Chapter 10 and 11 Econ
What "backs" the US money supply?
The US Government's ability to keep the value of money relatively stable
The functions of money are to serve as a
Unit of account, store of value, and medium of exchange
A consumer demands money to hold as a store of value. This would be an example of the
Use of money as a measure of value
If the reserve requirement is 20%, how much in the new loans could The Embiggen Bank create? Reserves: $2,500 Loans:$3,500 Demand Deposits: $6,000
$1,300
Which of the following is not part of the M1 money supply?
Saving deposits
Under a fractional reserve banking system, banks are required to
keep part of their demand deposits as reserves
Banks create money when they
loan checkable deposits to businesses and individuals
The transaction demand for money is very closely associated with money's use as a
medium of exchange
If a commercial bank has no excess reserves and the reserve requirement is 10%, what is the maximum amount of money that the entire banking shyster can create from an initial deposit of $10,000 which came from a private citizen?
$10,000
Suppose that the federal reserve buys $400 billion worth of government bonds from the public. If the required reserve ration is 10%, the maximum increase in the money supply is
$4,000 billion
Assume Company X deposits $10,000 in cash in commercial bank A. If the reserve ration is 20%, Bank A can increase the money supply by a maximum of :
$8,000
A reserve requirement of 10% means a bank must have $1,000 of reserves if its checkable deposits are
10,000
If the reserve ration is 25% then the monetary multiplier for the banking system will be
4
What could be considered liquid money?
Currency, coins, checkable deposits
Which of the following is correct
Granting a bank loan creates money; repaying a bank loan destroys money
One major advantage of the medium of exchange function o money is that it allows society to:
Escape the complications of barter
Which of the following sequences of events would be expected to occur if there were a reduction in the supply of money?
Interest rates - increase Investment spending - increase Aggregate demand - increase
Banks can create money by
Lending excess reserves to customers
The money creating ability of the banking system will be less than the maximum amount indicated by the monetary multiplier when
People take their loans in form of cash instead of checkable deposits
What is the most liquid asset?
currency
Assume that the reserve requirement is 20%, but banks voluntarily keep some excess reserves. What would happen in fat Federal Reserve were to deposit $1 million into the banking system?
The money supply would increase by some amount less than $5 million
The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of
The reserve ratio
Which of the following is true about the federal reserve system?
There are 12 regional federal reserve banks
A consumer demands money to meet spending needs. This would be an example of
Transaction demand for money
The amount of money that the public wants to hold in the form of cash will
decrease if interest rates increase
Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 to 8 percent the money supply will
increase by less than double
In the narrowest definition of money, M1, savings accounts are excluded because they are
not a medium of exchange
If the federal reserve wanted to reduce the monetary multiplier, they should
raise the reserve ratio
In the US economy the money supply is controlled by
the federal reserve system
To say that the federal reserve banks are quasi-public banks means that
they are privately owned, but managed in the public interest
