ECO Chapter 13

If Mr. Nguyen takes $650 from his savings account and hides it in his mattress in the form of cash, the immediate result of this transaction is that:

M1 increases by $650

If there is no minimum reserve requirement in the banking system, the potential ability of banks to create money is

Unlimited

Most market transactions are made using

Cash

Almost all Internet purchases are paid for by:

Credit card

If excess reserves are $50,000, demand deposits are $1,000,000 and the minimum reserve requirement is 5 percent, then total reserves are:

$100,000

Use the following balance sheet for XYZ Bank, which is one of many banks in a banking system. Table 13.1—XYZ Bank balance sheet ASSETS Total Reserves $50,000 Other Assets $150,000 LIABILITIES Transaction Accounts $200,000 Refer to Table 13.1. With a required reserve ratio of 15 percent, XYZ Bank would have excess reserves of:

$20,000

Suppose the entire banking system has $10 million in excess reserves and a required reserve ratio of 5 percent. The deposit-creation potential of the banking system is:

$200 million

Suppose a bank has $1,000,000 in deposits and a minimum reserve requirement of 20 percent. Then required reserves are

$200,000

Suppose the entire banking system has $70,000 in excess reserves and a required reserve ratio of 25 percent. The deposit-creation potential of the banking system is

$280,000

Refer to Table 13.2. With a required reserve ratio of 12 percent, Bank of the Universe would have excess reserves of:

$30,000

Suppose Caroline finds $10,000 under her bed and deposits it in her checking account. If the required reserve ratio is 25 percent, this deposit has the potential of increasing the money supply by

$30,000

Suppose a bank has $200,000 in deposits and a minimum reserve requirement of 15 percent. Then required reserves are:

$30,000

If excess reserves are $25,000, demand deposits are $100,000 and the minimum reserve requirement is 20 percent, then total reserves are:

$45,000

Suppose the entire banking system has a required reserve ratio of 0.20. How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system?

$5 billion

Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. Then required reserves are

$5,000

Suppose the entire banking system has $10,000 in excess reserves and a required reserve ratio of 20 percent. The deposit-creation potential of the banking system is:

$50,000

Use the following balance sheet for Bank of the Universe, which is one of many banks in a banking system. Table 13.2—Bank of the Universe Balance Sheet SAME VALUES AS ABOVE Refer to Table 13.2. With a required reserve ratio of 10 percent, Bank of the Universe can make new loans in the amount of:

$50,000

Suppose the entire banking system has $50 million in excess reserves and a required reserve ratio of 10 percent. The deposit-creation potential of the banking system is

$500 million

Use the following balance sheet for Bank of the Universe, which is one of many banks in a banking system. Table 13.2—Bank of the Universe Balance Sheet SAME VALUES AS ABOVE Refer to Table 13.2. With a required reserve ratio of 8 percent, Bank of the Universe can make new loans in the amount of:

$70,000

If excess reserves are $30,000, demand deposits are $500,000 and the minimum reserve requirement is 10 percent, then total reserves are:

$80,000

If total reserves for a bank are $10,000, excess reserves are zero and demand deposits are $100,000, then the money multiplier must be:

10

If total reserves for a bank are $25,000, excess reserves are zero and demand deposits are $100,000, then the money multiplier must be:

4.00

When an individual deposits cash or coins in a transactions account, there is

A change in the composition of the money supply, but not the size

The total quantity of output demanded at alternative price levels in a given time period, ceteris paribus is the definition of:

Aggregate demand

For a single bank in a large banking system, excess reserves are equal to the

Amount of loans a bank can make after meeting the reserve requirement

Constraints on deposit creation include all of the following except:

An increase in the money multiplier

Ceteris paribus, the money supply becomes smaller when:

An individual repays the money that he borrowed from a bank

The assets held by a bank to fulfill its deposit obligations are known as

Bank reserves

The reserve ratio is the ratio of:

Bank reserves to total transaction deposits

Money creation occurs when

Banks make loans to borrowers

Professor Williams tutors her next-door neighbor's son in economics. Instead of paying her for this service, the neighbor washes the professor's car. This is an example of

Barter

Money is functioning as a medium of exchange when you:

Buy lunch at a fast food restaurant for yourself and your friend

The basic money supply includes

Currency, transactions accounts and traveler's checks

Which of the following is not a function performed by banks?

Determining fiscal policy

Money is functioning as a store of value when you:

Decide to save your cash to pay for tuition next semester

LaTressa takes $230 from under her mattress and deposits it in her checking account. The immediate result of this transaction is that M1:

Does not change in value

Initially a bank has a minimum reserve requirement of 15 percent and no excess reserves. If $200,000 is deposited in the bank, then ceteris paribus:

Excess reserves will increase by $170,000

Which of the following has not served as a form of money for the United States

Eggs

If you deposit $1,000 in your checking account, your bank is only required to hold a portion of the deposit and is allowed to lend out the balance. This illustrates the concept known as:

Fractional reserves

One HEADLINE article in the text is titled "Goods Replace Rubles in Russia's Vast Web of Trade". According to this article, the Russian currency:

Is falling in value

Barter

Is the direct exchange of one good or service for another

When a bank makes a loan:

It creates a transactions-account balance for the borrower

Which of the following is not an essential characteristic of money

It is backed by gold or silver

Which of the following is not true about money?

It must be minted by the government in order to have value

Which of the following does not occur when a bank makes a loan?

It transfers money from spenders to savers

The reserve requirement directly limits the ability of banks to:

Make new loans

Which of the following functions like money but is not included in M1?

Money-market mutual funds

Money-market mutual funds are

Pools of money used to buy interest-bearing bonds

If there is only one bank in an economy:

Reserves never leave the bank

Banks do all of the following except:

Purchase stock

Money is functioning as a store of value if you

Put it in a savings account so you can buy a new car next summer

The term fractional reserves refers to

Reserves being a fraction of total deposits

Which of the following is not part of M1 but is included in "near money" according to the text?

Savings accounts

If money is used to transform current income into future purchases, it is functioning as a:

Store of value

Suppose Students Bank and Trust has zero excess reserves. If the required reserve ratio decreases:

The bank will be able to make more loans

Which of the following does not constrain deposit creation?

The decision by the Federal Reserve to reduce the minimum reserve requirement

Ceteris paribus, if Tamika pays off a loan at the bank then over time:

The money supply becomes smaller

Excess reserves are calculated as:

Total reserves minus required reserves

The overwhelming majority of the basic money supply in the U.S. is in the form of

Transactions accounts and currency in circulation

The smallest component of the basic money supply is in the form of

Traveler's checks

Money is functioning as a standard of value when you

Use it to compare two houses in different price ranges

Use the following balance sheet for Bank of the Universe, which is one of many banks in a banking system. Table 13.2—Bank of the Universe Balance Sheet Assets Total Reserves: $150,000 Other Assets: $850,000 Liabilities Transactions Accounts $1,000,000 Refer to Table 13.2. With a required reserve ratio of 15 percent, Bank of the Universe would have excess reserves of

Zero