Chapter 4 ECO 3203 Problem Set

In the United States, the money supply is determined:

Jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held

The use of borrowed funds to supplement existing funds for purposes of investment is called

Leverage

The ratio of money supply to the monetary base is the

Money Multiplier

All are included in M1 except:

Money market deposit accounts

Credit card balances are included in:

Neither M1 or M2

Quantitative easing is most closely akin to

Open market operations

The currency-deposit ratio is determined by

Preferences of households about the form of money they wish to hold

In a 100% reserve banking system, if a customer deposits $100 of currency into a bank then the money supply

Remains the same

The amount of capital that banks are required to hold depends on the

Riskiness of the bank's assets

The size of the monetary base is determined by

The Federal Reserve

High powered money is another name for

The monetary base

Currency equals

The sum of coins and paper money

People use money as a unit of account when they

Use money as a measure of economic transactions

People use money as a medium of exchange when they

Use money to buy goods and services

In the United States, bank reserves consist of

Vault cash and deposits at the Federal Reserve

People use money as a store of value

When they hold money to transfer purchasing power into the future

To make a trade in a barter economy requires

A double coincidence of wants

Banks create money in

A fractional reserve banking system but not a 100% reserve banking system

Economists use the term money to refer to

Assets used for transactions

The reserve-deposit ratio is determined by

Business policies of banks and laws regulating banks

To increase the monetary base, the Fed can

Conduct open market purchase

The money supply will decrease if the

Currency-deposit ratio increases

When the Fed decreases the interest rate paid on reserves, it

Decrease the reserve-deposit ratio

Open Market Operations

Federal Reserve purchases and sales of government bonds