Chapter 9

In the table above, the money supply measured by M2 is:

$1,725 billion.

A bank has $100,000 in checkable deposits and $30,000 in total reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

$10,000

In the table, assume that banks loan out all of their excess banking reserves, there are no cash withdrawals by depositors, and all loan proceeds are spent and redeposited as "new checkable deposits." The required reserve ratio is 20% or 0.2. What is the value of $B in stage 2?

$160

Money is any item that

serves as a medium of exchange for goods and services.

When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a (an):

store of value.

The deposit multiplier is the inverse of (or one divided by):

the required reserve ratio.

A bank is able to make new loans equal to _____________ and the banking system is able to make new loans equal to __________

total excess reserves of the bank; a multiple of total excess reserves of the system

In the banking system today, the bank reserves that banks hold against their deposit liabilities must take one of two forms. They are

vault cash and deposits at the Fed.

In the table, assume that banks loan out all of their excess banking reserves, there are no cash withdrawals by depositors, and all loan proceeds are spent and redeposited as "new checkable deposits." The required reserve ratio is 20% or 0.2. What is the value of $E in stage 4?

$2,952

If the required reserve ratio is 10%. What is the amount of Bolton Bank's required reserves?

$30 million

In the table above, the money supply measured by M1 is:

$450 billion.

In the table, assume that banks loan out all of their excess banking reserves, there are no cash withdrawals by depositors, and all loan proceeds are spent and redeposited as "new checkable deposits." The required reserve ratio is 20% or 0.2. What is the value of $C in stage 2 and 3?

$640

The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves?

$70 million

Assume that the required reserve ratio is 20%. What is the direct increase in excess reserves if a bank receives a $10,000 currency deposit?

$8,000

In the table, assume that banks loan out all of their excess banking reserves, there are no cash withdrawals by depositors, and all loan proceeds are spent and redeposited as "new checkable deposits." The required reserve ratio is 20% or 0.2. What is the value of $A in stage 1?

$800

Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that this bank can lend right now, following your deposit is:

$900

Suppose that a bank is "loaned up" and that the bank has total reserves of $80,000 and checkable deposits of $400,000, what must the the required reserve ratio (rrr) be?

20%

Which of the following statements is false about M1 and M2?

All the assets included in M2 are also included in M1.

Which of the following items serve as a medium of exchange in the United States?

I. $100 cash II. 50 euros III. the balance in your checking account IV. a $1,000 corporate stock that you own ANSWER: I and III

Which of the following is a consequence of deposit insurance?

It may induce the officers of a bank to take more risks.

Freema withdraws $1,000 from her checking account to put in a $1,000 time-deposit (CD). As a result of her transaction,

M1 decreases and M2 is unaffected.

The Fed's narrowest measure of money supply is

M1.

What happens when you withdraw cash from a bank?

The bank's reserves are reduced

A financial institution that accepts deposits, makes loans, and offers checking accounts is

a commercial bank.

The functions of money are

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

Which of the following is not a function of the Federal Reserve System?

a. It sets monetary policy. b. It acts as a central bank. c. It determines tax levels in conjunction with the U.S. Treasury. d. It acts as a banker to banks ANSWER: C

Which of the following is not an example of a bank's reserves:

a. deposits that banks have accepted from customers but have not loaned out. b. the value of federal securities it is required to have as reserves against loans. c. currency held in the vaults of the bank d. deposits with the Federal Reserve ANSWER: B

The unit-of-account function of money means that money is used

as a consistent means of measuring the value of things.

When an individual deposits currency into a checking account:

bank reserves increase, which allows banks to lend more and increases the money supply.

The principle of fractional reserve banking makes it possible for a

bank to make loans.

The deposit or money multiplier can be described as 1/the required reserve ratio (the inverse of the required reserve ratio). It can also be described by the formula:

change in checkable deposits ÷ change in total reserves

Which of the following is an example of a bank's liabilities?

checkable deposits

When banks hold more reserves than are required, such reserves are called

excess reserves.

A system in which banks hold reserves whose value is less than the sum of claims on those reserves (depoists) is called

fractional reserve banking.

When the actual (or total) reserve/deposit ratio exceeds the required reserve/deposit ratio banks:

issue new loans

The ease with which an asset can be converted to money is its

liquidity

If banks were required to keep 100% of deposits in reserves, they could:

make no loans.

Reserve requirements set by the Federal Reserve are the:

minimum value of the ratio of reserves to bank deposits that commercial banks are allowed to maintain.

Credit cards are

not money but debt.

The three main monetary policy instruments are

open market operations, reserve requirement ratio, and the discount rate.