ECON HW 10

If the public switches from using cash for most transactions to using checks instead, then all else equal, the money supply will:

increase

Deposit insurance is a system in which the government guarantees that:

depositors will not lose any money even if their bank goes bankrupt.

A banking panic is an episode in which:

depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.

Two reasons savers keep deposits at banks are to:

earn a return on their savings and to facilitate making payments.

A bond is a(n):

legal promise to repay a debt.

Double coincidence of wants is avoided if money is used as a:

medium of exchange

When money is used to purchase goods and services, it serves as a:

medium of exchange

The M2 measure of money consists of the sum of:

M1, savings deposits, small time deposits, and money market mutual funds.

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

conducting open-market operations

All of the following are considered money in the United States EXCEPT:

credit cards

If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will ______ their loans based on current deposits, and the money supply will _____.

decrease; decrease

A higher real interest rate ______ investment spending and ______ consumption spending.

decreases ; decreases

When the Fed engages in an open market sale, the money supply ____ and the nominal interest rate ______.

decreases ; increases

Money serves as a basic yardstick for measuring economic value (a unit of account), allowing:

easy comparison of the relative prices of goods and services.

Firms that extend credit to borrowers using funds from raised from savers are called:

financial intermediaries.

When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:

increases by more than $1,000,000.

In a fractional-reserve banking system the reserve/deposit ratio equals:

less than 100 percent

If the actual reserve/deposit ratio equals 15% and the desired reserve/deposit ratio for this bank is 10%, the bank should:

make more loans in order to earn interest.

When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:

money is created

Monetary policy is _____ flexible than fiscal policy because monetary policy changes are made by ______, while fiscal policy changes must be made by ________.

more; the FOMC; legislative action

The Federal Reserve can increase the money supply by:

reducing reserve requirements

When the Fed sells government securities, the banks':

reserves will decrease and lending will contract, causing a decrease in the money supply.

If the Fed wishes to increase nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.

sale; decreases

The Federal Reserve System is:

the central bank of the US

Bank reserves divided by bank deposits is called:

the reserve/deposit ratio

The money supply will increase by a multiple of the increase in bank reserves created by the central bank unless:

there is 100 percent reserve banking.

There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:

$20,000,000

In Macroland there is $12,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ______ and the money supply equals _______.

$48,000,000; $54,000,000

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.

$9,000;$10,000

The money supply is 2,000 of which 500 is currency held by the public. Bank reserves are 150. The existing reserve/deposit ratio equals:

0.10

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.

12 ; 7 ; 12

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 10%. If the Central Bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from ______ econs to ______ econs, assuming that the public does not wish to change the amount of currency it holds.

5,000; 7,000

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:

a store of value

When the price of a pizza is quoted in dollars, this is an example of dollars serving as:

a unit of account

Money is:

any asset used to make purchases.

The components of M2 that are not also in M1:

are usable for making payments, but at a greater cost or inconvenience than currency or checks.

When an individual deposits currency into a checking account:

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

The direct trade of goods and services for other goods and services is called:

barter

To fight a recession, the central bank _______ government securities through OMO, which _____ interest rate causing spending by consumers and businesses to ____ and output to _____.

buys; decreases; increases; increases

In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.

buys; increases