Chapter 16

If the required reserve ratio is 5 percent, then the simple deposit multiplier is

20

Banks can continue to make loans until their

Actual reserves equal their required reserves

The statement, "My iPhone is worth $300" represents money's function as

a unit of account.

The discount rate is the interest rate the Fed charges on loans to:

bank

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

A fractional reserve banking system is one which banks hold less than 100 percent of _______ in reserves

deposits

If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.

increase; not change

The major assets on a bank's balance sheet are its

reserves, loans, and holdings of securities.

If the central bank can act as a lender of last resort during a banking panic, banks can

satisfy customer withdrawal needs and eventually restore the public's faith in the banking system

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

8,000

Which of the following best describes how banks create money?

Banks create checking account deposits when making loans from excess reserves.

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks

The most liquid measure of money supply is

M1

The M2 measure of the money supply equals

M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.

Which of the following is one of the most important benefits of money in an economy?

Money makes exchange easier, leading to more specialization and higher productivity.

The purchase of Treasury securities by the Federal Reserve will, in general,

increase the quantity of reserves held by banks

A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.

increases; increases

A decrease in the reserve requirement ________ bank reserves and ________ the money supply.

increases;increase

Banks can make additional loans when required reserves are

less then total reserves

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

The main tool that the Federal Reserve uses to conduct monetary policy is

open market operations.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

10,000

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's required reserves increase by

2,000

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

50,000

To decrease the money supply, the Federal Reserve could

conduct an open market sale of Treasury securities.

Which of the following is not counted in M1?

credit card balances

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

Open market operations refer to the purchase or sale of ________ to control the money supply.

U.S. Treasury securities by the Federal Reserve

The largest liability on the balance sheet of most banks is it's

Checking account and Savings account deposits of its customers.

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

Open market operations, discount policy, and reserve requirements