Chapter 18

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Money today

is fiat money.

A commercial bank is defined as

a firm that is chartered to accept deposits and make loans.

The unit of account is defined as

an agreed upon measure for stating prices of goods and services.

As the central​ bank, the Federal Reserve System provides banking services to

banks and regulates financial institutions and markets.

Because the Federal Reserve System is a central​ bank, it provides banking services to

commercial banks.

An official measure of money in the United States is​ M1, which includes the sum of

currency plus checkable deposits.

Actual reserves are equal to

desired reserves plus excess reserves.

Banks can make loans as long as they have

excess reserves.

Money is any commodity or token that is

generally accepted as a means of payment.

Which of the following is a tool the Fed uses to adjust the quantity of​ money? i. The Fed can change the interest rate on loans to bank customers. ii. The Fed can change the discount rate on loans to banks. iii. The Fed can buy or sell government securities.

ii and iii

Money performs all of the following functions EXCEPT serving as a i. medium of exchange. ii. unit of account. iii. barter mechanism.

iii only

The discount rate is the

interest rate at which the Fed will loan reserves to commercial banks.

Banks create money by

making loans and creating​ deposits, a process that is limited by the size of​ banks' excess reserves.

Banks create money by

making loans.

Money serves as a

medium of​ exchange, unit of​ account, and store of value.

Open market operations are the

purchase or sale of government securities by the Fed.

Fiat money means

the government has decreed that something is money.

If you shop for a car online and compare car prices across​ dealerships, money is functioning as a

unit of account.

Suppose the desired reserve ratio is 10 percent. If Urban Bank has total deposits of​ $1000 and total assets of​ $10,000, the amount of desired reserves is

​$100.

The Commerce Bank of Beverly Hills has total deposits of​ $1,000,000 and total reserves of​ $220,000. The desired reserve ratio is 10 percent. The​ bank's excess reserves are

​$120,000.

A bank has deposits of​ $400, reserves of​ $50, and the desired reserve ratio is 7 percent. The​ bank's excess reserves are

​$22.

A bank has checkable deposits of​ $1,000,000, loans of​ $600,000, and government securities of​ $400,000. If the required reserve ratio is 5​ percent, the amount of required reserves is

​$50,000.

A bank has​ $250 in checking​ deposits, $1,000 in savings​ deposits, $1,200 in time​ deposits, $1,000 in loans to​ businesses, $400 in outstanding credit card​ balances, $800 in government​ securities, $25 in currency in its​ vault, and​ $25 in deposits at the Fed.The​ bank's reserves are equal to

​$50.

A new bank has reserves of​ $600,000, checkable deposits of​ $500,000, and government securities of​ $100,000. If the desired reserve ratio is 10​ percent, the amount of loans this bank can make is

​$550,000.

If the desired reserve ratio is 7 percent and a bank has​ $10,000 of​ deposits, then its desired reserves are

​$700.


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