Chapter 13 economics
In the 2008 credit crisis, the FDIC increased the limit on insured deposits from
$100,000 to $250,000
Suppose a bank has $200,000 in deposits, a required reserve ratio of 10 percent, and bank reserves of $45,000. Then this bank can make new loans in the amount of
$25,000
Suppose a bank has $2 million in deposits, a required reserve ratio of 10 percent, and total reserves of $500,000. Then it has excess reserves of
$300,000
A single bank with $10,000 of reserves and a reserve ratio of 25 percent could support total transactions account balances of at most:
$40,000
Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are
$50,000
Banks make loans to which of the following?
All of the choices are correct.
Suppose University Bank has zero excess reserves. If the required reserve ratio decreases, the
Bank will be able to make more loans.
The banking system can lend the sum of its excess reserves because
Banks are required to keep only a fraction of deposits on reserve.
Which of the following could cause the money supply to decrease?
Banks become more conservative in making loans
When a bank makes a loan, it
Creates a transactions account balance for the borrower.
Which of the following statements is not correct about the US monetary system?
Credit cards are the most common form of money today.
Supposed Oscar withdraws $100 from his checking account and deposits it into his savings account. This transaction causes M1 to
Decreased by $100 an M2 to remain the same
Banks are required to keep a minimum amount of funds in reserve because
Depositors may decide to withdraw funds at any time.
In the 2008 credit crisis,
Home prices fell and caused home owners to default on loans.
The primary purpose of both the FDIC and the Savings Association Insurance Fund (SAIF) is to
Increase depositor confidence in the banking system
Which of the following is not true about barter?
It allows people to obtain more goods than they would under a money payment system.
Which of the following is not correct about the money kept in transactions accounts?
It is backed by gold held by the government.
Which of the following is true about the quantity of money in the US economy?
It is much greater than the amount of currency in circulation.
The various money supply measures (M1 and M2) are used to distinguish the
Liquidity and accessibility of assets.
Savings accounts are included in
M2 only
Which of the following is not a characteristic of money?
Mechanism for barter
Trusted money does all of the following except
Reduce the efficiency with which market exchanges take place
Suppose Jared takes $200 from his savings account and holds it as cash. The immediate result of this transaction is that M2
Remains the same and M1 increases by $200
When the reserve requirement changes, which of the following will change for an individual bank?
Required reserves, excess reserves, lending capacity
Money is functioning as a store of value when you
Save your cash to pay for tuition next semester.
Which of the following is not true about M1?
Savings accounts makes up approximately one-third of it.
Which of the following insures deposits of banks?
The FDIC
Which of the following gave the U.S. federal government permanent authority to issue money?
The National Banking Act of 1863.
Students Bank and Trust has zero excess reserves. Ceteris paribus, if the required reserve ratio decreases.
The bank will be able to make additional loans.
When cash or coins are initially deposited into a bank,
The composition of the money supply changes, but the size of the money supply does not change.
Which of the following is not a constraint on deposit creation?
The interest rate falls, making borrowing less costly for businesses and consumers.
Initially a bank has a required reserve ratio of 20 percent and no excess reserves. If $5,000 is deposited into the bank, then initially, ceteris paribus,
This bank can increase its loans by $4,000.
Which of the following explains why banks try to keep their holdings of excess reserves low?
To maximize profits.
Which of the following is a bank liability?
Transactions account balances.
One of the essential functions a bank performs is that of
Transferring money from savers to borrowers.
Money is functioning as a standard of value when you
Use it to compare two houses that are different prices.
The different components of the money supply reflect
Variations in liquidity and accessibility of assets.
Ceteris paribus, the money supply becomes smaller when
a loan is repaid to the banking system by a bank customer
Currency in circulation is included in
both M1 and M2
The money supply will grow even larger through deposit creation when
consumers, businesses, and government increasing their borrowing
One of the main functions of banks is
creating money
Which of the following is not included in the narrowest definition of the money supply or M1?
credit card balances
A bank may lend an amount equal to its
excess reserves
When money is used to acquire goods and services, it is functioning as a
medium of exchange
The minimum amount of reserves a bank is required to hold is known as
required reserves
The ratio of a bank's total reserves to its total transactions deposits is known as the
reserve ratio
Which of the following appears in M2 but not in M1?
savings accounts
When money serves as a mechanism for transforming current income into future purchases, it is functioning as a
store of value
Which of the following reflects the concept of fractional reserves?
the money multiplier is greater than 1
If bank customers decide as a group to pay off their loans and to not take out any new loans, ceteris paribus,
the money supply will decrease
