may lend an amount less than its excess reserves. an amount equal to its excess reserves. an amount greater than its excess reserves.

an amount equal to its excess reserves.

Most money is not cash, but instead bank balances dollar bills held outside the country coins loans

bank balances

The four major constraints on money creation are desire for investment, willing borrowers, willing lenders, and government regulation. international finance, willing borrowers, willing lenders, and desire for investment bank deposits, willing borrowers, willing lenders, and government regulation international trade, wiling borrowers, willing lenders, and government regulation

bank deposits, willing borrowers, willing lenders, and government regulation

By definition, within a fractional reserve banking system, ______ are only a fraction of the total transaction deposits. investments bank reserves loans

bank reserves

Because money is a medium of exchange, society avoids paychecks barter trade the complications of having cash on hand

barter

The direct exchange of one good for another without the use of money is open trade market transaction marketplace barter

barter

On a T-account, the total assets must Blank______ the total liabilities. Multiple choice question. be equal to be unrelated to be greater than be lower than

be equal to

On a T-account, the total assets must ______ the total liabilities. be lower than be unrelated to be greater than be equal to

be equal to

Most money is not ______ but instead bank balances. checking account balances cash credit cards dollar bills held outside the country

cash

The concept of money includes more than just what?

cash

The lending process is what allows banks to: lower interest rates charge ATM fees raise interest rates create money

create money

Money supply (M1) equals ________ plus transactions deposits plus travelers checks.

currency or cash

When there is a reduction in lending, the money supply ______ and aggregate demand ______. decreases; increases increases; increases increases; decreases decreases; decreases

decreases; decreases

The constraint on deposit creation that is related to the willingness of consumers and businesses to continue accepting checks or debit cards rather than cash in the marketplace is bank __________.

deposit

Bank balances come from ______. the money multiplier deposits the money supply monetary transactions

deposits

A bank account that permits ______ is called a transaction account. money creation direct payment to a third party (e.g., with a check) deposits transfer of funds between two accounts (e.g., between a checking account and a savings account)

direct payment to a third party (e.g., with a check)

Which of the following are the four major constraints of money creation? use of credit cards government regulation willing lenders bank bailouts willing borrowers bank deposits

government regulation willing lenders willing borrowers bank deposits

A smaller required reserve ratio means a Blank______ monetary multiplier and Blank______ potential deposit creation through loans. Multiple choice question. lower; more lower; less higher; greater higher; less

higher; greater

When lending takes place, the money supply ______ and aggregate demand ______. increases; increases decreases; increases decreases; decreases increases; decreases

increases; increases

The banking system can increase the volume of ______ by the total amount of excess reserves multiplied by the money multiplier. interest savings cash loans

loans

How much ______ people have directly affects their spending behavior and therefore aggregate demand. money general knowledge savings economic literacy

money

Near ____________ refers to certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits.

money / monies

The ______ magnifies excess reserves into the larger creation of checkable deposit money. savings multiplier tax multiplier money multiplier spending multiplier

money multiplier